Role of Agriculture banks and Commercial Banks, providing loan for agricultural purpose, in the development of Baluchistans economy

Research Proposal Presented by: Zarak Khan Pashmina Kamal Muhammad Harris Amna Manzoor

Abstract:
In the developing nations agriculture sectors plays an essential role in the economic development. Pakistan is an agricultural country where most of its goods exported to the globe consist of agricultural goods. One can not neglect Baluchistan when talking about the agriculture of Pakistan, the livestock in the province has large potential plus some measures are required to increase its farm productivity. The study is wholly based on the banks role, whether its the commercial or agriculture bank, in uplifting the countrys economy generally and Baluchistans specifically. The aim of the study is to know how the sector has helped the economy in the past and what measures can be taken in the future to improve the economy. Special concern is paid to the countrys only agriculture bank in improving the economy of Baluchistan and what are the products that have helped in poverty reduction in the past, or improving other aspects of the economy. The countrys agricultural policies are compared with the other neighboring countries to identify the flaws in the policies and to learn from the policies of the countries such as India, China and Bangladesh. Population consists of all the banks operating in Quetta in providing support to the agricultural sector; sample consists of the only agricultural bank in the country and five other commercial banks.

TITLE OF THE STUDY:....................................................................................4 BACKGROUND OF THE STUDY:......................................................................4 SIGNIFICANCE OF THE STUDY:.....................................................................4 RESEARCH QUESTIONS:-...............................................................................5 RESEARCH OBJECTIVES:- .............................................................................5 LITERATURE REVIEW:-..................................................................................6 RESEARCH METHODOLOGY:........................................................................14 POPULATION SIZE: ..............................................................................................14 SAMPLING DESIGN:..............................................................................................14 SAMPLE SIZE:....................................................................................................14 DATA COLLECTION METHOD AND TOOLS:...................................................................14 REFERENCES: ...............................................................................................15

Title of the Study:

Role of Agriculture banks and Commercial Banks, providing loan for agricultural purpose, in the development of Baluchistans economy

Background of the Study:

While most of the developed countries have moved from the agrarian economy to the industrial economy, yet the developing and under developed countries drastically rely on its agricultural sector. Most of the population of such developing and underdeveloped economies lives in the rural regions of the country. According to the World Banks survey nearly 75% of the south Asian countries lives in the rural areas, and nearly 70 percent of this statistics lives in poverty (World Bank 2011). The source of income for these rural people is via agriculture, they are affiliated with it directly or indirectly. If we take a glance of Pakistans economy more than half of the countrys population lives in rural areas, comprising 68 percent of the work force works in the agriculture fields (Pakistan census 1998) In the early decades, after its independence, the countrys GDP highly relied on the agricultural sector but with the passage of time its role declined and now it is the second largest contributor to the GDP accounting for 22% of the GDP (world bank 2011)

Significance of the study:

Realizing the role of Agricultural sector in the development of economy, the report has significance in many aspects. It will enhance the reader to know the importance of agriculture in uplifting the countrys economy and specially the Baluchistans economy. It will highlight the role that the agriculture sector has played to empower the poor people, the role to reduce poverty in the province, lowering the poverty and how it played its part in lowering the unemployment rate. 4

The study will also emphasize on the poor policies adopted by the sector, which can be improved by adopting the successful techniques adopted by the neighboring countries. Apart from this, the report will also help the reader to know about the barriers thats stopping the development in the province.

Research Questions:1. What percentage of Baluchistan population is dependent on the Agricultural Sector? 2. What is the percentage of Loan taken for the agricultural purpose in Baluchistan? 3. How the Agricultural bank (ZTBL) and commercial banks (giving credit for agricultural purpose) has helped in developing the rural regions of Baluchistan? 4. Is the agriculture bank (ZTBL) and other commercial banks fully satisfying the needs of agriculture in Baluchistan? 5. What measures and agricultural policies have been adopted by ZTBL and other commercial banks in the past to support the economy? 6. How the agricultural sector can support the economy is the future? 7. What are the barriers stopping the implementation of agricultural policies?

