Role of Commercial Banks in the Uplifting of Agriculture

Sector: A Case Study of District Sahiwal, Punjab

DECLARATION

I, hereby, declare that the contents of the thesis “The Role of Commercial Banks
in The Uplifting of Agriculture Sector: A Case Study of District Sahiwal ” are product of
my own research and no part has been copied from any publication source (except the
references, standard mathematical or genetic models/ equations/ formulate/ protocols
etc.). I further declare that this work has not been submitted for award of any other
diploma/degree. The University may take action if the information provided is found
inaccurate at any stage. (In case of any default the scholar will be proceeded against as
per HEC plagiarism policy).

________________________________
SIGNATURE OF THE STUDENT

Name: Muhammad Asim

Regd. No. 2004-ag-1

I DEDICATE
This Humble Effort

To
My Sweet Parents
and
My Beloved Wife
 Acknowledgements
Up and above every thing, all glory to Thee O’ ALLAH, The Beneficent, The Merciful, The
Omnipotent, The Omnipresent and The Compassionate, Whose blessings and exaltations
flourished my thoughts and thrive my ambitions to have a cherished fruits of my modest efforts
in the form of this write-up from the blooming spring of blossoming knowledge.

I offer my humblest thanks from the deepest core of my heart to the HOLY PROPHET
MUHAMMAD (Peace Be upon Him), the most perfect and excelled among and ever born on
the surface of earth, who is forever a torch of guidance and knowledge and wisdom for
humanity as a whole.

Acknowledgement is not simply a formality but it is backed by all emotional associations; I

have the people who have helped me to complete my research work.

I am greatly Indebted to my supervisor, Dr. Maqsood Hussain, Assistant professor Department

of Agricultural Economics for his kind guidance and encouragement, which has really been a
source of inspiration and motivation through out my work. I have no appropriate words to
manifest my feelings of respect, gratefulness and obligation for his valuable suggestions and
cooperation, which enabled me to achieve my aim.

Heartiest gratitude is extended to Dr. Sarfraz hassan, Chairman Department of Environmental

Resource Economics and Dr. Khalid Mushtaq, Assistant Professor Department of Agricultural
Economics, University of Agriculture, Faisalabad for their kind cooperation during my
research work.

I express special thanks to Mr. Usman Ishaq, Mudassar Murad, Saqib Shehzad, Fakhar
Mehmood, Muhammad Ishfaq and Asad Naseer, who helped me at every pace of work. I
wonder how to thank them for all their kindness, friendly attitude, dexterous guidance,
valuable suggestions and sincere dealings through out my research work.

Muhammad Asim
 ABSTRACT

Agricultural credit is an integral part of the process of modernization of agriculture and

commercialization of the rural economy.
The present study is designed specially focusing on the agricultural credit role on the
agricultural productivity. For the said purpose National Bank of Pakistan (NBP) was
selected as a representative of the credit supplier. A list of the borrowers of the NBP will
be obtained from the respective branches for the selected villages. Five loanees from each
village will be selected hence the total number of loanees selected will be 50 for this
research study.
Cobb Douglas production function was used for wheat crop. The estimated coefficients
are elasticities of production. The intercept of the model is -1.654, which shows the
natural log of the expected yield of wheat when all the inputs are zero. Its t value is
-2.109 which is significant at significant level 0.011. The coefficient of the credit is 0.026
which shows that by increasing one percent of the loan amount the there will be 2.6 %
increase in the wheat yield. It is highly significant with a t-value of 8.667. The results of
the research findings show that all the coefficients are having the appropriate signs which
the theory explains. All the coefficients are significant except the seed bred preparation
cost but the sign is appropriate with the theory.
The result of the multiple linear regression for the cotton crop shows that the all the
variables are impacting significantly on the dependent variable which is the yield of the
cotton. The most important finding is the impact of the loan received by the farmers with
positive sign and the coefficient value of 0.015, which shows that by increasing 1% of the
loan amount the yield will increase by 1.5%. Similarly the result of the coefficient of the
seed bed preparation cost is 0.05 with a significance level of 0.012. The value of the
coefficient for plant protection cost is 0.021 which is highly significant at a significance
level of 0.000.
Keywords: agriculture, micro credit, commercial banks, Sahiwal
CHAPTER 1
INTRODUCTION

