Smallholder Commercialization and Urban-Rural Linkages: Effect of Interest-Free Agriculture Credit on Market Participation of Rice Growers in Pakistan

Abstract

This study estimates the effect of interest-free agriculture credit on the market participation and urban-rural linkages of rice growers in Pakistan. A survey was conducted to collect primary data using purposive and simple random sampling techniques from Punjab, Pakistan. This study applied the Instrument Variable (IV) approach and Ordinary Least Square (OLS) to evaluate the impact of interest-free credit on market participation and income. The results show a mixed influence of interest-free credit on rice growers’ market participation and urban-rural linkages. In general, the effect is negative when farmers obtained credit for six months. However, it shows a positive impact when farmers’ received credit for the next consecutive crop. Our findings suggest that the provision of interest-free credit for one year served a better purpose as it significantly attempted to alleviate budget constraints and endorsed farmers to increase land size under rice cultivation and improve productivity, market participation, and urban-rural linkages. The study provides three valid instruments and, therefore, a superior estimate of effect is achieved which can be leveraged to better support coherent agri-food policymaking.