Abstract

This article entitled, “Impediments in the Disbursement of Micro-Credit among Small Farmers (a case study of lower Dir Khyber Pakhtunkhwa, Pakistan)” aimed to highlights the hindrances confronted to small farmers in micro-credit for agriculture production. The majority of the farmers are poor because of low agricultural production and income. The farmers are unable to increase the production of agriculture without the help of government support. The sample size of 152 respondents was selected according to the criterion design be Sakaran. The association between independent and dependent variables were analysed through the Chi-Square Test. The study inferred that high-financing cost; absence of access to miniaturized scale credit, inflexible standards, demeanour of the bank staff and lack of education were a portion of the preventions in the dispensing of micro-credit. Based on discoveries in the investigation, this was recommended that the administration should show a drive to give the smaller scale credit to little scope ranchers.

Key Words

Small Scale Credit; High-Interest Rate; Small Farmer; Illiteracy, and low Production.

Introduction

Pakistan is a developing country which depends on agriculture to fulfil their food needs and also provides raw materials for industries. The majority of about 66% of the population directly or indirectly related to this sector and 43.3% of labour force are employed in this sector. As compared to past this sector is developing more (5.0 during 2006-7). This agriculture sector is contributing 20.9% of the GDP. Agriculture depends on many factors for example availability of inputs, agriculture machinery, and the size of farm, credit, and education. From past history, it’s clear that agriculture credit plays a key role in the improvement of this sector. In Pakistan most of the farmers are poor. For whom, high-quality seeds, fertilizers and modern farm machinery are impossible, thus resulting in low production (Government of Pakistan 2006-7).

In Pakistan major portion of the farmers belongs to small ranchers having less than 12 acres. These small farmers are important because out of the total cultivated area of 40.76m acres, 19.79 m (48.56%) are under the control of these small farmers. There are 6.62 m in Pakistan, out of which 85.69 % (5.6 m) is cultivated by small farmers. In Punjab majority 85.39 (3.29) comes under the category of small farmers (G0P 2000).

Micro-credit means giving small loans to those people who are poor and because of his poverty they cannot produce credit. Hindrances in the way of credit are lack job facilities and lack of a history of credit (Ali et al, 2008).

A large portion of the credit necessity of the poor ranchers satisfies through casual assets (non-institutional) in rustic territories. Those ranchers who can't verify the proper principles and necessities gentlemen credit through the non-institutional way. There are different sorts of casual sources that give little credits to the ranchers. In these incorporates individuals from the family, family members, enormous landowners, businessperson and commission operators (Rauf, 2014). Normally the land masters offer credits to the poor little ranchers for the acquisition of these types of gear which is essential for the creation of yields. In the areas of Sindh and Punjab, the commission specialist gives cash to the little poor ranchers for the development of yields and returns they get some advantage after the creation. This sort is called interlinked exchanges (Ayaz at al, 2001). It is impossible to exactly calculate the prize of the loans and benefits. The second supplies of credit are common in the well-established market such as in the sector of transport and textile sectors. It also presents in the market of live-stock, dairy forms and shoemaking. In the census 2000 assess that in a rural area 65% of the credit is provided by the informal sources. It’s clear from the data that family members, relatives are the main sources of informal credit in rural areas. In another survey in the financial market concluded that 82% of individuals in the rural area take 69% of the total amount of funds through informal with easy conditions; schedules form friends and relatives mostly without interest (Sarwar 2000).  

Literature Review

The government of Punjab launched a micro-credit program in 1990 to enhance the production and socio-economic conditions of small farmers through Punjab rural support program (PRSP). The main objectives of this program are to provide credit mainly to the small farmer of the rural areas to improve the socio-economic condition which is ignored in the past. Through this program, the government tried to ensure the access of all farmers and provide credit to purchase seeds, chemical fertilizers to increase the level of production. This program has increased production and improved the living condition of small farmers. The poor farmers can get credit on time for the introduction of new technology and equipment. Various studies have done to know the positive aspect of loans. The data indicates that the provision of micro-credit increased the production level of the farmers and their financial position becomes well (Kazi and Raza, 2006). Several NGOs also initiated micro-finance programs for the people when they realized that the provision of credit is very important for the growth and income and production. In these, the programs two namely the AKRSP an organic pilot project in the city of Karachi was started small microfinance (Zeller, 1998). In this respect, the different NGOs also try to enhance the production of small farmers by providing credit. Examples are the National Rural Support Program (NRSP), the Sarhad Rural Support Program (SRSP), the Agha Khan Rural Support Program (AKRSP), and Sungei Development Foundation. ADBP is the largest source of providing credit to farmers among institutional sources (Shah & Muñoz, 2008).