Agriculture is a jugular vein of the economy and much of the population in the country
directly and indirectly dependent on agriculture. Agricultural production is essential for
food security while the qualitative perfection in rural societies was also imperative to
address the emerging challenges of new millennium. Dream of a strong and developed
Pakistan could only be achieved if the prosperous and progressive agricultural base is
displayed. He said the majority of our farmers produced at subsistence level, which had
kept away from the mainstream competition. To survive in this changing environment,
we need to spend more traditional farming system and livelihood to a more market-
oriented to compete in the globalized world in the World Trade Organization (WTO)
scenario.

Three main factors contributing to agricultural growth is the increased use of agricultural
inputs, technological change and technical efficiency. Technological change is the result
of research and development efforts, while the technical efficiency with which new
technology is adopted and used more efficiently is affected by the flow of information,
better infrastructure and availability of funds and management capacities of farmers.
Increased use and better mix of inputs also requires funds available to farmers. These
funds could come either from own savings or by borrowing farmers. In less developed
countries like Pakistan where savings are negligible especially among small farmers,
agricultural credit appears to be an essential contribution to modern technology for
increased productivity.

The effective way to increase productivity and profitability is to provide timely inputs.
Access to inputs (seeds, chemicals and fertilizers) is often more difficult than the input
distribution has moved from public to private and subsidies were reduced or eliminated.
Deficiencies in the availability of inputs have contributed to other problems on the farm.

Credit is an important tool to allow farmers to gain control on the use of working capital,
fixed capital and consumer goods. After the emergence of the Green Revolution, there
were additional changes in the technology of crop production, so the credit requirements
have increased for both inputs for agricultural production and agricultural investment.
Small farmers with limited capacity to finance investment, became the logical target
group for lending by credit institutions. Farmers often face a fragmented credit market
with a pre-dominant non-institutional credit with interest rates of several generally much
higher than institutional loans. Realizing that the government began to emphasize the role
of institutional credit to increase productivity and production. Various specialized
financial institutions, especially for the credit needs of the rural sector, have been
established. Despite these efforts, there was a growing sense that most farmers were
unable to borrow enough to take full advantage of the opportunities offered by the
emergence of the green revolution.

Pakistan is blessed with abundant natural resources, which are favorable for crops.
Pakistan has the largest canal system in the world, fertile land, mountains and lakes, the
different seasons. Moreover, the most important of these is abundant supply of labor.
Pakistan is a country where most of the population resides in rural areas. Most of them
are engaged in agricultural activities in general. Of a total population of life in Pakistan
67 percent in rural areas and the population engaged in agriculture. Agriculture
contributes 21 percent to total GDP and employment opportunities for 45 percent of the
total labor force (GOP 2010).

The total area of Pakistan is geographically from 79.6 million hectares. Which only 27
percent is currently cultivated. Of the total cultivated area, 82 percent which is about 17.5
million hectares are irrigated, while the remaining farming 3,960,000 hectares mainly
depend on rain. In this way, Pakistan has one of the highest proportions of irrigated
acreage in the world (Liaqat, 2004).

There are two main seasons crops in Pakistan called the Kharif season, which begins in
April-June and harvesting is done during October to December and the second Rabi
season, which begins in October-December and ends in April-May . Kharif crops include
rice, cotton, sugarcane, maize, bajra and Jawar while the Rabi season crops are tobacco,
wheat, canola, barley and mustard. Surprisingly, the contribution of agriculture to GDP
has declined over the years, from 39 percent in 1970 to 20 percent in 2010, with a decline
of 19 percent in forty years. The role of agriculture in terms of its contribution to GDP
still cannot be denied. The four major crops (rice, wheat, cotton and sugar cane), 31.1
percent of the value-added contribution to global agriculture and 7.1 percent of GDP. The
share of minor crops is 11.1 percent of the value added in agriculture in general. The
added value of cash crops, rice, cotton, sugarcane and wheat in agriculture of 6.4 percent,
8.4 percent, 3.6 percent and 14.4 percent respectively. The major share of cops, rice,
sugarcane and wheat in Pakistan's total GDP is 1.4 percent, 1.8 percent, 0.8 percent and
3.1 percent, respectively ( GOP, 2010).

