The Role of Formal and Informal Credit in Agriculture Sector: A Case Study of District Faisalabad, Pakistan

Abstract

The study aims to examine the role of formal and informal credit in the agriculture sector. The agriculture sector is considered the backbone of the economy of Pakistan. Credit is used as the most important source to enhance the productivity of the agriculture sector. Primary data were collected after choosing a sample of respondents of formal and informal credit users from district Faisalabad. It was observed from the literature that the disbursement of credit to farmers has a more important and effective role in agricultural output. So to check this impact the study in hand was carried out. The study also includes an exploration of the role of formal and informal credit on the productivity and profitability of farmers. The data were collected from 100 formal credit borrowers and 50 informal credit borrowers from district Faisalabad. Primary data were collected randomly through a well-designed questionnaire from farmers. Multiple regression analysis was used for the estimation of the results. This method was used to estimate the role of formal and informal credit in the agriculture sector. The results showed that annual income increased after getting the loan. The focus of the study was to investigate the role of formal and informal credit in the agriculture sector. The result showed that informal credit was more convenient in terms of timely availability of loans, less distance to travel, less time delay, and no specific securities. In this way, this study concluded that formal and informal credit has a significant impact on agricultural productivity, and the trend of agriculture credit has been gradually increased has a positive impact on income.