There are a number of advantages of informal credit because it has no restrictions for any needs be use. These types of loans are small and also have fewer transitions costs, have no interest when these are taken from relatives and friends, and repaid disbursement of credit. Although informal way of micro-credit has decline to some extent, still it is a main and common source of the loan in rural areas. Face to face relation among the people and inability of formal institution the farmers mostly depend on the non-institutional method. In the Pakistani agriculture sector, most of the farmers are small with scare financial resources. Because of poverty and small landholding their production is low and they are not able to use modern technologies to increase desires output. The financial problem and low production the agriculture sector in Pakistan is poor which rise others social problems, like unemployment, poverty, crimes and scarcity of food, etc. So providing financial support to the farmers are necessary to get the necessary tools which are required for the farming( Javed et al, 2006).   




Micro-Finance Initiatives by NGOs

Several NGOs also initiated micro-finance programs for the people when they realized that provision of credit is very important for the growth in income and production. In these the programs, the two namely the AKRSP an Organi pilot project in the city of Karachi were started small microfinance. In initial, the credit to the poor people was not the port of this program. Agha khan rural support programs emphasised on capital formation, human capital growth. These were the basic elements of this program. But after some time the programmers realized that the growth and development of the farmers were impossible without the provision of the credit. They thought that for poor farmers and especially for women it is difficult to get money from the formal institutions because the procedure of getting money for these are a cumbersome task. Women’s participation was appreciated and as a result, they founded the first women organization in the northern areas. To promote saving among the poor people they introduced to save money in formal sectors. These saving were kept with banks, for private sectors it was not allowed. The saving was usually kept with Muslim commercial banks. The main problem face by the program is less experience of the stop members and dynamic nature of the programs. Form 1982 the program started many types of loans. AKRSP has struggled in designing its loan products. The balance of various types of things like social solidarity, easy access to credit source for its members, investment and survival of its development. The program has both types of loans for the short term and long term (Ayer & Westcot, 1985).

In the year 1996, another organization was founded which name is “Kasf Foundation”. This is the first specialized organization for microfinance funded by the German foundation. The agha khan rural support program also started their financial schemes and established own unit of financial performance on their survival patterns. The national rural support program was started in the city of Rawalpindi in the name of UPAD) to remove poverty in the selected area. In the year 1998, some of the NGOs came together with each other form an association started a project of micro-finance called the micro-finance group of Pakistan. The group in 2001 emerged into formal form in the name of the “Pakistan microfinance network” PMN. The formal institute paid attention especially to the performance capacity building and progress in this sector (Khalid et al, 2002).




Initiatives by Government

In past, government made little distinction between microlending and agriculture. The main objective was to giving money

to helpless farmers. Before the birth of Pakistan, small loans were provided to the people by the government in the name of

taccavi loans which were given first after the “foundation of cooperative and commercial banks” came into crop and different types of agriculture loans. This money was distributed through the department of revenue given by the central government treasury. These loans were given for the purchase of seeds and fertilizers by revenue agencies. These types of loans are released in unfavourable condition like, in flood or famine etc. These loans were provided on the basis of interest. If the recipients are not able to pay the interest, it would be removed. These rules and regulation are made for these loans under the act of improvement loan 1883 (LILA) and agriculture act (ALA) 1884. Under the act, credit is released to help the farmers in the introduction of modern tools, irrigation of wells, tube wells and the levelling of soil and for improving of production. After the independence, this was replaced by West Pakistan Agriculture Loan Act of 1958 (ALA). Through LILA, money was provided for the constructions of irrigation wells, tube wells, soil levelling and land reclamation and development. After the development of new institutions, the contribution of the mention institution has declined with the passage of time. The complicated procedure of realising the money and drawback of disbursement of loans negatively affects the whole process of Taccavi ultimately these funds were stopped in 1993-94 (Iqbal et al, 1993).

