Food Security

, Volume 4, Issue 1, pp 73–85 | Cite as

Smallholders’ access to agricultural credit in Pakistan

  • Abid Hussain
  • Gopal Bahadur Thapa
Original Paper


The Government of Pakistan has implemented a policy of food security for smallholders by making provision of credit needed for purchasing inputs such as farm machinery, fertilizer and seed. This study analyzed access to and adequacy of credit for smallholders with landholdings up to 5 acres (= 2 ha), using primary data collected through a survey of 208 households, focus-group discussions and unstructured interviews. The findings revealed a partial success of the national credit policy in terms of the proportion of households having access to formal credit but appeared less successful when this was compared with the total amount of credit demanded and obtained. Among the three types of smallholders compared, i.e. lower-smallholders (≤1.0 acre), middle-smallholders (1.01–2.50 acres) and upper-smallholders (2.51–5.00 acres), the lower-smallholders obtained least benefit from the policy as reflected in the formal credit accounting for 12% of the total credit obtained and only 6% of the total credit demanded. The other two types of smallholders had relatively better access to formal credit. Due to a lack of access to adequate formal credit, informal sources have continued to play a major role in the credit market. The causes for this are explained and relevant policy recommendations are made for improving smallholders’ access to credit in the study area and elsewhere in Pakistan. It is hoped that the findings of this study will make a useful contribution to the understanding and remedying of the difficulties that smallholders experience in obtaining credit which may be of value not only in Pakistan but in other developing countries.


Food security Smallholders Agricultural credit Access to credit Adequacy of credit Collateral Pakistan 



Funding support for this study was provided by the Higher Education Commission of Pakistan through funds allocated to a PhD scholarship for the first author. Immense cooperation was extended by smallholders, local contact persons, namely, Choudhry Afzaal Tahir, Zahid Hussain Meo and Mehar Sarfraz Khan, and officials of the District Revenue Office and financial institutions officials during the entire period of field survey. We extend our sincere thanks to all of them.


