All the less developing countries are facing capital shortage problem.

In Pakistan, our farmers conditions is also very poor and he is unable to use the modern technology. So credit is playing important role for the development of rural areas. Sources of Rural Credit :Following are the main sources of agricultural credit : 1. Village Shopkeeper and Middleman :In our villages shopkeepers commission agents in the market provide loan to our farmers. They charge very high rate of interest. There terms and conditions are also very tied. 2. Landlords :In Pakistan there is a landlord system the tenants borrow the money from the lords and they receive heavy charges. They also misuse them during the selection of the Assembly members. So many problems take place in the way of democracy. 3. Friends Relatives :Friends and relatives also provide loan in the rainy days. It has been estimated that 25% of the total demand of the farmer is met by these above three sources. 4. Tactical Loans :These were provided by the government to purchase machinery, cattle's, seeds, rebuilding of houses destroyed by the floods. These were issued by the revenue department. These are playable within one to 8 years. But in fact the practice of these loans has been finished. 5. Commercial Banks :In the early years independent commercial banks ignored the agriculture sector. But after nationalization now proper attention is paid to the agriculture. Now the 45% of the total rural credit is issued by the commercial banks. Even commercial banks are providing interest free loans to the small farmers for the improvement of agricultural output. 6. State Bank :The state bank does not directly finance the agriculture. It provides loan at concessional rates for this sector to the cooperative banks and ADBP. 7. National Bank Role :In 1972 national bank of Pakistan started first time a surprised credit scheme for the farmers and later it was adopted by all the commercial banks. Now various other schemes have been introduced for the farmers. 8. National Credit Consultative Council :The government of Pakistan established the national credit consultative council in 1972 to review the overall credit in the economy. It makes recommendations to the government with regard to the credit expansion among various sections. 9. Agricultural Credit Advisory Committee :It was also set up 1972 its objective was to watch the credit provided to this sector. It had also improved the credit availability for the agriculture sector.

10. Cooperative Banks :It is the oldest source of agriculture credit. The loan is supplied to the framers through the credit societies. These societies provide credit to the small farmers for the purchase of agricultural inputs such as seeds and fertilizers. The federal cooperative was also established in 1976 with the provincial cooperative banks. This source provided 15% of the total rural credit which is issued in Pakistan. 11. Agricultural Development Bank of Pakistan :The ADBP provides short term, medium term and long term loans to the agriculture sector. loans are granted in cash and in kind. It provides loan for the purchase of inputs, machinery, and for cottage industry in the rural areas. It is specialized institution for the rural credit.

NTRODUCTION TO AGRICULTURAL FINANCE What is agricultural finance? Some, for example, may define agricultural finance as the study of the financing and liquidity services credit provides to farm borrowers. Others may define agricultural finance as the study of those financial intermediaries who provide loan funds to agriculture, and the financial markets in which these intermediaries obtain their funds. In fact, several agricultural economists identified a number of studies focusing on such additional topics as rural banking, insurance, income distribution, farm financial management, and taxation. Finally, the study of agricultural finance can be broaden even further to account for all economic and financial interfaces between agriculture and the rest of the macroeconomics, including the effects that changes in national economic policies have upon the economic performance of agriculture and the financial position of farm operator families. Understanding financial concepts and the practical applications of finance is essential for anyone interested in pursuing a career in the agribusiness or agricultural production sectors. Many of the important managerial problems in agriculture involve finance. However, most agricultural production firms are significantly different from corporations, and more closely resemble small, owner-operated businesses. Management of farm business requires a wide range of information on physical and financial performance. Sometimes, however, much of the information needed is recorded only in the mind of the farm operator or in an informal, irregular kept ledger. There is also the tendency by some to judge the financial performance of a farm business by the amount of money he has in the bank. Each of these measures, however, provides a potentially misleading picture of the financial performance of the farm business and the financial strength of the farm operator. Study on Agricultural Finance will cover topics on the financial institutions, lending programs and other financial issues affecting agriculture. Farm Financial Management The functions of financial management are traditionally defined to include the investment decision, financing decision, and the dividend decision. Together, these decisions largely determine the rate at which the farm business grows over time. Because most farm business is sole proprietorships, financial management in agriculture encompasses the proprietor withdrawal decision (i.e. the withdrawal of funds to finance personal consumption and nonfarm investments) instead of the dividend decision. The investment, financing, and proprietor withdrawal decisions are not made independently. For example, the decision to invest in a new piece of farm equipment cannot be made independently of the

