Institutional Credit: A Policy Tool for Enhancement of Agricultural Income of Pakistan

Credit is an important instrument in enabling fifarmers to acquire commands over the use of working capital, fixed capital and consumption goods. After the emergence of green revolution, there have been overtime changes in crop production technology, so credit requirements have increased for both inputs for crop production and farm investment. The small farmers, with a limited ability to finance investment, have become the logical target group for loans advanced by the credit institutions. Various policy measures were initiated in successive five years plans to meet the real challenge of reaching the needy farmers with credit. Thus the total amount of agricultural credit reflected thirteen folds increase in 2001-02 over 1980-81. The credit disbursed was Rs.80.2 per cultivated acre and Rs. 84.2 per cropped acre in 1980-81 and it increased many folds in 2001-02 and reached Rs. 939 per cultivated acre and Rs. 938 per cropped acre in nominal term. In real term it increased from Rs. 80 to Rs. 191 per cultivated acre and Rs. 84 to Rs. 191 per cropped acre during the same period. The coverage under disbursement of institutional credit was only 1.24 percent of the farms upto 5.06 hectares. According to regression results for all considered equations, agriculture credit contributed positively and significantly in agricultural income. The estimated elasticity was 0.36. Despite constant increasing trend in disbursement in nominal term, the loans were not expanded in qualitative term. So, this is a challenging issue for the policy maker to develop measures to improve efficiency of agricultural credit system by providing it to the needy farmers