Research Objectives:The objectives of the research is to learn the role of banks most importantly Zarai Taraqiyati Bank Limited (ZTBL) in the agricultural development of Pakistan. The basic aim is to study the policies and strategies regarding the province and special measures, (if taken) in the proposed field. As agriculture is the largest sector in the economy accounting for 22% of GDP of Pakistan. Secondly Baluchistan is a mountainous valley and the land here is not much fertile so agriculture here is not very popular except for the fruits and vegetables including pumpkins, wild cherries, apricots, peaches, grapes, apples, plums, black cherries and strawberries. 5

Our aim is to find out the percentage of population indulged in agriculture sector and their livelihood condition and what changes have the banks brought in promoting this area and attracting more population to this sector and increasing the yield The main issue here in Baluchistan is the irrigation of land as most of its land has turned barren and in fertile due to droughts. So we need to know the measures taken in solving this problem as this can be a big constraint to the development of agricultural sector as Rainfall has been below normal in seven of the past nine years. Another thing that needs to be focused is the livestock as most of the feed for the livestock comes from the privately owned lands and those too are affected by the drought causing reduction in yield. More over the past researches and efforts done on improvement of this sector is also to be observed as it shows the contribution of the institutions in development of this sector and the changes in policies adopted in account of the problems identified through those researches. The future potentials are also to be targeted, that what are the chance of improvement in the future economy due to development in this sector. The objective is to know what are the technological changes brought in the agricultural practices and how far has it succeeded in convincing the traditional people in adopting the change.

Literature Review:Scrutinizing countrys statistics the total agricultural land of Pakistan accounts to 79.61 million hectors (according to agricultural statistics of Pakistan 199899) out of which only 25%(197 million acres) of the land is used for the cultivation purpose. According to the USAID report on agriculture in 2006, Baluchistan faces problems like shortage of water and rugged landscapes. Only 17 percent of the province land is arable and most of the arable land isnt used for cultivation purpose the rest of the uncultivable land is used for grazing of livestocks.

The baseline survey data revealed that the incidence of poverty among project communities is higher than the province-wide average of 35% or the rural average of 37%. In fact, 42% of households fall at or below the poverty line of Rs. 968 in monthly adult equivalent consumption According to provinces Punjab ranks first regarding its contribution in the sector and accounts for 11.04 mha cultivated land. The second largest contributor is Sindh province contributing 5.45 mha of cultivated land, Khyber Pakhtunkhwa( former NWFP) being the third contributor, contributes 1.93 of the cultivated land and Baluchistan being the most devastated one only contributes 1.4mha. (Dr. SYED MANZOOR ALAM 2001) Things can be improved if some good steps are taken by the government; there is only one specialized institution in the whole country to support the Agriculture sector that is Zarai Taraqiati Bank Limited (ZTBL) formerly known as Agriculture development Bank of Pakistan (ADBP). Other than this the commercial banks also supports it by giving loans to its clients for the agricultural purposes. Although some serious steps are needed on Governments behalf to improve the agriculture sector of the country, yet it has supported the countrys economy in many aspects. Baluchistan being the most neglected province of the country, around 74% of the population living in rural areas (census 1998) mostly relies on livestock and agriculture. ZTBL the only specialized bank in the country, has provided loans to these poor rural citizens of the country to upgrade their standards of living; charging them very low interest, providing them jobs and has helped them providing latest technologies to improve the productivity of their lands. Some products of the Bank such as Kissan Dost Scheme (KDS) has helped the farmers to increase their productivity by providing them loans with concessional markup to finance crop production, another product that emphasizes keenly on small farmers includes One Window Operation/ Zarkhaiz Scheme (ZS). Apart from providing loans for the agriculture purpose the bank is also committed to support the poultry sector of the country and specially Baluchistan, the banks products like Rural Development Scheme, White 7