financing or withdrawal decisions. Furthermore, the financing decision is directly influenced by the farm operators decision to withdraw part of his current net farm income to finance personal consumption and nonfarm investment. Effective investment, financing, and withdrawal decision making requires a comprehensive farm financial accounting system. For example, an accounting system is needed to help identify the level and timing of financing needed to facilitate the farm operators current production and marketing plans. Such an accounting system should also provide information pertaining to the farm operators present financial position and the efficiency and profitability of his current operations.

General equilibrium theory is a branch of theoretical economics. It seeks to explain the behavior of supply, demand, and prices in a whole economy with several or many interacting markets, by seeking to prove that a set of prices exists that will result in an overall equilibrium, hence general equilibrium, in contrast to partial equilibrium, which only analyzes single markets. As with all models, this is an abstraction from a real economy; it is proposed as being a useful model, both by considering equilibrium [citation needed] prices as long-term prices and by considering actual prices as deviations from equilibrium. General equilibrium theory both studies economies using the model of equilibrium pricing and seeks to determine in which circumstances the assumptions of general equilibrium will hold. The theory dates to the 1870s, particularly the work of French economist Lon Walras in his pioneering 1874 work Elements [1] of Pure Economics .

History of general equilibrium modeling

The first attempt in neoclassical economics to model prices for a whole economy was made by Lon Walras. Walras' Elements of Pure Economics provides a succession of models, each taking into account more aspects of a real economy (two commodities, many commodities, production, growth, money). Some (for example, Eatwell (1989), see also Jaffe (1953)) think Walras was unsuccessful and that the later models in this series are inconsistent. In particular, Walras's model was a long-run model in which prices of capital goods are the same whether they appear as inputs or outputs and in which the same rate of profits is earned in all lines of industry. This is inconsistent with the quantities of capital goods being taken as data. But when Walras introduced capital goods in his later models, he took their quantities as given, in arbitrary ratios. (In contrast, Kenneth Arrow and Grard Debreu continued to take the initial quantities of capital goods as given, but adopted a short run model in which the prices of capital goods vary with time and the own rate of interest varies across capital goods.) Walras was the first to lay down a research program much followed by 20th-century economists. In particular, the Walrasian agenda included the investigation of when equilibria are unique and stable.(Walras himself: Lesson 7 shows neither Uniqueness, nor Stability, nor even Existence of an agreement is guaranteed. Immediate after closing the deal, e.g.) Walras also proposed a dynamic process by which general equilibrium might be reached, that of the ttonnement or groping process.

