The impact of farm credit in Pakistan
By Shahidur R. Khandker, R. Faruqee. 2003
118 citations recorded by the source corpus.
Both informal and formal loans matter in agriculture. However, formal lenders provide many more production loans than informal lenders, often at a cost (mostly loan default cost) higher than what they can recover. For example, the Agricultural Development Bank of Pakistan (ADBP), providing about 90% of formal loans in rural areas, incurs high loan default costs. Yet, like other governments, the Government of Pakistan supports the formal scheme on the grounds that lending to agriculture is a high risk activity because of covariate risk. Hence, such policies are often based on a market failure argument. As farm credit schemes are subsidised, policy makers must know if these schemes are worth supporting. Using a recent large household survey data from rural Pakistan (Rural Financial Market Studies or RFMS), we have attempted to estimate the effectiveness of the ADBP as a credit delivery institution. A two-stage method that takes the endogeneity of borrowing into account is used to estimate credit impact. Results reveal that ADBP contributes to household welfare and that its impact is higher for smallholders than for large holders. Nevertheless, large holders receive the bulk of ADBP finance. The ADBP is, thus, not a cost-effective institution in delivering rural finance. Its cost-effectiveness can be improved by reducing its loan default cost and partially by targeting smallholders in agriculture where credit yields better results.
Subfields: Economics and Econometrics, Soil Science, Urban Studies
View Paper: https://www.semanticscholar.org/paper/b3a18e76cf75f63f239e07c8b3fa2b6e54222934
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Economics and Econometrics
In Soil Science
In Urban Studies
Citations in the corpus
- Factors determining subsistence farmers' access to agricultural credit in flood-prone areas of Pakistan (2018, background): “The majority of small-scale farmers cannot borrow from banks or other financial institutions due to a lack of collateral security (Khandker & Faruqee, 2003; Rahman et al., 2014).”
- The Determinants of Financial Inclusion in Western Africa: Insights from Ghana (2013, background): “The empirical literature suggests that the volume of activities in the informal financial market of developing countries is far greater than that of organized formal financial institutions (Braverman & Guasch, 1997; Khandker & Faruqee, 2003; Schindler, 2010).”