Smallholders’ Access to Rural Credit: Evidence from Pakistan

Abstract

This paper presents an analysis of smallholders’ access to rural credit and the cost of borrowing using survey data from Pakistan. Rural credit in Pakistan comes from formal and various informal sources. The tenure status, family labor, literacy status, off-farm income, value of non-fixed assets and infrastructure quality are found to be the most important variables in determining access to formal credit. On the other hand, the total operated area, family labor, literacy status and off-farm income are found to be the most important factors in determining the credit status of the smallholders from informal sources. The results show that the cost of borrowing from formal sources falls as the size of holding increases. The analysis confirms the importance of informal credit, especially to the smallest of the smallholders and tenant cultivators.