Famers’ access to credit: Does collateral matter or cash flow matter?—Evidence from Sindh, Pakistan

Abstract

Credit is highly demanded in different parts of the world, mainly for capital requirement to improve land, purchase of main agricultural inputs including fertilizers, seeds, pesticides, and purchase of farm machinery. The purpose of this study was to examine the farmers’ access to credit: does collateral matter or cash flow matter?—evidence from Sindh province of Pakistan. The random sampling technique was used to collected data from 300 rural households through a face-to-face interview. To find the important factors affecting access to credit in Sindh province of Pakistan, we performed descriptive statistics and probit regression model. The results of probit regression model showed that gender, household size, educational level, farming experience, farm size, income, and availability of collateral have positive effect on farmers’ access to credit, while age has a negative and statistically insignificant effect on the farmers’ access to credit. Therefore, this study recommended that institutional sources of credit (such as the ZTBL and other Commercial Banks) should improve their loaning schemes to better suit the diversified needs of small farmers.

Keywords:

• financial sources
• credit access
• probit model
• Pakistan

Public Interest Statement

The main objective of this study is to examine the determinants of farmers’ access to credit, and the effects of access to credit on household behavior and welfare in Sindh province of Pakistan. The random sampling technique was used to collected data from 300 farmers through a face-to-face interview. The collected data were analyzed through the probit regression model. The results of our study showed that gender, household size, education, farming experience, farm size, income, and collateral have positive effect on farmers’ access to credit, while age has a negative and statistically insignificant effect on the farmers’ access to credit. This is the first study to examine the determinants of farmers’ access to credit, and the effects of access to credit on household behavior and welfare in Sindh province of Pakistan. This paper will be an important addition to the literature regarding access to credit studies.

Acknowledgments

The authors are very grateful to ZaraiTaraqiati Bank Limited (ZTBL) and Khushhali Bank officials for their support during field visit and providing the needed research materials. Also, authors would like to express their thanks to the editor and two anonymous reviewers for their insight comments and suggestions that substantially enhanced the quality of the paper.

Additional information

Funding

Funding. The authors received no direct funding for this research.

Notes on contributors

Abbas Ali Chandio

Abbas Ali Chandio is the PhD research scholar in college of Economics, Sichuan Agricultural University, Chengdu, China. He won Sichuan Government Scholarship (SGS) 2014 sponsored by SAU. His major interests include Rural Finance, Agricultural Economics, Agricultural Development, Development Economics, Econometrics, Financial Economics, Microeconomics, Macroeconomics, Regional Economics, Sustainable Agriculture and Regional Rural Development. Due to his excellent research work, he has been awarded with Excellent International Students Award in 2017. He has good research publications in the world leading journals databases that having indexing of the Web of Science.