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A Concept in Cooperation

The essence of society as we understand it is that it is based on cooperation and understanding between individuals and like-minded groups. Human beings have an inherent penchant to extend help to other human beings and in the ultimate analysis even the basis for Islamic society is mutual cooperation on a comprehensive basis laid down in detail in the Holy Quran. While all this may be natural, the successful harnessing of the cooperative instinct for material benefits and the consolidation of this process along organised, scientific lines is the basis for Cooperative Societies. At the very basics, Cooperatives can be extremely helpful to those that don’t have the inherent ability for either entering into entrepreneurship of any kind or if the ability is there, to expand the scope of its horizons, whether it be in business, industry or in the agriculture sectors. It is an all-inclusive benefit scheme meant mainly for the have-nots of society. Being an agriculture-based economy, Pakistan’s main thrust in the Cooperative field has been in farming and the imperative need to create a suitable monetary system to ensure desperately needed adequate cash flow to the small-unit subsistence farmer.

The history of agricultural progress clearly denotes that there are three main processes which are inherently inter-related, Technical, Economic and Social. In the technical field, tremendous progress has been achieved with the advent of mechanised farming, use of pesticides and hybrid seeds; in this respect even the small-unit (and/or subsistence) farmers have had the benefit of the use of tractors and electrified tubewells. The economic benefits have transformed the village society in a matter of decades from its primitive bronze-age status to that of ultra modern space-age concepts in some parts. All this has been translated into social expectations far exceeding the self-imposed targets for this decade set by our planners. To support this process, a modern sophisticated financial system had to be put into place with the proviso that it must be run effectively to cater to the need of our small-unit farmer and thus the Federal Bank for Cooperatives (FBC) was established by the then PPP Government towards the end of 1976.

The primary function of FBC is to function as an APEX BANK for meeting the credit requirements of Provincial Cooperative Banks and to regulate and supervise these entities. Pakistan being predominantly an agricultural country, the necessity for supporting agriculture’s contribution of 26% of the Gross Domestic Product (GDP) cannot be over-emphasized, particularly when one considers that agriculture draws 52% of the known labour force, the salutary contribution of women in the fields a matter of guesswork and as such not included in the statistics. The prime target of the FBC system has been the subsistence farmer — a subsistence farmer owning 12.5 acres of land in the Punjab and Sarhad Provinces, 16 acres in Sindh and 32 acres in Balochistan. The concept behind this system was basically to rid the subsistence farmer of his overly and disastrous dependance on avaricious, leech-like money lenders operating on exorbitant interest rates. In contrast, the Federal Government in keeping with Islamic practices introduced “interest free” loans in 1979, with more than half a million farmers benefiting annually by this scheme at present, the numbers showing a steady rise over the past few years. At this present time, FBC operates through four intermediaries, Punjab Provincial Cooperative Bank (PPCB), Sindh Provincial Cooperative Bank (SPCB), Balochistan Provincial Cooperative Bank (BPCB) and two affiliates, Northern Areas Cooperative Bank (NPCB) and the Azad Kashmir Cooperative Bank (AKCB) reaching out through a network of 45,000 Cooperative Societies representing 1.8 million farmers. This by itself is an amazing statistical detail and has set in place a great infrastructure for subsequent development.

Dr. Mahbubul Haq recently eulogised the services of GRAMEEN BANK in Bangladesh, little realizing that our own version of a “Green Revolution” owes a great part to our little known and unsung FBC system which along with the Agricultural Development Bank of Pakistan and various rural credit schemes of nationalised banks formed a much more organised cash flow basis to the small-unit farmers. One daresays that our credit disbursement is organised on more scientific lines and even comparing the different circumstances and numbers of small unit farmers in Pakistan and Bangladesh, is certainly much more efficient and effective. There may be certainly more romance in the working of the Grameen Bank, the concept of the barefoot banker, but in the practical terms of realisation, the FBC system stands as a singular achievement of great importance to the concept of direct agriculture credit.

From its early emphasis on short-term credit, FBC system has now started to disburse medium-term credit knowing that such development loans, could better ensure the mobilisation of savings by emphasizing the contribution of borrowers. From direct input into basic farming, the FBC system has now gone onto approving loans for Milk and Dairy cooperative projects. One significantly notes that almost 80% of the credit disbursed through the system has gone to the small farmers who qualify for cost-free financing. The rate of recovery of loans should act as an eye-opener as it has been consistently on the rise beyond the 90% rate, improving yearly. This is a tremendous achievement in an area which is perennially under pressure by the curse of money lenders and the clear indication is that the alternative being provided is not only working but there is a genuine support from the beneficiaries to make the scheme a success. One is however critical of the publicity effort which is almost non-existent as is evident from the Balance Sheets. The continued success of this scheme will be possible only through greater public awareness and mass media tools must be utilized in a much more comprehensive fashion.

