Does Formal Credit Enhance Sugarcane Productivity? A Farm-Level Study of Sindh, Pakistan

Abstract

In this study, we used the probit model to find out the determinants of access to formal credit and then we applied the Cobb–Douglas production function to examine the impact of formal credit on sugarcane productivity. To elicit the choice and consequence of sugarcane productivity, we divided the farmers into two groups: borrowers and nonborrowers. A total sample comprised 120 sugarcane growers from Badin District—rich in sugarcane production—Sindh, Pakistan. For analysis purposes, we used a binary-choice probit model that reveals significantly positive relationship between access to formal credit and farmer’s education level, landholding size, farming experience, and household size. The main driver to access formal credit is landholding because it is used as collateral against the loan. The age of the farmers, which was found negative and significant, shows that aged farmers are risk-averse and reluctant to access credit. The results of Cobb–Douglas production function affirm significantly positive impact of formal credit on sugarcane productivity. The credit access and use in the production process can enhance the crop production and overall income of the farmers. Therefore, secure and timely availability of crop-specific credit can help the farmers to use inputs in a timely and recommended manner.