Opinions, Special Reports

Arthi: The Middleman

What makes farmers dependent on the Arthi?

Arthis are informal money lenders. Unlike formal banking channels, Arthis demand repayment of loans in the form of agricultural output. The informal money-lender, therefore, performs a dual role ‘of providing credit and also acting like an agriculturalist/ trader’.

Therefore, they are also the link between the producer and the consumer. Planning Commission estimates for 2011-12 show that demand for agriculture credit stands at PKR 750 billion whereas the flow to the sector stood at PKR 294 billion only (34 per-cent of total demand). This demand has been growing at a rate of 14.6 percent per annum over the past five years whereas actual disbursement has increased by only 8.6 percent.This creates a widening supply-demand gap that is met through the Arthis.

Despite an increase in the number of branches of banks and microfinance institutions in the rural areas of developing countries, the informal money-lender remains. The Arthis often provide loans without demanding security or collateral from the borrower which is an important requirement of formal banks. In addition, money-lenders are often more accessible (in terms of distance/proximity) than formal banks. Furthermore, informal lenders are able to provide credit without ‘delay and undue formalities’ and distribute risk.

Small-holding farmers are especially dependent on the Arthis. Their weak financial position, remoteness from organized markets, and lack of knowledge regarding post-harvest management of produce heavily influences their decision to sell locally and at comparatively lower rates to the Arthi.

Are the Arthi good or bad?

Original Hypothesis: Arthi are not very exploitive and cannot be replaced.

Arthis have a reputation for exploiting farmers and many people think that their exaggerated role causes marketing inefficiencies. It is assumed that middlemen get very high margins but their share is generally justified by considering provision of additional services and the risks involved. The main problems that cited are the multiplicity of middlemen and abnormal profits.

However, the reality is that most Arthis fulfill the credit needs of farmers in rural areas who lack access to formal finance and therefore play an integral role in the livelihood of millions. It is due to middlemen that farmers gain knowledge about the market and technical expertise regarding buying and selling. In some cases, they are also unofficial spokespersons of the farmers they are catering to – thereby acting as a manager since they live in the same village and are somewhat educated in that area.

Arthis are also sometimes employed by companies which specialize in agricultural products, and therefore act as a proxy between farmers and companies. This has positive externalities for both the farmers and the agricultural companies.


Okara is known for being one of the largest mandis for corn and rice in Pakistan. Moreover, it is said to be one of the more progressive mandis which gives fast payments compared to Mandis in the south. With the help of the Ricult research team, I was able to conduct interviews with 5 Arthis in Okara Mandi. We were able to meet 4 Arthis who had been in the business for 6-15 years. Out of these 5 Arthis two were Katcha, two were Pakka, and one was an input financier.

After getting feedback from the Arthis we were able to get a thoroughunderstanding of the Mandi’s value chain. It is predominantly farmers and dealers (beoparis) who come into the Mandi. A large proportion of the farmers come in the summer months while the dealers (beoparis) come during the winter.

Some farmers opt for farm gate selling because of costs of labour, carriage, commission at the cost of a lower rate compared to the Mandi. All produce that enters the Mandi goes straight to the bidding and payments are handed out on the same day. The Arthis can choose who they want to sell to because there is always a risk factor.

How does the Arthi Exploit:

The Mandi committee has set a 2.5% commission for Arthis. However, the Arthis we interviewed said they were charged between 5-7%. The reality is that they charge much more than this and that this is more common in more exploitative Mandis towards the southern districts of Punjab.

The major exploitation that was apparent through our research was happening in the input financing process. To illustrate this issues, let’s assume that the Arthis charge 7% commission fromfarmers that have taken input financing instead of the 5%. They do not like to give cash because farmers can invest it elsewhere.

The arthis select which farmers to finance themselves and often give their own lands (theka) to work on as well. They take a guarantee from the farmer that he will sell only to the input financier. If the farmer sells to anyone else, the Arthi has the ability to stop the payment of the farmer in the Mandi.

Let’s assume that the input financing for corn was 20,000 rupees per acre and a farmer’s yield is 100 mounds and rate for corn is 1500/mound. Arthis claim that they don’t charge any markup on the 20,000. This means that there is no cost of borrowing incurred at the time and commission is now 7%.

This is 2% more than what the Arthi would have normally charged. Total selling price of the produce is 150,000 rupees (1500 rupees/mound*100 mounds). The 2% extra commission amounts to 3000 rupees (2% of 150,000 rupees). Therefore, the total cost of borrowing is actually 3000 rupees which is 15% of the total input financing. If we take the cropping period to be 4-5 months this means that the APR(Annual Percentage Rate) is actually 36%. This APR is much higher than what banks lend at.

Moreover, farmers who take input financing are given their payments a month later. The loss incurred due to this can be calculated by estimating the cost of the produce one month after it was sold.

Arthis prefer to give financing in the form of inputs such as pesticides and fertilizer instead of cash for two reasons. Firstly, there is the risk that the farmer will invest it elsewhere and secondly, the Arthis are able to make profit by charging markups and receiving commission from the input supplier companies.

Conclusion: The utility of the institution of middlemen can neither be denied nor eliminated. His clients however know that he uses his position to charge a higher price but are unaware of how he does so.

Main Problems in the Agriculture Value chain as a whole:

Late Payments:

There are a total of 15-20 major buyers in the Mandi and the main mills are Asia, National, Karach Sindh, Master, and Marjhan feed mills. The Arthis confirmed that the mills don’t have any direct agents but rather have linkages within the mandi. The Mandi committee is responsible for ensuring payments are made within their given timelines which are set by the committee itself.