revolution scheme and red meat scheme proved helpful to uplift the standard of living of the poor living in Baluchistan and helping them to start a business of their own to help support their family thus leading to reduction in the unemployment rate and poverty rate of the country generally, and the Baluchistan province specifically. Other than the countrys agriculture bank, other commercial banks are also the secondary source of funding for the farmers and landlords Before 2007 Baluchistan was scarce in human resource and agriculture growth. 15 years before 2007 the contribution of Baluchistan in GDP was constantly 4%. In 2007 the deep submersible tube wells were introduced to support the horticulture economy Livestock and horticulture dominated the agricultural sector in the rest of the province due to the scarcity of water. (Balochistan Economic Report 2007) During the early 70s and 80s the agriculture sector proved itself in poverty reduction and dramatically propped up the Pakistans Economy but since then and specially after the 90s it failed to support the economy, this indicates that there are some major flaws in the agricultural policies and plans that needs to be addressed. Since the socio-economic circumstances of the neighboring countries are more or less similar to the Pakistans atmosphere, we can adopt and learn a lot from these countries, since some of the agricultural policies adopted by the countries like Bangladesh, China and India has really assisted its economies and has improved the life of common people. Bangladesh that was formerly the part of Pakistan (known as East Pakistan) has moved forward and leaving behind Pakistan in the agricultural sector by capturing most of the European and American markets. Bangladesh, known best for its agricultural goods is an agricultural based country where 80% of the total population depends upon the agriculture, with 54% of the population is directly employed in the sector and the remaining 26% are indirectly involved in the agriculture. The contribution of the agricultural sector in the GDP is 21% and almost 63% of the total labor force is working in the sector. (World Bank 2011)

As the agriculture is the main sector of the economy therefore the government of Bangladesh has taken a lot of steps to improve the sector. According to a report prepared for Bangladesh Food Security Investment Forum by M. Asaduzzaman, Bangladesh Institute of Development Studies, Claudia Ringler, International Food Policy Research Institute, James Thurlow, International Food Policy Research Institute, Shafiqul Alam, Ministry of Agriculture in 2005 the loan taken by the small farmers equals to 15000-16000 taka per land, the medium farmers borrowed around 25,000 taka whereas the large farmers borrowed 51,000 taka at the average. (Bangladesh Food Security Investment Forum 2010) According to Wahiduddin Mahmud, Sultan Hafeez Rahman and Sajjad Zohir report, Agricultural Growth through Crop Diversification in Bangladesh, Bangladesh took some serious steps to protect its local farmers by imposing high tariff rates on the agricultural goods, this step proved helpful for the government to earn enough revenue and create a demand of its own local agri goods that helped the farmers to earn huge profits and thus improving their standards of living and helping the economy indirectly. (AGRICULTURAL GROWTH THROUGH CROP DIVERSIFICATION IN BANGLADESH 1995) The best thing done by the government is the E-Agriculture; the initiative will help the government and the farmers to improve the sector. Water being the most essential ingredient in agriculture, many projects are being started by the government to improve irrigation system in the country. Another crucial step taken by the government is the adoption of the Nuclear Agriculture which has brought change in the sector. Different research centers of Department of Agriculture are working to improve the agriculture sector, the centers are: * Bangladesh Agricultural Research Institute * Bangladesh Rice Research Institute * Soil Resource Development Institute * Accelerating Agriculture Productivity Improvement in Bangladesh These all institutes has changed the typical farming system in the country and have introduced a variety of new, effective and less costly ways of farming in the agriculture sector and in result the yield is going higher and higher. 9

