Subsistence farmers’ access to agricultural credit and its adequacy

Purpose - The Government of Pakistan has allocated a substantial proportion of agricultural credit to subsistence farmers. The purpose of this paper is to analyze farmers’ access to credit and its adequacy in the light of current agricultural credit policy of Pakistan. Design/methodology/approach - The study has used both secondary and primary data for analysis. Secondary data were collected from the annual reports of Pakistan Economic Survey and State Bank of Pakistan. Primary data were collected from 168 subsistence farmers through households’ survey. Farmers’ credit access and credit adequacy were measured using credit access ratio and credit adequacy ratio, respectively. The Student’st-test and analysis of variance were used to assess the differences in credit access and adequacy among farmers’ groups (i.e. upper, medium and lower subsistence farmers). Tobit regression model was employed to determine the factors influencing credit adequacy among farmers. Findings - The empirical results revealed that the amount of credit provided to subsistence farmers was less than stated in the national agricultural credit policy. Upper subsistence farmers had more access to credit than lower and medium subsistence farmers. Lower subsistence farmers had above average access to informal sources of credit, and had below average access to formal sources. The findings also revealed that lower subsistence and medium subsistence farmers had the highest credit inadequacy of funds for investment in agriculture. The results of the Tobit regression revealed that age, education, experience, household size, total landholding of farmer and proportion of own land influenced the agricultural credit adequacy. Practical implications - Most of the credit was distributed among the upper subsistence farmers. Lower subsistence farmers were still largely dependent on informal credit for farm production activities. The Government of Pakistan performed poor in the implementation of agricultural credit policy, and has failed to help subsistence farmers in their access to formal credit. It is needed to revamp the agricultural credit policy and facilitate credit acquisition by subsistence farmers, particularly for tenant farmers. It is important that the Government may classify the subsistence farmers into subgroups, and reallocate the funds accordingly. This study has lessons and implications for agricultural finance initiatives in developing countries. Originality/value - Previous studies have focused primarily on access to agricultural credit. However, this study has adopted a holistic approach by using secondary and primary data to assess the farmers’ access to credit and adequacy. In addition, limited literature is available to explore the farmers’ accessibility and adequacy of agricultural credit. Furthermore, this study has focused exclusively on the farmers who are living in the flood-prone areas of Pakistan.