During the last few years, FBC has experienced spectacular rise in its conceptual operations, guided mainly by an extremely seasoned bureaucrat, Mr. M I Khalil, the present Managing Director and Chief Executive. One of his first conscious acts has been to underscore the dire necessity for carrying out an in-depth evaluation of the performance of the Bank, giving due regard to the circumstances of the Bank’s creation and its objectives with particular emphasis on its relationship with its Provincial intermediaries and affiliates. By consistently pursuing this requirement he has succeeded in getting a proposal for the evaluation and appraisal of the Bank by Technical experts accepted and necessary funding has been approved by the Asian Development Bank (ADB). The Chief Executive’s approach has been that FBC must be strengthened as a self-sustaining financial institution to better serve the objectives for which it was created and to be better prepared in the future to meet the challenges and opportunities afforded by the country’s economic growth. A comprehensive study would entail considerable research into varying data covering both the FBC and its intermediaries in the Provinces ie, the Provincial Cooperative Banks, and the other PCB affiliates.

A commercial entity is usually favourably recognised by the profit it generates. However, Banks like the FBC cannot really be judged in measures of only its raw Balance Sheet since it is operating on the basis of a service charge and has socio-economic benefits far outweighing statistical profit margins. FBCs operational success must be evaluated from the (1) amount of loans it disburses (2) more farmers it reaches (3) with commensurate multiple socio-economic benefits and (4) rate of recovery of loans disbursed. The Federal bureaucracy can rightly be proud that here is a Federal institution that more than meets its commitment to the objectives of its creation, unlike some that have definitely lost their prime reason for existence. It goes without question that the past few years which have seen a spectacular rise in its disbursement rate, almost doubling the figure of 1983-84 (Rs:1449.50 million) to almost Rs:3000 million, are relevant to the origins of its concept, the need for the small-unit farmer to have a basic cash flow available to him at his doorstep. Compared to its first full year of operation, Rs:203.74 million disbursement, Mr M I Khalil emphatically notes that FBC has achieved a fifteen-fold increase, reaching almost 90% in cost free finance. One needs to be understandably proud at such an achievement reaching annually more than half-a-million small unit subsistence farmers, while at the same time almost doubling the Bank’s reserves from the 1983 level to Rs:175.0 million. The Bank’s management has shown understandable concern about the pace of development work in the credit sector in Sindh and Balochistan in farming and this anxiousness has been translated to the provincial entities concerned, particularly the need to open more branches in the far-flung and outlying areas to reach out to the tail-enders in all senses of the world.

FBC is one of our better experiments, one that has genuinely succeeded. One of the major reasons is that the management expertise provided is not only excellent but a par above that, in relation to that available in other public DFIs, the only other organisation really staffed with brilliant people being NDFC’s affiliate, the newly conceived Regional Development Finance Corporation (RDFC), which one dares say combines a wider range of socio-economic projects in under-developed areas. It is important for us that we must not only evaluate but encourage such singular achievement. Our bureaucracy has excellent manpower and expertise, provided we utilise them properly eschewing the “square peg in the round hole” philosophy. FBC shows us the value of not only indulging in calculated experiments but in providing the entities with excellent management material. Conceptually brilliant, FBC is an example for public sector enterprise management.

Indeed a major criticism can be that the mandate of the FBC is not all expressive in that it does not go far enough and should be expanded. The village is an economic unit and must be brought individually and in village groups to the collective fold, the route used may be the Union Councils, an elected body composed of elected representatives in a democratic manner. A war has been declared on a national basis on hunger and we must reinforce our weakest sectors, particularly the lack of a sound and credible protein base in the country. The FBC system can also be used to finance model “fish” and “poultry” farms providing another dimension to the present horizons, adding “tractor” farms to the list being maintained to provide the subsistence farmer the benefit of rent-a-tractor at his doorstep also. In the next stage, cold storages, fast-freeze plants, bulk wheat and rice storage facilities, farm workshops, etc to complement the existing infrastructure may be added, followed by farm to market roads on self-help basis and transportation whenever possible. The portents exist for a GRAND DESIGN. While the PBC system has shown great efficacy it must now reach beyond itself to bring about a “Green Revolution” in Pakistan’s agriculture sector.

The vision with which FBC was created more than a decade ago has been fulfilled, a spectacular contribution to autarky in the food sector for a Third World country. The time has now come to exploit the functioning and existing infrastructure and carry it beyond the vision contemplated, to reach out for a more complete emancipation of the agriculture sector by innovative ideas to match the credit disbursement. FBC system is a concept in cooperation which needs to be emulated and eulogised in more ways than one.

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