Recently the government of the Bangladesh has announced the Diesel Subsidy Program in which farmer will get Diesel at lower price for the farming, 7.49 Billion Taka (107 Million U.S Dollars) are specified for the project. And many other factors are there due to which the Bangladesh agriculture is thriving; like investments in seed research and irrigation, free market policies, greater crop diversification, infrastructure Development, new approaches to food aid have helped move the country to a position of near self-sufficiency in rice, its main crop, and many others. (Food and Agriculture in Bangladesh: A Success Story West Gordon) Another neighboring country, China that is ranked as the worlds second largest economy GDP ($9,711,244) after United States of America (China Mike 2011) has continuously improved its growth rate and the catalyst that played its role includes the agricultural sector of the country. Employing over 300 million farmers, China ranks first in the worldwide farm output. Many measures and steps are taken in the previous decades that helped the agricultural sector over the period of time. In 90s and the early years of the 21st century China charged huge taxes from the farmers nearly 10% of their net income In total, the taxation burden shouldered by farmers in 2000 was estimated to be between RMB 180 billion ($24 billion) and RMB 220 billion ($29 billion), due to which the common farmer was greatly dissatisfied. But after some healthy protest by the farmers in the 10 years, the Chinese government was forced to reduce taxes and merged many forms of taxes into a single tax head that lowered the tax rate from as high as 10 percent to 8.4 percent of the famers annual output. In 2006 the government exempted farmers from agricultural taxes that gave some relief to the poor farmer and improved their standard of living to some extent. (China's Agricultural Trade: Competitive Conditions and Effects on U.S. Exports 2011) The Agricultural bank of China mainly emphasizes on the poor citizens in the country and tries to reach them by opening branches in every city and every town of the country. There are policies that Pakistan can replicate to reduce poverty and support economy just like China had. 10

For development purposes the government has played a basic role to facilitate agriculture loan provided to poor farmers in easy terms and documentation. Agricultural Development Bank of China, a bank-owned agricultural policy, mainly provides loan services to the agricultural sector in China. The company offers loans for the acquisition of reserves, and oil marketing of grain, cotton, and edible; national reserve of meat, sugar, tobacco fertilizer, wool, and chemical. The Agricultural Development Bank of China has lent 15.5 billion Yuan (USD2.41 billion) for water facilities construction in the first half of this year. The amount was higher than the same period in previous years, the bank said, while waiting for the full year amount to over 30 billion Yuan. The lender plans to lend 3040000000000 Yuan each year for water facilities construction over five years to 2015, according to the bank. The agricultural bank of china (ABC) has wide range of products, emphasizing specially on the poor farmers, one of its product Small Business Self-service Revolving Loan is a type of loan specially designed for the poor and small customers, under this loan the bank provides working capital for normal and operational production and enhances the farmers to pay the debts anytime without bounding them to pay at specific date or year without charging surcharges or extra interest, this encourages the poor farmers to take loans and repay the loan whenever they are in a position to repay. Apart from lending loans to the farmers the agricultural bank of china also provides loans to the small enterprises; the banks product called the Loan on Real Estate is a loan for the small enterprises to expand its business without classifying the enterprises credit worthiness, the bank just keeps a mortgage guarantee and forwards the loan to the enterprise; if such service is introduced here in Pakistan and adopted by the agricultural banks not only will it strengthen countrys GDP but also create employment opportunities. India having population of more than 1 billion, most of the citizens lives in rural areas, as much as 70.5 of the population lives in the rural areas of India(World Bank 2011). As much as two thirds of the countrys workforce rely on agriculture and is a source of income for them. At the time of independence the agriculture sector didnt had much role in the development of economy but the 11

green revolution of the 70s gave boom to its economy and contributed its part in the countrys GDP, this can be proved by looking at the 2010-2011 statistics that shows the growth rate of 6.1% that is the first in south-Asian region.(trading economics 2011-q4) The government has also taken steps directly to support the agricultural sector of India, that leads to sustainable economy, by subsidizing the main ingredients of the agricultural sector the government has subsidized fertilizers, electricity, fuel and irrigation to support the farmers. Even the prices of fertilizers that are imported from other countries are subsidized by the government. Knowing the importance of agricultural sector in the economy the government provides electricity at very low price or even free in some states. (India Agricultural Policy Review volume 4 2008) Some serious steps are taken by the government to improve the agricultural sector in India, thus leading to economic improvement indirectly. The National Food Security Mission (NFSM) by the government is to encourage the supply of its major crops such as wheat, rice, and pulse production by 8, 10 and 2 million tons, respectively, by the end of the 11th Five Year Plan(2011/12). This will not only reduce the import cost incurred by the country, but will also help create employment opportunities in the country. In India the unorganized institutions plays a vital role in lending money for the agricultural purpose but the organized institutions such as commercial, cooperative and rural banks can not be neglected .Among organized institutions the commercial banks is at the top followed by cooperative and rural banks respectively. Many schemes have been launched by the banking sectors to support agricultural sector that will lead to improved and better economy Schemes like kissan credit card (KCC) has helped the farmers to get timely and adequate loans from the banks. Micro finance schemes adopted by National Bank for Agriculture and Rural Development (NABARD) and the apex bank for agriculture and rural development in India, has helped the poor farmers to get small loans at very low markup. Programs such as Tribal Development and Village Development Program by the National Bank for 12