In the year of 1950 in Pakistan, two formal institutions were founded namely agriculture development finance corporation and agriculture bank. But after some time in the year of 1961, the agricultural developmental finance corporation merged in the agriculture bank. The history “Agriculture development finance corporation” revealed that they provide credit to the people on low interest as compared to the other institutions. Various approaches are made like, clients and villages approach through this the bank provides services of credit to the people by MCOs (mobile credit officers). Many branches of this bank are opened all over the country to provide special services to the people. The bank also introduced programs for women through female credit officers. The bank also started different reforms in the procedure of realising credit to the people. The procedure was made easy and every citizen now able especially the women to get small loans from the bank. Before this reform, it was difficult to get loans especially for the poor neglected farmers, landless, tenets and women. Although the programs were started on a large scale to achieve the desires results but failed to some extent. There are various reasons for its failure. The bank did not give attention to the basic infrastructure in instead they give attention to the other viable financial sector. Providing chief money to rural people to improve their conditions was ineffective through this program. Because the old traditions and technology still existed in the less developed areas of the country. Due to the history in the decade of 80 most of the credit provider institutions and investors did not like to give credit for this purpose. The majority of critics said that this program did not improve the condition of the poor people. Few poor people got some benefits from it. The program also depends on outside funding which weak their existence. The performance of the bank was also not good. In the light of these demerits, this was closed by the govt. The “Agriculture development bank of Pakistan” was converted and merged into a public limited company and its new name was Zarai Taraqiate Bank (Fayaz, Jan & Hussain, 2006).




Rationale of the Study

The basic rationale and objective of the study were to investigate the perception of small farmers in respect of micro-credit. The study also explored what kinds of hurdles were confronted with farmers in the targeted area. The study was more influential with respect to highlighting the obstacles faced by small farmers even have an easy access to micro-credited.

Table 1. Conceptual Frame Work

The conceptual framework for the study was designed in the following way

Independent Variable	Dependent Variable
·         High-Interest Rate	Small Scale Credit( Micro Credit)

Research Methodology

This section contains, for the most part, the strategy which the analyst will receive during this investigation, its containing theoretical system, the universe of the examination, test size, instruments of information assortment and philosophy for information examination. The universe of the study was the valley of Maidan in district lower Dir of Khyber Pakhtunkhwa, Pakistan. In Maidan, there were three union councils Kotkay, Hayasari, and Lal Qilla which was purposively selected from the universe of the study. The acquired populations according to criteria were selected from those members who have their livelihood through agriculture as well as the beneficiary of micro-credit. The total population size comprises of 250 respondents, in which only 152 respondents were selected for data collection according to Sekaran (2003).  For the method of data collection, the researcher used stratified random sampling on the basis of collecting the relevant data from targeted respondents. The area of Maidan is wide and it was not possible to study the whole area. That is why the researcher used purposive sampling for data collection (Bailey 1987). Three union councils namely Kotkay, Hayasri, and Lal Qilla were selected through purposive sampling. The researchers used proportional allocation method for the break off sample size that requires to be selected from the universe of study.

ni = n.Ni

         N

 

Table 2. Division of Sample Size

S.No	Tehsils	Farmers Households	Sample Size
1	Kotkay	120	73
2	Lal qilla	80	49
3	Hayasri	50	30
4	Total	250	152

Source: Agriculture bank Timergara.        

The questionnaire and interview schedule were used for data collection. The questionnaire was used for educated farmers while the interview schedule for un-educated farmers. This method was used to obtained relevant data from respondents the questions were conceived by utilizing the Likert Scale while keeping in see the technique contrived by factor and independents variable separately (Smith, 1981).

The gathered information was broken down through utilizing appropriate measurable methods for example univariate and bivariate level separately. The bivariate levels, Chi-square ?2 test was utilized to decide the connection between dependent and independent variables.

“ Chaudry and Kamal (1996)

                = Total of ith row

                = Total of jth column 

 and = Represent the observation and expected values”.

Results and Discussion

Uni-Variate Analyses

This part of the section manages the uni-variate examination of free factors (high interest rate) and dependent variable (micro-credit). This section explains the perception of respondents in frequency and percentage.