The tatonnement process is a model for investigating stability of equilibria. Prices are announced (perhaps by an "auctioneer"), and agents state how much of each good they would like to offer (supply) or purchase (demand). No transactions and no production take place at disequilibrium prices. Instead, prices are lowered for goods with positive prices and excess supply. Prices are raised for goods with excess demand. The question for the mathematician is under what conditions such a process will terminate in equilibrium where demand equates to supply for goods with positive prices and demand does not exceed supply for goods with a price of zero. Walras was not able to provide a definitive answer to this question (see Unresolved Problems in General Equilibrium below). In partial equilibrium analysis, the determination of the price of a good is simplified by just looking at the price of one good, and assuming that the prices of all other goods remain constant. The Marshallian theory of supply and demand is an example of partial equilibrium analysis. Partial equilibrium analysis is adequate when the first-order effects of a shift in the demand curve do not shift the supply curve. AngloAmerican economists became more interested in general equilibrium in the late 1920s and 1930s after Piero Sraffa's demonstration that Marshallian economists cannot account for the forces thought to account for the upward-slope of the supply curve for a consumer good. If an industry uses little of a factor of production, a small increase in the output of that industry will not bid the price of that factor up. To a first-order approximation, firms in the industry will not experience decreasing costs and the industry supply curves will not slope up. If an industry uses an appreciable amount of that factor of production, an increase in the output of that industry will exhibit decreasing costs. But such a factor is likely to be used in substitutes for the industry's product, and an increased price of that factor will have effects on the supply of those substitutes. Consequently, Sraffa argued, the first-order effects of a shift in the demand curve of the original industry under these assumptions includes a shift in the supply curve of substitutes for that industry's product, and consequent shifts in the original industry's supply curve. General equilibrium is designed to investigate such interactions between markets. Continental European economists made important advances in the 1930s. Walras' proofs of the existence of general equilibrium often were based on the counting of equations and variables. Such arguments are inadequate for non-linear systems of equations and do not imply that equilibrium prices and quantities cannot be negative, a meaningless solution for his models. The replacement of certain equations by inequalities and the use of more rigorous mathematics improved general equilibrium modeling. Partial equilibrium is a condition of economic equilibrium which takes into consideration only a part of the market, ceteris paribus, to attain equilibrium. As defined by George Stigler, "A partial equilibrium is one which is based on only a restricted range of data, a standard example is price of a single product, the prices of all other products being held fixed [1] during the analysis." The Supply and demand model is a partial equilibrium model where the clearance on themarket of some specific goods is obtained independently from prices and quantities in other markets. In other words, the prices of all substitutes and complements, as well asincome levels of consumers are constant. This makes analysis much simpler than in ageneral equilibrium model which includes an entire economy. Here the dynamic process is that prices adjust until supply equals demand. It is a powerfully simple technique that allows one to study equilibrium, efficiency andcomparative statics. The stringency of the simplifying assumptions inherent in this approach make the model considerably more tractable, but may

produce results which, while seemingly precise, do not effectively model real world economic phenomena. Partial equilibrium analysis examines the effects of policy action in creating equilibrium only in that particular sector or market which is directly affected, ignoring its effect in any other market or industry assuming that they being small will have little impact if any. Hence this analysis is considered to be useful in constricted markets. Lon Walras first formalized the idea of a one-period economic equilibrium of the general economic system, but it was French economist Antoine Augustin Cournot and English political economist Alfred Marshall who developed tractable models to analyze an economic system. Weightlessness (or zero-g) is the condition that exists for an object or person when they experience little or no acceleration except the acceleration that defines their inertial trajectory, or the trajectory of pure free-fall. The physical path of an inertial trajectory depends only on the direction and strength of the sum of the gravitational attractions outside of the inertial reference frame. Accelerations that are not due to gravity are called "proper accelerations" and it is only these forces (such as a push from a floor or seat) that cause g-forces. Weight is the product of mass and the g-force acceleration. Weightlessness is therefore always produced by the absence of g-forces. Accelerometers, which can measure only accelerations that produce g-force and weight, cannot detect acceleration in [1] weightless conditions, including free fall. The definition and use of 'weightlessness' is difficult unless it is understood that the sensation of "weight" is only indirectly produced by gravity, and results not from gravitation acting alone (which is not felt), but instead by the mechanical forces that resist gravity. An example is an object sitting on a scale, which does not feel gravityper se, but instead experiences only the force due to the scale that resists a gravitational fall. Once it is clear that weight is not a force exerted by gravity (but rather the ground or scale), then weightlessness in the absence of all forces except gravitation becomes easy to understand. Thus, an object in a straight free fall (as in an elevator in vacuum), or in a more complex inertial trajectory of free fall (such as within a reduced gravity aircraft or inside a space station), all experience weightlessness, since they do not experience the mechanical forces that cause the sensation of weight, or that allow the direct measurement of weight. If objects are far from a star, planet, moon, or other such massive body, so that they experience very little gravitational interaction with them, they experience close to zero gravitation, and are also weightless. If they are close to a massive object, but are freely accelerating towards the mass by gravitational acceleration only, they are in free fall and are (as in the case near the Earth) also weightless. Objects in an inertial path (one affected no mechanical forces, but possibly affected by gravity) follow Newton's first law of motion within the reference frame. This law describes linear motion, and with regard to an inertial frame, inertial objects do describe such a motion (this can be seen in a space station or other satellite). Such a situation, except for microgravity effects and the inhomogeneity of the gravitational field, cannot be distinguished from weightlessness due to the absence of gravity from a body nearby.