Yasir Mehmood, Muhammad Bahzad Anjum, Mukhtar Ahmad The economy of Pakistan is largely dependent on agriculture, which contributes 20.9 percent to the Gross Domestic Product (GDP) and provides nearly 45 percent of employment to support 67 percent of the rural population. In this perspective, any shift in agriculture income can significantly affect the economy in general and rural people in particular. Therefore, the emphasis on agricultural policies is relatively a key phenomenon. Agricultural credit, as a policy option, is an important tool to achieve high productivity and increase the income of the farmers in multiple ways. The timely availability and uniform access to agricultural credit is crucial for getting maximum benefits or production. A majority of farmers, particularly small farmers, in Pakistan are not in a position to secure the essential inputs at the proper time from their own resources due to lack of credit. It is also observed that financial requirements of the farming community have increased tremendously during the last few decades, due to the extended use of hybrid seed, fertilisers, pesticides, mechanisation, increased irrigation charges and prices of inputs. To fulfill all these necessities, a majority of the farmers try to obtain loans from the formal and informal sectors. Apparently, the informal sector is not well developed in Pakistan and the loans granted by it are small (in amounts) and for a short period of time. On the other hand, the formal sector or institutional source, which includes cooperatives, Zarai Tarqiati Bank Limited (ZTBL), commercial banks, micro-finance banks and other domestic private banks provide agricultural credit facility to the farmers to meet their needs. The government also launches a 'one window operation during the sowing season to save time and root out corruption by the stakeholders and government officials. Against this backdrop, the ever-increasing demand of agricultural credit owing to the 2010 floods and torrential rains in the country, the Agricultural Credit Advisory Committee (ACAC) has allocated disbursement target of Rs 270 billion for 2010-11, as compared to Rs 260 billion that was fixed for the last year (see table). Out of the total target, Rs 181.3 billion were allocated to commercial banks, Rs 81.8 billion to ZTBL, and Rs 6.9 billion to the Punjab Provincial Cooperative Bank Limited (PPCBL). Target and Actual Disbursement of Agriculture Loan Actual Disbursement Name of Bank Target July-April July-March 2009-10 2010-11 2009-10 2010-11 5 Big Comm. Banks 124 132.4 85.2 93.3 ZTBL 80 81.8 49 37.4 DPBs 50 48.9 28.6 33.7 PPCBL 6 6.9 3.5 4.4 Total 260 270 166.3 168.7 Source: State Bank of Pakistan Pakistans economy is facing a disastrous situation in the shape of heavy debt. Reportedly, it has suffered a loss of approximately Rs 250 billion in the agriculture sector. According, to the World Bank, the 2010 floods have destroyed 17 million acres of agricultural land, and lost more than 500,000 tons of wheat and two million bales of cotton. In addition, 200,000 acres each of rice and sugarcane were destroyed and 100,000 heads of livestock have perished. Although an increase in the disbursement target is a healthy indicator towards the growth-oriented business, the issue of high markup/KIBOR has still not been highlighted on any forum. That is a matter of great concern for the farming community, especially small farmers. Usually, all commercial banks are charging the markup from 16 to 20 percent, which after addition with the principal amount effect the repayment behavior of the borrowers and eventually the loans are categorised into NPLs (non-performing loans) stages, like (OAEM, SS, Doubtful, Loss). The table above shows the role of institutional sources in disbursement, especially HBL, UBL, ABL, MCB, and NBP, which have large networks all over Pakistan and provide farm/non-farm loans to the farmers on three to five years of quarterly and half yearly installments. However, the markup is beyond the repayment worth of the loan borrowers. In this context, it is the need of the hour that the government design and adopt policies to rebuild the agriculture sector, as it used to be in the past, and improve Pakistans economy. Due to the importance of agricultural credit, it is suggested that the banks should bring down their markup rate on the loans and also reschedule, restructure and rollback their existing non-performing loans, especially in the flood-affected areas. n The writers are MSc and BSc (Hons) students, respectively. Email: yasirmehmood2@gmail.com