A Critical Review of Rural Credit Policy in Pakistan (Issues IN RURAL Development) (Report‪)‬

Lack of liquidity which acts as a constraint for agricultural development has provided a rationale for rapid growth in formal agricultural credit in Pakistan since the early 1960s. Between 1959-60 and 1991-92 institutional credit for the sector had registered an annual growth rate of 31 percent in nominal terms and 20 percent in real terms. The explosive increase in agricultural credit was accompanied by a creation of new financial institutions, the strengthening of already existing institutions and the adoption of credit policies to increase the flow of credit for the sector in general and for small farmers in particular. In this paper, an attempt is made to review farm credit policy in Pakistan in relation to its impact on agricultural growth and equity and to assess the strength of the credit institutions to keep contributing effectively to the provision of credit in the rural sector. Credit is an important instrument in enabling farmers to acquire command over the use of working capital, fixed capital and consumption goods. In the wake of the Green Revolution, credit requirements have increased for both inputs for crop production and farm investment. The small farmers, with a limited ability to finance investment, are the logical target group for loans advanced by the credit institutions. In view of the large credit requirements for lumpy investments, large farmers also need to be serviced by the credit system. Due to the important and increasing role of the non-farm sector as a source of employment in rural areas, the need to cater to credit requirements of this sub-sector has also been a motive factor for the reorientation of the rural credit system in Pakistan.