 

Table 3. Respondents Attitude Towards High Interest Rate

Statements	Total	Yes	No	Don’t Know
Are you satisfied from the interest rate?	152	6(3.9)	138(90.8)	8(5.3)
Are you paid interest ever in your life on micro-credit?	152	122(80.3)	30(19.7)	0(0.00)
Is it convenient paying profit on loan to bank?	152	15(9.9)	119(78.3)	18(11.8)
Is it possible to you to give profit on loan to bank in case of lost in business?	152	14(9.2)	124(81.6)	14(9.2)
Is there any chance of pardon of laon?	152	12(7.9)	105(69.1)	35(23.0)
Are you agree that interest is the main hurdle in the way of micro-credit?	152	112(73.5)	40(26.5)	0(0.00)
Do you wish that govt should remove interest on micro- credit for small farmers?	152	140(92.1)	1(.7)	11(7.2)

Qualities in every cell show recurrence while estimation of bracket demonstrated rate.

 

Respondent’s Attitude Towards High-Interest Rate

It is the responsibility of the government to provide small loans to the poor farmers on concessional profit. Agriculture is considered the backbone of the economic sector in Pakistan. Nearly 70% of the population directly depends on agriculture ((Ali 2008).

The above table depicts that 90.8% of the respondents were not satisfied due to the high-interest rate and the rest of 3.9 % were satisfied in this regard. Along with it, 5.3 % of respondents opined that they do not know something about micro-credited out of total 80.3% of the respondents were paid interest ever in life on micro-credit while, 30 % were not paid any interest in this respect. Moreover, 78.3% of the respondents were not considering the convenience to pay profit to loan. In the context of convenience on paying 9.9 % showed that really there is convenience in paying profit to loan. Out of the total, 81.6% of the respondents were not in the position to pay profit to the bank in case of loss in business. 69.1% of the respondents were of the view, that there is no chance to pardon loans from the banks. Furthermore, out of a total of 73.5% of the respondents agreed that high-interest rate is the main hurdle in the way of the disbursement of micro-credit. These study findings fully support the finding of Rauf (2014) that the high-interest rate on micro-credit is confronted and burning issues in the releasing of money. Apart from this 26.5 % were not agreed in the respect that interest rate is a big hurdle in the way of micro-credit. In the last 92.1% of the respondents wished to remove interest from micro-credit and 0.7 % opined that not to removed interest from micro-credit. Along with this 7.3 % claimed that they do not know about all these processes and technology.

 

Bi- varite Analysis

Association between dependent small scale credit (micro-credit) and independent variable (high-interest rate) was worked out through the chi-square (c2) test. This kind of investigation prompts delineating arouse with respect to information through a relationship between wards variable and independents variable respectively.

 

Table 4. Association Between High-Interest Rate and Micro-Credit

High Interest Rate	Perception	Micro Credit			Total	Chi-Square (P-Value)
		Yes	No	Don’t Know
Are you satisfied with the interest rate?	Yes	4(2.6)	2(1.3%)	0 (0.00)	6  (3.9)	c2=4.989 (0.288)
	No	43(28.3)	93(61.2)	2(1.3)	138 (90.8)
	Don’t know	1(0.7)	7 (4.6)	0 (0.00)	8  (5.3)
Are you paid interest ever in your life on micro-credit?	Yes	39(25.7)	81(53.3)	2(1.3)	122(80.3)	c2= 0.568 (0.753)
	No	9 (5.9)	21(13.8)	0(0.00)	30(19.7)
Is it convenient paying profit on loan to banks?	Yes	7(4.6)	8(5.3)	0(0.00)	15(9.9)	c2= 8.339 (0.80)
	No	31(31.4)	86(56.6)	2(1.3)	119(78.3)
	Don’t know	10(6.6)	8 (5.3)	0 (0.00)	18(11.8)
Is it possible for you to give a profit on loan to the bank in case of lost in business?	Yes	4(2.6)	10(6.6)	0(0.00)	14(9.2)	c2=0.624 (0.960)
	No	39(25.7)	83(54.6)	2(1.3)	124(81.6)
	Don’t know	5(3.3)	9(5.9)	0(0.00)	14 (9.2)
Is there any chance of pardon of laon	Yes	6(3.9)	6(3.9)	0(0.00)	12(7.9)	c2=2.950 (0.566)
	No	32(21.1)	71(46.7)	2(1.3)	105(69.1)
	Don’t know	10(6.6)	25(16.4)	0(0.00)	35(23.0)
Are you agree that interest is the main hurdle in the way of micro-credit?	Yes	99(65.0)	13(9.0)	0(0.00)	112(73.7)	c2=4.135 (0.034)
	No	32(21.0)	8(5.0)	0(0.00)	40(26.3)
	Don’t know	0(0.0)	0(0.0)	0(0.00)	0(0.00)
Do you wish that govt should remove interest on micro credit for small farmers?	Yes	42(27.6)	96(63.2)	2(1.3)	140(92.1)	c2=3.410 (0.492)
	No	2(1.3)	0(0.00)	0(0.00)	1(0.7)
	Don’t know	5(3.3)	6(3.9)	0(0.00)	11(7.2)

