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Why and for What? An Evidence of Agriculture Credit Demand among Rice Farmers in Pakistan

Publication | September 2019
Why and for What? An Evidence of Agriculture Credit Demand among Rice Farmers in Pakistan

Farmers who get agricultural credit are not using it for the intended purpose.

Credit is a crucial factor in agricultural development. We explore the reality in the commonly practiced sources by farmers for acquiring agricultural credit, its uses and environmental and socioeconomic determinants. A total of 236 rice farmers with agricultural credit activity at least for the last two years were randomly selected and interviewed in the Punjab province of Pakistan using a multistage cluster sampling technique. We analyzed the collected data using ordinary linear regression (OLS) regression and multivariate probit regression (MPR) models. The results indicate that 73.7% of farmers used informal sources to acquire agricultural credit, while 22.1% of farmers acquired loans through public and private institutional sources, and 4.2% of farmers used both sources simultaneously. The acquired agricultural credit amount was not completely invested in the agricultural sector: 64.8% was invested in the agricultural sector, while 25.5% and 9.7% of the credit was used to manage their livelihood and business activities, respectively. OLS indicates that socioeconomic and environmental factors are responsible for agricultural credit demand. Moreover, the MPR results indicate that different factors are responsible for requesting credit from formal and informal institutes. The findings provide suggestions for sustainable development in the agricultural sector, tackling environmental issues and socioeconomic development to reduce poverty. As an emerging economy, formal and informal credit policies should be revisited and the rules regarding environmental and institutional guidelines for farmers should be softened, which would probably support development of credit policies in developing countries.

WORKING PAPER NO: 995