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Punjab’s interest-free loans: a hassle for growers

Punjab’s interest-free loans: a hassle for growers

THE Punjab government’s Rs100bn interest-free loan to farmers is a long-awaited and much-needed step. The rising cost of inputs and declining prices of outputs had not only created a yawning income gap for farmers, but also started a self-perpetuating cycle of poverty in rural areas.

This interest-free loan should add to the productivity, generate economic activity and reduce poverty. It should also help the entire input industry which has suffered badly due to the declining purchasing power of farmers and needed a subsidy package to sustain itself.

The government’s decision to add 70pc new applicants, who have never taken loan from any formal sector institutions, in the list of beneficiaries should help expand the base — from current 2.2-2.7m.

The amount of loan, which is Rs65,000 per acre, also raises a hope that it will be used for the crop development; it is too small to be diverted to other sectors.

So far, the application collection system has been anything but smooth; marred with procedural hiccups; it has generated a lot of resentment among farmers. First, the ratio of rejection of applications has exceeded the acceptance. There may be valid reasons for the rejections, like deeds not being in the name of the applicant required as collateral terms. If they are continuously used as a reason for rejection, the entire exercise may see its benefits grossly compromised.

Secondly, despite claims of computerisation of records, there are villages after villages that still lie outside the digitisation process and this failure is now haunting the applicants. Even the land contracts and tenancy deeds in the rural areas hardly have enough legal finesse to meet the institutional requirements of lending agencies. The farmers also complain that the official timing of applications submission — 8am to 4pm — does not coincide with social realities of rural areas.

Thus, the loan applications are slow, and their acceptance even slower. The officials say that farmers don’t meet the criteria and farmers claim that procedure is too cumbersome. Both claims might have partial truth in them, but they have to be fine-tuned for the full realisation of the benefits.

Because of this slow process, the officials concede that they may not be able to process more than 100,000 applications by October 18 against a target of 500,000, which, would only be 20pc of the target. Being the first exercise of its kind, teething problems are inevitable. But, if not removed steadily, they can mar the process.

Some policy decisions might also be needed for involvement in the financial institutions in the loaning process. Smaller loans carry a very high lending rate — upto 25pc. The farmers fear this amount will inevitably be added to the loan money as administrative charges — correspondingly reducing the total amount.

The issue came up in preparatory meetings as well, but the government chose to ignore it. That may not be as expensive as being feared but certainly deserves a clarification. It can be better utilised with transparency and farmers’ satisfaction.

The farmers want a sustainable loan process, rather than a one-year process.

Published in Dawn, Business & Finance weekly, October 17th, 2016

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