Agriculture and Rural Development has helped in the development of the rural areas by providing credit and guidelines to the rural people, especially farmers. Other than this some risk control programs has also been adopted by the agricultural banks to counter drought in the country, the best example is the Watershed Development program that helps to provide watershed lines to the drought risky areas in order to reduce/ avoid the risk of drought. Another important scheme launched to reduce poverty and increase the agricultural production is the Financing Purchase of Land for Agriculture Purposes Technology in todays world is the essential ingredient for the increase agricultural productivity; programs like Capacity Building for Adoption of Technology have helped the rural farmers to adopt technology and increase productivity thus increasing their revenue that leads to positive changes in their and their families lives. Agriculture has always played its role in uplifting the countries economy; the end products of the agricultural sector will always have a demand in the world no matter what. Therefore a country needs to pay robust attention to the industrial sector, especially country like Pakistan where agriculture is the backbone of economy. Agriculture can play a vital role in reducing poverty in Baluchistan if only some good policies are adopted by the agricultural bank (ZTBL) and other commercial banks supporting the agricultural sector. We can copy or at least adopt and implement the good policies executed by the neighboring countries that may help us to increase productivity and support the economy.

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Research Methodology:
Redman and Mory define research as a systematized effort to gain new knowledge. This new knowledge can be collected via different ways; the way to collect this new knowledge is the research methodology.

Population Size: The population includes all the banks of Quetta that supports the agricultural sector whether it is agricultural bank or the commercial banks supporting agriculture by lending loans and having products that supports the agriculture in the country. Sampling Design: The sample design for the research taken is the non random convenience sampling. Sample Size: The sample size take is 1 agriculture bank (ZTBL) and 5 commercial banks providing loans for the agricultural purpose, the commercial bank includes National Bank of Pakistan, Habib Bank Limited, United Bank Limited, Bank Alfalah and Askari Bank Limited Data Collection Method and Tools: Data will be collected via Primary Sources, the tools that will be used for data collection includes questionnaires and interviews. The research is mostly based on findings so it will be the mixture of both qualitative and quantitative.

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References:
Ali, Syed. (2012) Role of Agriculture in Economic Growth of Pakistan. International Research Journal of Finance and Economics, 181-182.

Worldbank.org (2011) Agriculture in South Asia Retrieval date March 20, 2012 from http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEX T/EXTSAREGTOPAGRI/0,,menuPK:452774~pagePK:51065911~piPK:64171006 ~theSitePK:452766,00.html Worldbank.org (2011) Priorities for Agriculture and Rural Development Retrieval date March 20, 2012 from http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEX T/EXTSAREGTOPAGRI/0,,contentMDK:20273773~menuPK:548216~pagePK:3 4004173~piPK:34003707~theSitePK:452766,00.html Dr. Syed Manzoor Alam (2001) Agriculture in Pakistan Retrieval date March 19, 2012 from http://www.pakistaneconomist.com/issue2001/issue37/i&e4.htm Census.gov.pk (1998) Census of Pakistan Retrieval date March 20, 2012 from http://www.census.gov.pk/AreaDensity.htm Worldbank.org (2011) Bangladesh: Priorities for Agriculture and Rural Development Retrieval date March 21st, 2012 from http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEX T/EXTSAREGTOPAGRI/0,,contentMDK:20273763~menuPK:548213~pagePK:3 4004173~piPK:34003707~theSitePK:452766,00.html