Pakistan's economy is affected by the law and order situation in the country, which
affected the national economy due to lower exports and reduced foreign direct
investment. The real gross domestic product (GDP) of Pakistan has remained 4.1 percent
in 2009-2010 against 2 percent last year. The agricultural sector in Pakistan has increased
by 2 percent compared to 4 percent last year. Major crops accounting for 33.4 percent of
agricultural value added with a notable growth of 7.7 percent exceeding the target of 4.5
percent and against a negative growth of 6.4 per cent per Last year (GOP 2010).

The government's concern to ensure the availability of credit to farmers to take advantage
of the gains of the spread of modern technology, institutional credit has been heavily
subsidized. The pattern of increase of free credit established by the Government of
Pakistan in 1979 was designed to provide interest-free loans in the short term free to
small farmers for production. These distortions in the structure of interest rates combined
with the weakness of others in the system leads to access to rural credit institutions are
dominated by the politically influential large farmers for the adoption of technology-
oriented chemical.

The mandatory targets of landing by the National Credit Consultative Council (CNCC),
which has significantly increased each year by the rate of 25 percent per year, has
facilitated a process of debt restructuring for large farmers ( Meller, 1995) Various policy
measures have been initiated in the 7th Five-Year Plan and other successive five years
plans to meet the challenge to reach the poor farmers on credit. This reflects the increase
in the amount of institutional credit. The total amount of agricultural credit provided by
institutional sources, which stood at Rs 16.3 billion in 1986-87, was 13 per cent of GDP
generated in agriculture. It reflects thirteen times higher in 2001-02 during the 1980 to
1981. The ratio of institutional credit as a proportion of GDP of agriculture sector
increased by three times the 4.0 percent in 1976-1977 to about 13.0 per cent in 1986-87
(Government of Pakistan, 1988). Again there was a steep credit is the backbone of any
business and more for agriculture has always been a non-income dimensions of rural
population in Pakistan.

Agricultural credit is an integral part of the process of agricultural modernization and

commercialization of the rural economy. There was a consensus among policy makers in
Pakistan since the early 1970s that the transition from a resource based on agriculture
based on science can be facilitated by the availability of agricultural credit. The
introduction of easy credit and cheap is the fastest way to increase agricultural
production. Therefore, it was the first of all policies of successive governments to meet
the credit needs of the farming community of Pakistan. Credit is an important tool to
allow farmers to gain control on the use of working capital, fixed capital and consumer
goods. After the emergence of the Green Revolution, there were additional changes in the
technology of crop production, so the credit requirements have increased for both inputs
for agricultural production and agricultural investment. Small farmers with limited
capacity to finance investment, became the logical target group for lending by credit
institutions. Farmers often face a fragmented credit market with a pre-dominant non-
institutional credit with interest rates of several generally much higher than institutional
loans. Realizing that the government began to emphasize the role of institutional credit to
increase productivity and production. Various specialized financial institutions, especially
for the credit needs of the rural sector, have been established. Despite these efforts, there
was a growing sense that most farmers were unable to borrow enough to take full
advantage of the opportunities offered by the emergence of the green revolution.

The economy of the load on the agricultural sector in Pakistan as it contributes about
20% of GDP, employs more than 45% of the country's labor force total and directly or
indirectly supports about 67% of the population for their subsistence. Internal or external
shock is going to agriculture is likely to affect growth performance of countries and a
large segment of the population. Wheat, the main food of the people of Pakistan,
contributing about 13% of the value added in agriculture and 2.8% of GDP. The
objectives of area and production for the year 2008-09 was fixed at 8.61 million hectares
and 25.0 million tons, respectively. It was cultivated over an area of 9,060,000 hectares,
an increase of 5.9% over the area last year to 8.55 million hectares. The estimated
production of wheat crop was 23.4 million tonnes, which was 11.7% higher than last year
(GOP, 2009).

