Agricultural credit through co-operatives and other institutions

Agricultural credit is not simply a banking business. There is more to it than making loans to farmers or fishermen, especially when the amounts required by each borrower may be small and yet in the aggre gate represent considerable risks. The extra expense of administering a multiplicity of small loans to farmers, who are generally illiterate and of low productivity, and the high risks involved tend to discourage the ordinary bank from entering the field and consequently necessitate spe cial measures, such as, for example, a government guarantee of loans to agriculture, the setting up of an official agricultural bank, and provi sion of free technical advice for the borrowers.

Lacking any benevolent help, the farmer has from time immemorial been obliged to resort to the professional moneylender who traditionally charges a usurious interest, though this may, in part, reflect the high rate of risk. The professional moneylenders, merchants and private traders still today, in many parts of the world, are the main providers of agricultural credit. This being their principal livelihood, they are well entrenched and undertake a very extended service so as not to lose a customer. They will, in effect, market a farmer's crop and obtain his supplies. They will even grant loans for nonagricultural purposes, such as to meet expenses of sickness or of marriages and other family occa sions, so long as there is hope of ultimate profit. To compete with a service so complete, so informal and so personal as that of the private moneylender, a banking institution must obviously offer its customers something similar, and so add to its expenses and push up its charges near to those of its chief competitors.

Farming, fishing and forest exploitation are full of hazards which can vary greatly from season to season, and even from one locality to the next. They are industries undergoing constant development of new techniques. And they have paramount importance in the FAO Freedom.
from Hunger Campaign, for the obvious reason that they are the sources of food and shelter.

Credit alone is of no avail for small farmers if it is not accompanied by complementary services which will help the borrowers to use the money productively and thus enable them to avoid unnecessary debts. These services are: agricultural extension, wholesale prices for farm requisites, marketing, storage facilities, co-operatives.

All the foregoing considerations go to show the complex and vital character of agricultural credit. They were foremost in the minds of the Executive Committee of the International Co-operative Alliance, and were recognized by the Swedish people in generously underwriting the costs when they requested FAO to undertake a special study of the subject with a view to improving the facilities and channels for agricultural credit in the developing countries. The following report is the result of that request. How it was undertaken, by whom and with what terms of reference is explained in the Introduction. Chapter 1 describes the background of the problem of agricultural finance, Chapter 2 is con cerned with facts and findings, and Chapter 3 deals with the considerations which should apply to all formulations of policy. The report itself is preceded by a summary, prepared for the convenience of readers hard pressed for time. Anyone seriously interested in agricultural credit should not, however, stop at the summary, which is too brief and general.

What is said in this report, however, is not the last word. It does no more than reveal the need for further action, and indeed no more was expected of the group of experts appointed to carry out this study. They have endeavored, in the course of their travels and inquiries, always to be alert to see the paths which have led to successes, even of a modest kind, and to assess the possibilities for adopting and adapting these ways in other countries or in other spheres.

The report has already called forth certain proposals for subsequent action, and it is the hope of its sponsors that many other proposals will be put forward. Agricultural credit is a subject which deserves not only the attention of experts, but also of all people who have the power to influence national policies for economic development. It is credit with a difference, not just a question of finding money to help poor farmers out of the clutches of avaricious moneylenders. Before now, farmers have received financial help of a liberal kind, only to slide back soon afterward into helpless circumstances. The report looks frankly at the cause of these past failures, and it tries to point out ways to achieve lasting solutions.