Analysis of Factors Influencing the Benefits of Microcredit in Farm Production: A Welfare Economic Perspective from Punjab Province of Pakistan

Abstract

Microcredit seems to be the dire need of small farmers and believed to be an appropriate tool for facilitating small enterprises. This study examined the effects of farmers’ certain internal and external factors on microcredit major benefits i.e. farm production and income. The study was confined to the four districts of Punjab Province of Pakistan. Data was randomly collected from 118 small farmers who had borrowed microcredit from different microfinance institutions (MFIs). Data analysis was performed in such a way that influence of specific variables under six categories of internal and external factors was estimated by employing logit model.  Most influencing variable observed from each logit model was selected for overall multiple regression analysis.  Findings from data analysis revealed that farmers’ education and their saving habit were positively influencing farm production and income. Number of livestock animals and more off-farm income sources reduced the changes of credit money to be used on non-income generation activities. These results were significant at 1% significance level. Inter-cropping had positive relationship for crop productivity. Suitable weather conditions was taken as environmental factor and its influence was positive for microcredit benefits. Farmers’ long distance from major agricultural market and strict repayment plan of MFIs were negative influencing microcredit benefits and were significant at 1% significance level. Multiple regression model overall 54.81% explained the impacts of six important variables on microcredit benefits. Econometric models also showed that many of the variables were inter-related and inter-dependent to each other and were affecting farm production and income on varying degree.

Keywords: microcredit benefit, farm production, impact assessment, inter-dependence, Punjab.