Source structure and utilisation of rural credit and allied problems in Pakistan

Abstract

In this study an attempt has been made to look at the effectiveness of credit in the process of agricultural development, given the existing source structure and utilisation patterns of rural credit in Pakistan. The study focuses on the borrowing behaviour of the small farm and tenant farm categories, relative to the other farm categories in Pakistan. In the light of the economic, socio-cultural, historical and religious background of the area, the study identifies a set of factors that could affect the productive utilisation of credit. The study, using data from a large benchmark survey - the Rural Credit Survey of Pakistan, 1972-73 - looks specifically at: 1) the problem of differential 'access’ to sources of credit 2) the role of institutional credit 3) the extent, nature and scope of non institutional credit 4) the utilisation patterns of credit, especially the relative importance of credit utilisation for purposes of current on farm expenditure and for consumption expenditure and expenditure on s.ocial ceremonies. The analysis was severely constrained by limitations of data, arising out of the survey questionnaire design, the range of data available from the survey for analysis and the form in which it was available. In the light of these data constraints the study finds that 'access' to institutional credit is dominated by the large farm and owner farm categories and that institutional credit plays a small almost insignificant role in the borrowing of the small farm and tenant farm categories. As a corollary to the dominance of non institutional credit, the study finds the existence of large scale (over 86 per cent of total) borrowing at zero rate of interest (nominal and explicit). The study also finds that credit utilisation for purposes of current on farm expenditure is relatively low in all farm categories, whereas credit utilisation for purposes of family consumption and for social ceremonies is relatively much higher, especially in the case of the small farm and tenant farm categories. The findings of this study seem to support the assertion that non institutional credit is largely "non productive" and in-the existing set up, credit on the whole is not playing its desired role in agricultural development. The study highlights the constraints that exist to the effective utilisation of credit, the removal of which can hopefully lead to a catalytic role of credit in the overall agricultural development of Pakistan.