Agricultural Credit Constraints and Borrowing Behavior of Farmers in Rural Punjab

This paper identifies constraints and suggests remedial measures to make efficient use of agricultural credit schemes in Pakistan. The government of Pakistan introduced several agricultural credit programs through institutional sources. These programs had less than optimal impact due to rambling credit policies.Farmers faced many constraints to avail agricultural credit, such as collateral. The hardest hit were tenants and share croppers who did not own land, and thus were ineligible to avail credit. The high mark up from formal and informal sources was another constraint. Study findings indicate that:

• Coefficients of transitory income, education levels and predicted interest rate have important bearings on borrowing behaviour;
• Education, health condition, fixed assets holding and distance from household to formal bank branch are among the most important factors affecting households credit activities;
• Education function facilitates entry into the credit market and reduces transaction costs;
• Operational holding and value of implements, positively and significantly determine household consumption expenditure;
• Initial liquid assets significantly impact the amount of borrowing;
• Non-cooperation and lengthy procedures cause time lags in loan disbursement which affect its eventual productivity.