Increased use and better mix of inputs need funds available to farmers. These funds could
come either from savings or by borrowing, since the savings of farmers is thin enough or
negative, so they have to borrow for productive activities. The majority of farmers,
especially small, are not able to secure the main entrances (fertilizers, improved seeds,
advanced technology, plant protection, etc.), the purchase is 76 percent and that of
purchase credit DAP is 68 percent. In case of herbicides and pesticides purchase cost of
credit is about 83 percent. Despite the exorbitant interest of these sources are still popular
among small farmers. It is because of the reluctance of potential suppliers of formal
credit to lend to them because of high transaction costs and perceived risk is considered
high and skewed towards large farmers. Their political influence facilitates their access to
formal credit and thus lending by formal institutions is biased towards the rich as thought
by small farmers. Informal sources of credit, on the other hand are considered as offering
loans for consumption. Be short term, it does not contribute to rural growth because it
cannot be sent to long-term productive investment. Unavailability of credit or difficulty
obtaining formal financial institutions require small farmers and tenants to choose
informal lenders Agricultural Development Bank of Pakistan (ADBP), commercial
banks, domestic private banks (DPBS) and Provincial Punjab Cooperative Bank Limited
(PPCBL). These sources have played an active role in the provision of agricultural credit
for the last two decades. These sources provide loans for production and development to
increase production and productivity of this important sector.

From these institutions is increasing day by day as described in Table 1.1 (GOP, 2009).
The share of commercial banks has increased over time and are the main contributor to
this sector followed by ZTBL alternately. According to the Survey of rural households in
Pakistan (HHRP) 2001-02, nearly 80 percent of households farmers participated in the
credit market, two thirds of total rural credit from the informal sector, implying that non-
institutional agricultural credit is much more prevalent in rural areas (Nasir, 2007). A
number of successful financial sector reforms have been undertaken in recent years
because of which the formal credit sources developed, expanded and replaced many non-
institutional sources.

1.1: Sources of agricultural Credit in Pakistan

Informal credit lenders composed of professionals, friends, parents, and staff of the
commission, etc. Although the informal sector is responsible for high interest rates, but its
contribution is larger than the formal sector due to low transaction costs, easy access and
procedures. Moreover, the informal credit is also available for consumption, social
ceremonies and non-productive. Non institutional credit is more expensive and not large
enough to promote growth and investment. Thus, it has no useful contribution to
agricultural production.
As farmers in Pakistan are small farmers to financial resources for these small farmers are
provided through the provision of agricultural. Credit to them for the purchase of
agricultural inputs such as fertilizers and pesticides seeds to meet the requirement for
better crop productivity and improve profitability. Rural financial market in Pakistan
consists of two major segments namely formal and informal.

As most of our farming communities are illiterate and belong to rural areas and financial
institutions are in urban areas, they are reluctant to go to these institutes because of
complex procedures of these institutes and less awareness of the financial systems of
farmer prefers to get the financial install from informal sources. Mainly farmers go to the
staff of the Commission (Arhti) of the Commission staff to provide seeds, fertilizers and
pesticides to farmers on credit and there prices are higher than buying on the net.

The main sources of agricultural credit are informal friends, shopping and shopping.
They provide finance facility for the period and short interest rates are much higher than
the formal sources of credit. These sources are yet to play a vital role in achieving the
consumption needs of thousands of small farmers with the performance of their irrigation
needs, the hiring of farm power cost of fuel, etc. Mark vary in this market to a product
and a lender to the average mark up is estimated at 25%. For fertilizers estimated 29
percent while for the pesticides to 35 percent. case studies suggest that loans of silver is
rising interest rates enough operating from 48 percent to 120 percent per year (Irfan M. et
al, 1999).