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Global Finance (2011) Bangladesh Country Report Retrieval date March 21st, 2012 from http://www.gfmag.com/gdp-data-country-reports/321-bangladeshgdp-country-report.html#axzz1prr37HLy Muhammad Alauudin (2004) Recent Developments in the Bangladesh Economy Retrieval date March 21st, from http://www.crawford.anu.edu.au/acde/asarc/pdf/papers/2004/WP2004_13.pdf Ministry of Agriculture (2011) Agriculture: Bangladesh Retrieval date March 21st, from http://www.bangladesh.gov.bd/index.php? option=com_content&task=category&id=187&Itemid=27 China Mike (2011) Facts about China: ECONOMY & GDP 2010-2011 Retrieval date March 22nd from http://www.china-mike.com/facts-about-china/economyinvestment-business-statistics/ Agricultural Bank of China (2011) Agro Related Business Retrieval date March 22nd from http://www.abchina.com/en/agro-related-business/ LX Zhang (2009) AGRICULTURAL AND RURAL DEVELOPMENT IN CHINA Retrieval date March 22nd from http://www.worldfishcenter.org/Pubs/china/pdf/china_agricultural.pdf Clean Biz Asia (2012) Agriculture Development Bank of China Loans Retrieval date march 22nd , 2012 from http://www.cleanbiz.asia/story/agricultural-development-bank-loans-24bchina-water-facilities Bloomberg (2012) Agriculture Development Bank of China Retrieval date March 22nd, privcapId=5870097 16 2012 from http://investing.businessweek.com/research/stocks/private/snapshot.asp?

India.gov.in (2005) Agriculture of India Retrieval date March 22nd, 2012 from http://india.gov.in/citizen/agriculture/index.php fas.usda.gov (2009) INDIA AGRICULTURAL ECONOMY AND POLICY REPORT Retrieval date March 22nd, 2012 from http://www.fas.usda.gov/country/india/indian%20agricultural%20economy %20and%20policy%20paper.pdf ficci-b2b.com (2009) India: Agriculture Retrieval date March 22nd, 2012 from http://www.ficci-b2b.com/sector-overview-pdf/Sector-agri.pdf nabard.org (2011) Annual report of National Bank for Agriculture and Rural Development Retrieval date March 22nd, 2012 from http://www.nabard.org/FileUpload/DataBank/AnnualReports/Nabard_AR_En g_2011_(Fianl)[1].pdf Trading Economics (2012) GDP Growth Rates, List by Country Retrieval date March 22nd, 2012 from http://www.tradingeconomics.com/gdp-growth-rateslist-by-country Usaid.gov (2007) REPORT ON EVALUATION OF FOOD SECURITY POVERTY ALLEVIATION IN ARID AGRICULTURE BALOCHISTAN PROJECT Retrieval date March 22nd, 2012 from http://www.usaid.gov/pk/downloads/eg/FAO.pdf Bangladesh Food Security Investment Forum (2010) INVESTING IN CROP AGRICULTURE IN BANGLADESH FOR HIGHER GROWTH AND PRODUCTIVITY, AND ADAPTATION TO CLIMATE CHANGE Retrieval date March 22nd, 2012 from http://bids.org.bd/ifpri/investing6.pdf International Food Policy Research Institute (1995) Agricultural growth through crop diversification in Bangladesh Retrieval date March 22nd, 2012 from http://www.ifpri.org/sites/default/files/publications/fb7.pdf 17

U.S. International Trade Commission (2011) Chinas Agricultural Trade: Competitive Conditions and Effects on U.S. Exports Retrieval date March 22nd, 2012 from http://www.usitc.gov/publications/332/pub4219.pdf Publications.gc.ca (2008) India Agricultural Policy Review Retrieval date March 22nd, 2012 from http://publications.gc.ca/collections/collection_2009/agr/A383-5-1-1E.pdf

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