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The Role of Opium as a Source of Informal Credit

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STRATEGIC STUDY #3

Preliminary Report January 1999

Respondents in all four districts suggested that their major source of credit was shopkeepers and traders in the village or at the district bazaar. Indeed, in Maiwand and Shinwar both respondents and key informants suggested that shopkeepers and traders had a virtual monopoly on credit provision.

Shopkeepers providing loans typically traded in a variety of commodities including fertiliser, foodstuff, clothes and medicine. The majority of respondents reported that they generally obtained loans from these shopkeepers through purchasing commodities on credit. However, they also reported that shopkeepers were a major source of salaam, particularly those in Shinwar and Maiwand who specialised in the opium trade.

Whilst both landowners and landless respondents indicated that landlords were a source of credit, only one fifth of the landlords interviewed admitted providing loans. Three of these landlords reported providing credit on opium through salaam in Ghorak District. The other four landlords had provided cash loans to sharecroppers or family members. From these interviews it would seem that landlords are not the major source of credit in the target districts. However, it is important to recognise that the sensitivities associated with both credit and opium may have led to bias in the responses of those interviewed. Indeed, several respondents in Maiwand District highlighted this by revealing that a few influential landlords had become major opium traders who secured their share of the opium produced in the area through the salaam system. Moreover, interviews conducted under Strategic Study 2: The Dynamics of the Farmgate Opium Trade and the Coping Strategies of Opium Traders, revealed that 60% of traders provided salaam on opium production. All the traders interviewed owned land, ranging from one fifth of one hectare to twelve hectares.

8. The� nature and extent of household debt

Generally, landless respondents indicated that they obtained credit from local shopkeepers or traders. A limited number obtained loans from their landlords. All those respondents without land reported that they obtained credit to purchase wheat for family consumption. Furthermore, most of these respondents indicated that they had also obtained credit to purchase clothes and medicine. Fifty per cent of landless respondents also cited the purchase of agricultural inputs, in particular fertiliser, as a reason for obtaining credit. Sixteen per cent of landless respondents indicated that they had obtained credit to repay existing debts.

Although a few landless respondents claimed that they had consciously tried to avoid taking loans, the majority reported that they had generated considerable debts. Analysis of the data produced by the Baseline Survey reveals that those categorised as landless had an average debt of $709. The average debt of those respondents interviewed for the Baseline Survey and subsequently revisited for this Study was approximately $695 prior to the harvest of winter crops. On average, the debt of these respondents was 53% of their total annual net household income.

The degree of indebtedness experienced amongst those respondents without land would seem to vary considerably. For instance, one landless sharecropper claimed that he would rather forego food than obtain credit, fearing that he would be caught in a permanent state of debt, whilst two respondents appeared to have debt that exceeded their total gross income.

Poor opium yields in 1998 would appear to have had a considerable impact on respondents? ability to repay the debts they had incurred during the winter period. Almost one third of those respondents without land claimed that their debts had increased because of the poor harvest and the need to reschedule their repayments.

Respondents indicated that owner-cultivators primarily obtained credit for agricultural inputs through the salaam system, while commodities such as clothes, tea, sugar, medicine were frequently purchased from shopkeepers on credit. Relatively few owner-cultivators were found to obtain wheat for consumption on credit.

An analysis of the data for those households interviewed for the Baseline Survey reveals that owner cultivators had generated an average debt of $1,052 prior to the harvest of winter crops. The fieldwork for this Study supports these findings, revealing that the average debt incurred by those classified as owner-cultivators was $1,245. The average debt of these respondents represented 39% of their net household income.

Again, the degree of debt experienced by owner cultivators was found to vary with some respondents reporting that they had not incurred any debts over the previous 12 months, whilst others claimed to have debts that exceeded their gross household income. One fifth of those interviewed for this Study reported that their debts had increased after the winter harvest due to poor yields and the need to reschedule their existing loan repayments.

Fieldwork revealed that landlords primarily utilised the salaam system for the purchase of agricultural inputs whilst some commodities are bought from shopkeepers on credit, including clothes, tea, sugar and medicine. Respondents categorised as landlords also revealed that they purchased costly items such as tractors, motorbikes and cars from traders on credit.

The average debt of the landlords interviewed for the Baseline Survey was $1,502. Those respondents interviewed for both Baseline Survey and this Study were found to have an average debt of $1,668 prior to the harvest of winter crops. On average the debt of these respondents was found to be 22% of their net household income.

Amongst the majority of respondents classified as landlords, the level of debt fell after the harvest of winter crops, due to the repayment of seasonal loans. However, four respondents indicated that their debts had increased due to the need to reschedule the repayment of their existing loans after a 50% reduction in opium yields during the 1997/98 growing season.

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