The formal agricultural credit available to farmers before independence was "taccavi"
loans and loans from cooperative societies. The farmers have no land or small farmers in
particular depended on these sources to meet their credit needs. The Government of
Pakistan has made extensive use of subsidized agricultural credit policies to achieve
higher agricultural growth by limiting monetary stimulus. Since the 1950s the provision
of agricultural credit in Pakistan is an important component to improve the rural economy
(Zubairi , 1989;. Malik et al 1991). In 1950, two institutes of agricultural credit is
Development Finance Corporation (ADFC) and the Agricultural Bank were originally to
overcome the credit crunch.

In 1961, these credit institutions have been merged and emerged as the Agricultural
Development Bank of Pakistan (ADBP), now Zarai Taraqiati Bank Limited (ZTBL). At
the end of 1972, commercial banks (CBs) and private banks were the targets set out to
provide agricultural credit facility. Commercial banks were mostly charging interest rates
high relative to ZTBL (Bashir Azeem, 2008). Currently, Pakistan, the formal agricultural
credit institutions include ZTBL, the main source of formal agricultural loans,
commercial banks, the Federal Bank of Cooperatives and also non-governmental
organizations (NGOs). Practice the government credit policy to protect the interests of
small and medium farmers by providing loans on favorable terms, to assist in the event of
natural hazards and disasters.

Agriculture as a sector depends more credit than any other sector of the economy due to
seasonal variations in the yields of farmers and a trend change from subsistence to
commercial agriculture. Credit can offer them the opportunity to earn more money and
improve their standard of living (Vogt, 1978). Agricultural loans under Act of 1958
(ALA), the credit is provided for the relief of distress and for the purchase of seed,
fertilizer, livestock and implements (Yusuf, 1984). The importance of credit availability
can be seen by the fact that the average expenditure input per hectare is significantly
higher for farmers with credit, regardless of their level of assets. The higher input costs
are likely related to high growth in productivity (Saeed et al., 1996). The impact of
institutional credit on agricultural production in Pakistan was found to be positive and
significant (Iqbal et al., 2003).

The credit market in Pakistan can be considered as consisting of two segments, i. e.

sources of informal and formal credit. Informal sources including friends, parents,
Commission officials, traders and private moneylenders, etc. Currently, the official
sources of credit consist of financial institutions such as Zarai Taraqiati Bank Limited
(ZTBL)-formerly known as Agricultural Development Bank Pakistan (ADBP),
Commercial Banks and the Federal Bank of Cooperatives. Recently, some non-
governmental organizations (NGOs) are also advancing agricultural credit to rural
communities. Commercial banks are an important part of the formal sources of credit
which is quite common in the days now. Because of the importance of agricultural credit,
commercial banks have recently entered in this case and now they have a big investment.

Following the land reform in March 1972, the Government of Pakistan has decided to
ensure greater involvement of commercial banks in agricultural credit. Effective
December 1972, the State Bank of Pakistan (SBP) has set targets for each specific credit
bank, it fill. Commercial banks actually entered the field of agriculture credit in 1973.
However, an increased rate of agricultural loans has witnessed since 1980 and now they
have the largest share in total agricultural credit. SBP policies to improve the scope and
coverage of agricultural credit have contributed to maintaining the share of agriculture
credit in total credit disbursement. SBP has greatly facilitated the commercial banks in
the promotion of agriculture loans in order to benefit from their extensive branch network
and outreach. Commercial banks have increased their share in total agricultural credit in
recent years.

Agricultural credit disbursement by commercial banks and specialized rose 6.85 percent
year on year to Rs106.261 billion in the first half (July to December) of fiscal 2009-10
(FY10), the SBP said on Thursday. In absolute terms, the disbursement of credit to
agriculture increased by more Rs6.813 billion in July-December 2009, compared with the
total outlay of Rs99.448b the same period last year.

According to the SBP, the overall credit disbursement by five major commercial banks
including Allied Bank Limited, Habib Bank Limited, MCB Bank Limited, National Bank
of Pakistan and United Bank Limited amounted to Rs55.391 billion in July-December
2009, compared to RS48. 635 billion in July-December 2008, representing an increase of
Rs 6.756 billion or 13.89 percent.