“Table values in each cell indicate frequency while value of parenthesis indicated percentage”.

 

Association between High-Interest Rate and Micro-Credit

The Government of Pakistan provides micro-credit to increase the production level of the farmers. On micro-credit interest is taken by the government. The farmers do not like to take micro-credit because of the high-interest rate (14.5%) per year.

The aforesaid table showed that a significant association (p=0.034) was found amid high-interest rates and micro-credit. This is really very important that agriculture-based economy countries in the world are confronted such as the issues while releasing micro-credit loans from banks (Iqbal, 1999). However, non-significant (p=0.288) association was disclosed between micro-credit and satisfaction of the farmers relating to high-interest rates. The farmers were not ready to pay such a high-interest rate. Similarly, non-significant (p=0.753) relation was disclosed between micro-credit and with opinion interest paid by the farmer ever in life on micro-credit. Furthermore, the results showed that the relationship of micro-credit was non- significant (p= 0.80) with the convenience of farmers paying profit on loan to a bank. There was also a non-significant relation (p=0.960) between micro-credit with the opinion to give profit on loan to the bank in case of loss in business. Moreover, a non-significant (p=0.566)) relationship was found between micro-credit and the chance of pardon of loan. In last the relationship between micro-credit and wish of the people to remove micro-credit was also non-significant (p=0.492). The findings support the statement of Govt. of Pakistan in this respect that small farmers are not in the position to increase the use of inputs without the help of external help or micro-credit (Govt. of Pakistan 2006). In this respect, the various NGOs also try to enhance the production of small farmers by providing credit. Examples are the National Rural Support Program (NRSP), the Sarhad Rural Support Program (SRSP), the Agha Khan Rural Support Program (AKRSP), and Sungei Development Foundation. ADBP is the largest source of providing credit to farmers among institutional sources (Shah & Muñoz, 2008). It is concluded from the above results that high-interest rate is the main hurdle in the way of the disbursement of micro-credit. It is necessary for the government to remove complaints of the people regarding the high-interest rates. The ratio of interest is very high and above the range of small farmers, that is why they have no interest in small scale credit or microcredit. This is concluded that high-interest rate upon small scale credit is a huge hurdle and obstacle in the way to promote the agriculture sector towards betterment and product orientation. These dilemmas need the concentration of high authorities and officials of the concerned department to revise the law in this respect for small scale farmers.

Conclusions and Recommendations

The study was conducted in Maidan village of District Lower Dir to determine the “impediments in the disbursement of micro-credit among the small farmers”. The study inferred that the greater parts of the ranchers were unskilled and their income was also low. Moreover, the majority of them were married and belonged to nuclear and joint families. They were small farmers because their lands were less than 12 acres and they wanted to take micro-credit for the betterment of the agriculture sector. But there are some factors which hinder the process of taking microcredit. Among these factors, one was the high-interest rate which made it difficult to take micro-credit. The lack of education and unawareness among the farmers and access to micro-credit also considered important factors by these farmers. Moreover, the negative attitude of the bank staff and lengthy procedure of taking micro-credit made it a cumbersome task for the people to take micro-credit from the micro-credit institutions. Also, the study recommended that the administration should show a drive to give and accessible the smaller scale credit to little scope ranchers effectively on their doorstep to increase the level of productivities.

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