Economic Benefit Analysis Of Microcredit In Agriculture:A Case Of South Region Of Punjab Province,Pakistan

Microcredit in agriculture has well documented social implications to facilitate the small-farmers' credit accessibility and empowering the poor by offering them to access the economic resources toward escape from poverty web.Among other challenges in Pakistan's agriculture sector,limited access to formal credit is one,which is hampering crops production,productivity and income of small farmers.Microcredit introduced into country by taking an initiative of microfinance ordinance 2001.Since then,Pakistan government has geared up its efforts to popularize the implementation of microcredit.However,few studies have focused on examining the impact of microcredit on agriculture in Punjab province.This research attempts to estimate the benefits of microcredit in agriculture production with specific objectives to examine a marked difference between microcredit borrowers and non-borrowers;while comparing their farm size,quantity of inputs used crops production and income level.In addition of all these,it also focused on to ascertain the key factors that generate the demand for microcredit borrowing and major credit constraint factors that hamper the microcredit accessibility by small farmers in south region of Punjab province.Four districts located in the south region of Punjab province selected for this study and a multi stage sampling method employed to select 16 villages and 256 small farmers.Both primary and secondary data used in empirical analysis;primary data is gathered through structured questionnaire and schedule interviews;while secondary data is obtained from the Ministry of Agriculture,Pakistan Bureau of Statistics,State Bank of Pakistan and Pakistan(SBP),and Microfinance Network(PMN).Analysis of microcredit demand factors and credit constraint factors influencing the accessibility by carried out through logistic regression models.T-test applied to determine,if there were significant differences between the two groups related to farm size,labor cost,cost of production,crop yield and farm income level.Cobb-Douglas Production Function analysis employed in two stages;In first stage,microcredit taken as independent variable and was applied to estimate its impact on farm size;quantity of inputs used and crop yields;Whereas in second stage,multiple production factors such as microcredit,labor cost,quantity of inputs(seed,fertilizer and pesticide)collectively analyzed to assess their impact on farm production.The findings of this research support the wide belief in the literature that microcredit can significantly foster welfare impacts towards poor households.Results revealed that four factors(i.e.gender,family size,education and farm size)significantly affect the demand for microcredit borrowing.It was also found that distance of microcredit branches,large time lag and high interest rate were key factors that influencing small farmers' accessibility to microcredit.Output of T-test proved that microcredit borrowers had higher cost of production which producing more farm production and income,but there was no significant difference between the two groups in labor cost.Taking microcredit alone an independent variable in the Cobb-Douglas Production Function model,the obtained result showed that microcredit considerably influenced the farm size,fertilizer,farm production of cotton,sugarcane and rice;while no manifest change was noted for seed,pesticides and wheat production.Multiple regression analysis by incorporating the variables of(i.e.microcredit,farm size,seeds,fertilizers&pesticides)reasonably explain(68.3%)of variations in overall farm production for microcredit borrowers.Analysis regarding the factors affecting the microcredit benefits carried out by evaluating the opinions,perceptions and attitude of microcredit borrowers.The results of simple and multiple regression model exposed that high education level,saving habits of farmers,off-farm income sources,presence of livestock animals,inter-cropping practices,suitable weather conditions,farm to market road,access to information/extension services,and credit monitoring framework by microfinance institutions were the major variables which had positive and significant influence on the benefits of microcredit.Conversely,the study results showed that variables like usage of microcredit on non-income generating activities,large distance from district market,strict repayment plan of credit institutions and cost of credit had negative impacts on microcredit benefits.The value of adjusted-R2 explained 63.16%variability in microcredit benefits due to the influence of all social factors,economic factors,agriculture production technologies,environmental factors,physical factors,and institutional factors.Many of the variables of these factors were inter-related and inter-dependent to each other.This suggests that the existence of one factor could influence the impact of other factor positively or negatively.Furthermore,the study also made several observations regarding the poor performance of microfinance institutions such as;volatile economic climate,energy crises in agriculture,high lending rates,lack of mobility of bank staff,political interferences and low awareness level among farmers.This study has provided the possible counter-measures/strategies,which can improve the role of microcredit in agriculture productivity.