Zarai Taraqiati Bank Limited, the largest specialized bank, has disbursed a total of
Rs30.424 billion in July-December 2009, up 9.66 per cent to Rs27.744 billion in the same
period a year last, while disbursement by Punjab Provincial Co-operative Bank Limited
amounts to Rs2.279 billion in July-December 2009 compared to Rs2.179 billion in the
same period last year. In addition, 14 domestic private banks also loaned a combined
Rs18.166 billion in July-December 2009 compared to Rs20.889 billion disbursed in July-
December 2008. It can be recalled that the National Bank of Pakistan has set an
indicative target of agricultural credit disbursement of Rs260 billion for the year 10.
Banks paid a total of Rs233.01 billion to the agricultural sector in FY09.

1.1.1: Informal Credit Source

The informal source of credit has a major role in facilitating small farmers and includes
parents, friends, dealers of the village, traders, agents of the Commission for informal
source of credit etc generally pay for a short period and responsible for interest rates very
high in relation to official sources. Loans from informal sources are inadequate and
insufficient to meet the needs of farmers.

The problem with loans from informal sources is that there is no record of such loans
from informal sources cannot be estimated. The Census of Agriculture in 2000 estimated
that 65% of the outstanding debt of all rural households have been provided by sources of
non-institutional or informal. At present, it is estimated that the requirements of 50
percent loan are met through non-institutional sources. Commission officials and local
lenders charge different brand utilization of different products. For example, agents of the
Commission by 20 percent in the case of fertilizers and 30 percent in the case of
petroleum products. Commission agents and dealers of the village farmers operates this
way and the cost of production increased by several times of poor farmers. This is the
case with the moneylenders and merchants of the village.
The informal source of credit in spite of its drawbacks is attractful to farmers for the
simple reason that there is no documentation, easy access to credit, no collateral and the
availability of credit over time.

1.1.2: Formal or Institutional Sources of Credit

Institutional credit in Pakistan is provided to farmers by Zari Tarqiati Bank Limited

(ZTBL), Punjab Provincial Cooperative Bank, Taccvvi (government) loans, commercial
and domestic private banks. The government has made to the growing demand for credit
and allocated Rs 200 billion for 2007-2008, which was 25 percent higher than the
allocation of the previous year.

On the objective of total credit of Rs 200 billion, Rs 96.5 billion has been allocated to
commercial banks, a sum of Rs 60 billion ZTBL, an amount of Rs 8 billion to Rs 35.5
billion and PPCBL for banks national private commercial. A large amount of Rs 151.9
billion was disbursed during 2008-2009 (July-March) as it was Rs 138.6 billion during
the same period last year, an increase of 9.6 percent. Main source of credit in the country,
from ZTBL has increased up to 30 percent during this period. However, the share of
commercial banks has exceeded ZTBL and was about 49 percent in the same period. The
share of DPBS and PPCBL decreased and remained at 18.9 and 2.3 percent respectively
(GOP, 2009).

1.1.3: Government or (Taccavi) Loans

The government has made efforts in the past to reduce the difficulties of small farmers
and the poor and small. Before independence, institutional credit was available to
farmers, either in the form of loans Taccavi, initiated by the government before the
participation of cooperatives and commercial banks in the cultures and other loans in the
agricultural sector. Loans were disbursed through Taccavi departments of provincial
government revenues. They were paid to poor farmers for production, such as buying
seeds, fertilizers, etc., by agencies of income. Loans Taccavi were also in the case of crop
damage in the event of natural disasters. There was an element of interest on loans
Taccavi, and in the case of a delay in repayment, penal interest was also taken.
Government Regulation of loans Taccavi was established by the Act of 1883 Land
Improvement Loans (LILA), and agricultural lending Act 1884 (ALA), and later replaced
by the West Pakistan agricultural Loan Act of 1958 (ALA) . Under LILA, loans were
disbursed to drill irrigation wells / tube wells, land leveling, and development of land and
development for agricultural purposes. The share of loans in total credit declined
overtime with the institutional emergence of new institutional sources. Problem of delays
and cumbersome procedures within the limits of sanction and disbursement of loans
contributed significantly to system failure Taccavi ineffective and, ultimately, these loans
were discontinued in 1993-1994.