  1. Abedullah, Mahmood, N., Khalid, M., & Kouser, S. (2009). Role of agriculture credit in the growth f livestock sector: A case study of Faisalabad. Pakistan Veterinary Journal, 29(2), 81–84.Google Scholar
  2. ACO (2000). Census of agriculture 2000, Agricultural Census Organization, Statistics Division, Government of Pakistan.Google Scholar
  3. Aleem, I. (1990). Imperfect information, screening and the cost of informal lending: A study of a rural credit market in Pakistan. The World Bank Economic Review, 1(3), 329–349.CrossRefGoogle Scholar
  4. Amjad, S., & Hasnu, S. A. F. (2007). Smallholders’ access to rural credit: Evidence from Pakistan. The Lahore Journal of Economics, 12(2), 1–25.Google Scholar
  5. Banerjee, A. V., & Newman, A. F. (1994). Poverty, incentive and development. The American Economic Review (AER), 84(2), 211–215.Google Scholar
  6. Basu, S. (1997). Why institutional credit agencies are reluctant to lend to the rural poor: A theoretical analysis of Indian rural credit markets. World Development, 25(2), 267–280.CrossRefGoogle Scholar
  7. Binswanger, H. P., & Siller, D. A. (1983). Risk aversion and credit constraints in farmers’ decision making: A reinterpretation. Journal of Development Studies, 9(2), 5–21.CrossRefGoogle Scholar
  8. Cox, D., & Jappelli, T. (1993). The effect of borrowing constraints on consumer liabilities, journal of money. Credit and Banking, 25(2), 197–213.CrossRefGoogle Scholar
  9. DOIP. (2009). Pre-investment study on Toba Tek Singh district 2009. Pakistan: Directorate of Industries Punjab Lahore, Government of Punjab.Google Scholar
  10. Ellis, F. (1992). Agriculture policies in developing countries. Book Chapter No. 7, Credit Policy (pp. 152–174). Cambridge University Press.Google Scholar
  11. GOP. (2009). Crop reporting service, directorate of agriculture. Lahore: Government of Punjab.Google Scholar
  12. Heltberg, R. (1998). Rural market imperfections and the farm size-productivity relationship: Evidence from Pakistan. World Development, 26(10), 1807–1826.CrossRefGoogle Scholar
  13. Hou, J. (2006). A measurement of the small business credit gap and the use of credit scoring by small financial institutions. PhD dissertation, University of Kentucky, UK.Google Scholar
  14. Imai, K. S., Arun, T., & Annim, A. K. (2010). Household poverty reduction: New evidence from India. World Development, 38(12), 1760–1774.CrossRefGoogle Scholar
  15. Jabbar, M. A., Ehuui, S. K., & Von Kaufmann, R. (2002). Supply and demand for livestock credit in sub-Saharan Africa: Lessons for designing new credit schemes. World Development, 30(6), 1029–1042.CrossRefGoogle Scholar
  16. Keeton, W. (1979). Equilibrium credit rationing. New York: Garland Publication.Google Scholar
  17. Key, N., Sadoulet, E., de Janvry, A. (2000). Transactions costs and agricultural household supply response. American Journal Agricultural Economics, 82(2).Google Scholar
  18. Khandker, S. R. & Faruqee, R. R. (1999). The impact of farm credit in Pakistan. World Bank Policy Research Working Paper No. 2653. Google Scholar
  19. Khushhali Bank of Pakistan (2010). Official website of the Khushali Bank,, accessed on 23 rd February, 2011.
  20. Ladman, J. R., & Tinnermeir, R. L. (1981). The political economy of agriculture credit: The case of Bolivia. American Journal of Agricultural Economics, 63(1), 66–72.CrossRefGoogle Scholar
  21. Lipton, M. (2009). From policy aims and small-farm characteristics to farm science needs. World Development, 38(10), 1399–1412. 2010.CrossRefGoogle Scholar
  22. Malik, S. J., Mushtaq, M., & Gill, M. A. (1989). Differential access and rural credit markets in Pakistan. Pakistan Development Review, 28(4), 709–716. Part 2.Google Scholar
  23. Markelova, H., Meinzen-Dick, R., Hellin, J., & Dohrn, S. (2009). Collective action for smallholder market access. Food Policy, 34(2009), 1–7.CrossRefGoogle Scholar
  24. Moll, H. A. J., Staal, S. J., & Ibrahim, M. N. M. (2007). Smallholder dairy production and markets: A comparison of production systems in Zambia, Kenya and Sri Lanka. Agricultural Systems, 94, 593–603.CrossRefGoogle Scholar
  25. Pakistan Statistics Division. (2006). Pakistan statistical year book 2006. Islamabad: Federal Bureau of Statistics, Government of Pakistan.Google Scholar
  26. Patra, S. (2000). Demand supply mismatch of credit and role of co-operative bank in rural development. Chapter 7. In S. Tripathy (Ed.), Rural development. New Delhi: Discovery Publishing House.Google Scholar
  27. PCO (1998). District statistics of Toba Tek Singh. Population Census Organization, Statistics Division, Government of Pakistan.Google Scholar
  28. PIDE (1998). Study on economic performance, cost, structure and programme placement of bank branches in Pakistan. Report prepared for State Bank of Pakistan.Google Scholar
  29. Sarap, K. (1990). Factors affecting small farmers, access to institutional credit in Rural Orissa, India. Development and Change, 21(2), 281–307.CrossRefGoogle Scholar
  30. SBP. (2005). Prudential regulations for agriculture financing, banking policy and regulation department. Karachi: State Bank of Pakistan.Google Scholar
  31. SBP. (2008). Per acre indicative credit limits, ACD circular no. 5/2008. Karachi: Agricultural Credit Department, State Bank of Pakistan.Google Scholar
  32. SBP. (2009). District-wise agriculture credit data from July 2008 to June 2009. Agricultural credit department. Karachi: State Bank of Pakistan.Google Scholar
  33. SBP. (2010a). Document of definitions, agricultural credit department. Karachi: State Bank of Pakistan.Google Scholar
  34. SBP. (2010b). Streamlining of agricultural lending procedures and documentation. ACD circular no. 02, 11-08-2010, Agricultural Credit Department. Karachi: State Bank of Pakistan.Google Scholar
  35. SBP. (2010c). Handbook on best practices in agri/rural finance. Karachi: Agricultural Credit Department, State Bank of Pakistan.Google Scholar
  36. Stiglitz, J. E., & Weiss, A. (1981). Credit rationing in markets with imperfect information. The American Economic Review, 71(3), 393–410.Google Scholar
  37. Swaminathan, M. (1991). Segmentation, collateral undervaluation and the rate of interest in the agrarian credit markets: Some evidence from two villages in South India. Cambridge Journal of Economics, 15(2), 161–178.Google Scholar
  38. Syngenta Foundation for Sustainable Agriculture (2011). Understanding smallholder farmers., link accessed on 19-04-2011.
  39. Tsai, K. (2004). Imperfect substitutes: The local political economy of informal finance and micro credit in Rural China and India. World Development, 32(9), 1487–1507.CrossRefGoogle Scholar
  40. Virmani, A. (1981). The nature of credit markets in less developed countries: A framework for policy analysis. Domestic Finance Study No. 71, World Bank, Development Economics Department.Google Scholar
  41. World Bank. (2008). Agriculture for development. World development report 2008. Washington: The World Bank.Google Scholar
  42. Yadav, S., Otsuka, K., & David, C. C. (1992). Segmentation in rural financial markets: The case of Nepal. World Development, 20(3), 423–436.CrossRefGoogle Scholar
  43. Yamane, T. (1967). Statistics, an introductory analysis (2nd ed.). New York: Harper and Row.Google Scholar

Copyright information

© Springer Science + Business Media B.V. & International Society for Plant Pathology 2012

Authors and Affiliations

  1. 1.Regional and Rural Development Planning at the School of the Environment, Resources and DevelopmentAsian Institute of TechnologyKlong LuangThailand

Personalised recommendations