This is usually between 15-20 days. If payment is not completed then biddingof the buyer can be shut down in the Mandi till they pay. However, most Arthis estimated that 25% of the payments were on time and 75% were not. Late payments from buyers, in turn, affect payments to farmers and thus lead to the farmer losing trust. The later the payment, the lesser the commission the Arthi takes from the farmer.

At the start of the season, the payments from mills are  because they need to complete a certain percentage of their total buying. Thus, they give good payments because if they do not, people will stop selling to them. Once they have completed that certain percentage of buying, payments become slower. Moreover, the mills which give cash or quick payments often have lower rates.

Since there aren’t any mill agents present in the Mandi, it is nearly impossible for the Arthis to demand their payment.However if an Arthi delays payment, anyone can show up to their offices to demand their payment. One Arthi in particular, whose payment had been due for over a year, recalled being threatened by mill owners for demanding his payment.


A major reason for the success of the Arthis model is that the farmer is unaware of how Arthi exploits him. The farmer does not understand concepts such as the true value of APR and monetary value of time. If farmers were to understand the loopholes that Arthis use to exploit them, they would welcome a partnership with banks and microfinance networks, which lend at a much lower APR.

 Problems with Government, Banks, Microfinance Institutions:

The facilities provided to the farmers by these institutions are not tailored to the farmers needs in the way Arthis facilities are. This may sometimes deter the farmers from choosing these institutions over the Arthis, despite the lower lending rates.

Farmers are unaware of any alternative to the facility provided by Arthis. This is largely due to poor marketing strategies by the government, banks, and microfinance institutions. This makes farmers solely dependent on the Arthi.

 Weak Mandi Committee:

The commission that the Arthi charges is much higher than the commission set by the Mandi committee(2%). This shows that the mandi committee is unable to effectively implement rules and regulations. Since buyers don’t face severe penalties and consequences for delaying payments consistently, they are more inclined to doing so.


In order to simultaneously benefit the agriculture value chain as a whole, and to reduce the extent of farmer exploitation, we must employ the use of a digital platform. One avenue to facilitate this is to digitize the agriculture value chains for all respective members in the Mandi. This will contain all information of each person regarding timely payment schedules, any past transcations, etc.

This can only be implemented through a strong government effort or campaign and not through any other party. The commission that Arthis charge should be strictly regulated, such as at 2.5%. Loopholes which the Arthi use to exploit the farmer should be shut through strict policies.

A peer to peer transaction system should also be implemented on this platform to bring transparency in all the transactions that take place. Moreover, digital financial services, government lending schemes, etc. should be marketed on this platform.

Benefits of Digital platform:

Farmer Independence from Arthis:

This platform will make farmers and agriculturalists independent of Arthis as they will be able to directly contact the buyers(wholesalers and dealers) directly, which reduces the number of intermediaries in the supply chain. Moreover, they will have access to a variety of financial services and therefore will not have to rely solely on Arthi.

This results in better price realisation, better availability of crops, and less scarcity. They do not have to depend upon the hierarchical chains of middlemen to get the agri-products and suffer from price manipulation. This will connect them indirectly with consumers as well as help them to plan efficient logistics and manage payments.

Government Lending Schemes, Banks, Microfinance Institutions:

Government, banks, and microfinance institutions will be able to market their customized services to the farmers more effectively through this platform. This will give the farmers an alternative to the Arthis.

More Knowledge:

The digital tool will contain all the necessary information for all the players in the mandi’s value chain to make smarter decisions. Farmers will be well aware of which Arthi is known for charging high commission and arthis in turn will know which buyers/mills are known for delaying their payments.

At the same time, if the farmer is provided adequate training, he or she might be able to share this knowledge with his community as well as a wider audience. The virtual digital tool updates the farmer on agricultural knowledge, connects them with agri-input suppliers and technical experts, and enables them to be updated on the current market rates, demands in the market, and produce accordingly.

This will help farmers to mitigate the risk and help them to maximize their benefits by selling their products for the right price and to the right people. Also, having historic electronic data on farmers could help more arthis, financiers, etc make more informed decisions on who to lend to.

Impact on Agri Industry overall:

Digitization of agriculture will impact literally every linked service such as agri-financing, biotech and agro-chemical players, agri-tech firms, farmers, growers, food processors, traders, retailers, consumers, waste management firms and geopolitical regulations and policy making.

Digital marketing will be beneficial to farmers to reach out and be visible to a broad range of audiences. At the same time, they may come in contact with suppliers of post-harvest technologies such as transport, storing, and packaging, and eventually lead to access to digital credit.

Tax Collection and less costs involved in using cash: 

Currently most transactions are not on paper. Digitization will result in more transparency as well as a database that will help in the collection of tax. Farmers prefer to use cash. The peer to peer transaction system will reduce the costs incurred due to dealing in cash.

Trust building:

Digitization avoids the anxieties created while farmers wait to receive their funds – and reduces the temptation for them to sell crops too early for a lower price just to get cash in hand. This increases trust from farmers when transactions are completed rapidly.

Benefits to Arthis:

The digital platform will prevent buyers from delaying payments, as doing so will make the Arthi cautious of selling to him. Digitization also means that the Arthis services will be visible to a larger audience. The digital solution will also provide the Arthis with data that will help them anticipate and quantify the buyer demand about the type, time, and quality along with prior information on price.


I would like to express my sincere gratitude to Sir Usman Javaid for providing me with the opportunity to do my internship and write this research paper at Ricult. I would also like to thank Sir Ali Zain and Humayun Dar, without whom I wouldn’t have been able to complete this project

About the Writer

Makhdum Mourad Shah is currently a  second year A Levels student at Aitchison College, Lahore. He has an interest in Agriculture-Technologies and computer-sciences. He can be reached at mouradshah3@gmail.com