1.1.4: Cooperatives

Cooperatives have been another source of credit in the formal sector. Credit unions were
established by the British government in India under the Companies Act 1904 Credit
Cooperative. The objective was to establish cooperatives to provide loans to small
farmers through their own local associations on favorable terms from other sources and to
release them from the clutches of moneylenders and grain merchants. At the time of
independence, cooperative banks failed finance companies and cooperatives have been
engaged in financing business. To further improve the lending activities and facilitate the
farmers, the government created the Federal Bank for Cooperatives (FBC) and provincial
Cooperative Banks (PCBs) in the 1970s. This was done by introducing an Ordinance
1976 entitled "Establishment of the Federal Bank of Cooperatives and Regulation
Ordinance cooperative banks." The Federal Bank of Cooperatives (FBC) was established
to meet the credit needs of the cooperative banks and societies. It was designed as a
development bank and served as an authority to regulate provincial cooperative banks.
Cooperatives underwent various tests, such as uneven coverage, with no presence in most
villages, the lack of accountability and professional management, corruption, poor
portfolio management, and weak monitoring capacity of provincial departments of
cooperation . Cooperatives have not achieved the expected results because of the
politicization and domination by rural elites. Punjab Economic Research Institute (PERI)
conducted an evaluation of credit unions in Punjab in August 1986. One of its main
findings was that only four percent of the cooperative societies were genuine. An estimate
of the subsidy dependence index (SDI), which measures the average percentage increase
of the financial institution interest rates on loans needed to fully compensate for the
removal of subsidies, found that the Bank Punjab province has been heavily dependent on
subsidies. It would have to increase interest rates on loans to 25 percent instead of 14
percent to completely eliminate the subsidy in 1994-1995.

1.1.5: Zarai Taraqiati Bank Limited (ZTBL)

In the 1950's two special schools namely the Agricultural Development Corporation
Finance and the Agricultural Bank were established in Pakistan. These two institutions
were merged to form the Agricultural Development Bank of Pakistan (ADBP) in 1961.
Historically, ADBP has been used by successive governments, loans to customers with
interest rates that are below the interest rate and competent. The Bank has revolutionized
its mechanism and introduced a new village and a customer-centric approach through the
expansion of its program of supervised credit by providing credit services to farmers by
the Mobile Credit Officers (MCO). Throughout the country to provide access in rural
areas, a national network of branches and OLS has been developed. The Agricultural
Development Bank of Pakistan (ADBP) was converted into a limited company and
renamed Zarai Taraqiati Bank Limited (ZTBL) in 2002. The entire system and structure
of work ADBP has been changed. The mechanism of restructuring included the process,
system and re-engineering products, with the main emphasis being on the program better
training of current employees of the bank, the induction of a professional management
team. ZTBL restructuring was part of the reform agenda of the ADB-funded program to
finance the rural development sector. At the same time, the government also liquidated
the Federal Bank of Cooperatives (FBC). The Punjab Provincial Cooperative Bank is
now the only scheduled cooperative bank, which further operations on the ground. Other
provincial cooperative banks may be liquidated as they currently exist only on paper.

ZTBL plays key role in transforming the traditional agricultural sector into a modern and
for that purpose, he works for the transfer and dissemination of modern technology and
the creation of productive assets on farms. ZTBL offers various credit programs for
lifting the agricultural sector in countries outside of various credit schemes, some are as
follows.

 Micro Credit

 General Finance

 Revolving Finance

 One Window Operation

 Development Loans

 Production Loans

1.1.6: Commercial Banks

State Bank of Pakistan, takes a keen interest in providing credit facilities for agriculture,
both through the development of credit and credit lines to banks by providing
development and incentives for banks business. After the agrarian reform of 1972, the
Government of Pakistan has decided to increase the participation of commercial banks in
agricultural lending. For this purpose, the State Bank of Pakistan set specific targets for
each credit that was mandatory for all banks to complete. Currently private commercial
banks compete with other institutions and ZTBL agricultural loans and it is interesting to
note that commercial banks have exceeded and the share of commercial banks was
around 49 percent in 2009. This shows that commercial banks importance is increasing
day by day and in the future commercial banks play a major role in the agricultural loan.
Table 1.1: Share of Different Institutions in Agricultural Loaning

