AGRICULTURAL CREDIT POLICY IN DEVELOPING COUNTRIES

Agricultural credit is regarded as an important instrument of economic policy in most market-oriented developing countries. Credit is used in efforts to stimulate development in a direction considered desirable on economic and social grounds. Unfortunately, results of conventional agricultural credit programs have seldom measured up to expectations, and their effects have been generally overestimated. Since small farms dominate the agrarian structure of most developing countries, the principal task of agricultural credit policy is to provide a large number of small farmers with credit. However, the banks are reluctant to do business with small farmers, and their ability to obtain credit is limited. A large proportion of rural credit is probably provided by noninstitutional sources, which should be regarded as a supplementary source of financing in agricultural credit policy. And, in addition to moneylenders and state credit agencies, self-help organizations play an important role. The few countries that have developed broadly based rural financial services are primarily those that have succeeded in building a workable farm cooperative system. It is in this sphere that new paths for agricultural credit are to be sought.