Primary Agricultural Credit Societies (PACS)

Primary Agricultural Credit Societies (PACS)

News: The Union Budget has announced Rs 2,516 crore for computerisation of Primary Agricultural Credit Societies(PACS) over the next five years.

What are PACS?
 PACS are village-level cooperative credit societies that serve as the last link in a three-tier cooperative credit structure headed by the State Cooperative Banks (SCB) at the state level.
 Credit from the SCBs is transferred to the district cooperative central banks, or DCCBs, that operate at the district level. The DCCBs work with PACS, which deal directly with farmers.
 Since these are cooperative bodies, individual farmers are members of the PACS and office-bearers are elected from within them. A village can have multiple PACS.

What is the lending mechanism?
 PACS are involved in short-term lending popularly called as crop loan. At the start of the cropping cycle, farmers avail credit to finance their requirement of seeds, fertilizers etc.
 Banks extend this credit at 7% interest, of which 3% is subsidized by the Centre and 2% by the state government. Effectively, farmers avail the crop loans at 2% interest only.

What makes PACS attractive and challenges they face?
 The attraction of the PACS lies in the last-mile connectivity they offer. For farmers, timely access to capital is necessary at the start of their agricultural activities. PACS have the capacity to extend credit with minimal paperwork within a short time.
 However, as they are cooperative bodies, political compulsions often trump financial discipline and the recovery of loans is hit.
 Chairpersons of PACS participate in electing the office-bearers of DCCBs. Political affiliations are important here as well.