Skip to main content

Advertisement

SpringerLink
Log in

Smallholders’ access to agricultural credit in Pakistan

  • Original Paper
  • Published:
Food Security Aims and scope Submit manuscript

Abstract

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.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. Pak Rupee is abbreviated as Rs, and 85 Rs = 1 USD (reference period Jan 2011 to Nov 2011)

  2. Local term used in place of sub-district in Pakistan

  3. Official document issued by revenue department for non-owned agricultural land with full information of area, cultivated crops and owner’s details

  4. Official ownership document of agricultural land with owner’s information and landholding size

  5. Certificate issued by authorized Revenue Officer confirming the transfer of property ownership from initial owner to current owner through any form of property transfer such as sale deed, exchange, gift deed or inheritance.

  6. Document with location and dimensions of agricultural land

References

  • 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 

  • ACO (2000). Census of agriculture 2000, Agricultural Census Organization, Statistics Division, Government of Pakistan.

  • 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.

    Article  Google Scholar 

  • 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 

  • Banerjee, A. V., & Newman, A. F. (1994). Poverty, incentive and development. The American Economic Review (AER), 84(2), 211–215.

    Google Scholar 

  • 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.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Cox, D., & Jappelli, T. (1993). The effect of borrowing constraints on consumer liabilities, journal of money. Credit and Banking, 25(2), 197–213.

    Article  Google Scholar 

  • DOIP. (2009). Pre-investment study on Toba Tek Singh district 2009. Pakistan: Directorate of Industries Punjab Lahore, Government of Punjab.

    Google Scholar 

  • Ellis, F. (1992). Agriculture policies in developing countries. Book Chapter No. 7, Credit Policy (pp. 152–174). Cambridge University Press.

  • GOP. (2009). Crop reporting service, directorate of agriculture. Lahore: Government of Punjab.

    Google Scholar 

  • Heltberg, R. (1998). Rural market imperfections and the farm size-productivity relationship: Evidence from Pakistan. World Development, 26(10), 1807–1826.

    Article  Google Scholar 

  • 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.

  • Imai, K. S., Arun, T., & Annim, A. K. (2010). Household poverty reduction: New evidence from India. World Development, 38(12), 1760–1774.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Keeton, W. (1979). Equilibrium credit rationing. New York: Garland Publication.

    Google Scholar 

  • Key, N., Sadoulet, E., de Janvry, A. (2000). Transactions costs and agricultural household supply response. American Journal Agricultural Economics, 82(2).

  • Khandker, S. R. & Faruqee, R. R. (1999). The impact of farm credit in Pakistan. World Bank Policy Research Working Paper No. 2653.

  • Khushhali Bank of Pakistan (2010). Official website of the Khushali Bank, http://www.khushhalibank.com.pk, accessed on 23 rd February, 2011.

  • 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.

    Article  Google Scholar 

  • Lipton, M. (2009). From policy aims and small-farm characteristics to farm science needs. World Development, 38(10), 1399–1412. 2010.

    Article  Google Scholar 

  • 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 

  • Markelova, H., Meinzen-Dick, R., Hellin, J., & Dohrn, S. (2009). Collective action for smallholder market access. Food Policy, 34(2009), 1–7.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Pakistan Statistics Division. (2006). Pakistan statistical year book 2006. Islamabad: Federal Bureau of Statistics, Government of Pakistan.

    Google Scholar 

  • 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 

  • PCO (1998). District statistics of Toba Tek Singh. Population Census Organization, Statistics Division, Government of Pakistan.

  • PIDE (1998). Study on economic performance, cost, structure and programme placement of bank branches in Pakistan. Report prepared for State Bank of Pakistan.

  • Sarap, K. (1990). Factors affecting small farmers, access to institutional credit in Rural Orissa, India. Development and Change, 21(2), 281–307.

    Article  Google Scholar 

  • SBP. (2005). Prudential regulations for agriculture financing, banking policy and regulation department. Karachi: State Bank of Pakistan.

    Google Scholar 

  • SBP. (2008). Per acre indicative credit limits, ACD circular no. 5/2008. Karachi: Agricultural Credit Department, State Bank of Pakistan.

    Google Scholar 

  • SBP. (2009). District-wise agriculture credit data from July 2008 to June 2009. Agricultural credit department. Karachi: State Bank of Pakistan.

    Google Scholar 

  • SBP. (2010a). Document of definitions, agricultural credit department. Karachi: State Bank of Pakistan.

    Google Scholar 

  • 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 

  • SBP. (2010c). Handbook on best practices in agri/rural finance. Karachi: Agricultural Credit Department, State Bank of Pakistan.

    Google Scholar 

  • Stiglitz, J. E., & Weiss, A. (1981). Credit rationing in markets with imperfect information. The American Economic Review, 71(3), 393–410.

    Google Scholar 

  • 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 

  • Syngenta Foundation for Sustainable Agriculture (2011). Understanding smallholder farmers. http://www.syngentafoundation.org/index.cfm?pageID=297, link accessed on 19-04-2011.

  • 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.

    Article  Google Scholar 

  • 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.

  • World Bank. (2008). Agriculture for development. World development report 2008. Washington: The World Bank.

    Google Scholar 

  • Yadav, S., Otsuka, K., & David, C. C. (1992). Segmentation in rural financial markets: The case of Nepal. World Development, 20(3), 423–436.

    Article  Google Scholar 

  • Yamane, T. (1967). Statistics, an introductory analysis (2nd ed.). New York: Harper and Row.

    Google Scholar 

Download references

Acknowledgement

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.

Author information

Authors and Affiliations

  1. Regional and Rural Development Planning at the School of the Environment, Resources and Development, Asian Institute of Technology, P.O. Box 4, Klong Luang, Pathumthani, 12120, Thailand

    Abid Hussain & Gopal Bahadur Thapa

Authors
  1. Abid Hussain
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Gopal Bahadur Thapa
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Abid Hussain.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Hussain, A., Thapa, G.B. Smallholders’ access to agricultural credit in Pakistan. Food Sec. 4, 73–85 (2012). https://doi.org/10.1007/s12571-012-0167-2

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s12571-012-0167-2

Keywords

Search

Navigation