Fiscal year ZTBL Commercial DPBs PPCBL Total

banks
2004-2005 37,408.84 51,309.78 12,406.82 7,607.47 108,732.91

2005-2006 47,594.14 67,967.40 16,023.38 5,889.40 137,474.40

2006-2007 56,473.05 80,393.18 23,976.16 7,988.06 168,830.45

2007-2008 66,938.99 94,749.29 43,940.92 5,931.45 211,560.66

2008-2009 45,399.87 74,364.60 28,557.24 3,538.89 151,860.60

(July-march)

Note: Values are given in rupees million Source: GOP (2009, p. 30)

Therefore, it is the need of hour that we realize the importance of this critical factor in
production process and to improve the condition of farmers as well as our agriculture
sector. The purpose of current study is also to highlight the importance of credit in cotton
and wheat production and its impact on overall productivity of cotton and wheat. This
study will reveal that how much factor of credit may effects the productivity of cotton
and wheat.

The vital importance of this study is described earlier but actually a few studies are done
in Pakistan on this issue. The present study is focused on the determining the impact of
the credit on the agricultural productivity. Multiple regression analysis is applied to find
out the dependability of the agricultural productivity on different inputs especially credit.

OBJECTIVES
  The study in hand addressed to the following specific objectives

 To spot the characteristics of the credit users and non-users

 To find out the impact of the credit on the agricultural productivity

 To suggest some policy measures.

CHAPTER 2
 REVIEW OF LITERATURE

Stiglitz and Weiss (1981) found that the amount of credit available is directly influenced
by the income or the wealth of borrowers, while the level of wealth has an inverse
relationship between the cost of credit. The problem where the lender assumes the risk of
the transaction and the benefits of the project the borrower may be mentioned as a
problem of information between the two. No guarantee all or part of the first choice of
credit allocation is not possible. And rare side implies that some people will be deprived
of credit, but those who have the guarantee they get the credit.

Qureshi et al. (1984) stated that the institutional sources of credit had become very
important in recent years. The rapid expansion of credit from institutional sources could
be seen from various indicators. The total disbursement of agricultural loans increased by
Rs 306.75 million in 1972-73 to Rs 5,102,140,000 in 1982-83. on a per hectare basis,
loans increased by Rs 7.33 in 1972-73 to Rs 106.83 in 1982-83. In this perspective,
disparities in income and wealth in rural areas would depend crucially on the distribution
of capital between farmers of different sizes and occupational categories. Neglecting the
equitable distribution of credit as a political instrument of income redistribution in rural
areas can be a serious omission by policy makers interested in improving equity in rural
areas.

Araujo et al. (1985) found that the loans in the agricultural sector has enabled the
Government of the Dominican Republic to increase the volume and the number of loans
to small farmers. The loan funds have contributed to a continuing education program that
seems to have been generally effective, but the newly trained individuals are not well
used because the organizations in which they were employed were low early in the
project and have become weaker since . Output of major food crops produced by small
farmers has increased significantly, as does the use of modern inputs. Greater use of
credit may have stimulated these impacts, but the evidence was unclear. Direct provision
of agricultural services bh the public sector is inefficient and may have inhibited the
growth of for-profit sectors of agricultural services.

Zuberi (1989) stated that the agricultural development strategy in the country was based
on greater use of "high pay-off" low-cost technology. The government has provided loans
from financial institutions to make it possible for farmers to acquire this technology.

Malik et al. (1989) there was a serious and growing problem of access to formal credit
particularly by small farmers and tenant, despite the growth of many folds of institutional
credit. In this scheme of disbursement of credit section, the requirements and allocation
were discussed.

Gadgil (1992) in his study showed that farmers would pay more interest than if the
current interest rate loan process and other regulations have been deregulated. Such
improvements in lending has produced a large impact on employment and output. It also
concluded that these improvements have not only improved the agricultural sector but
also contributed to the growth of the lending institution.

Ikram (1994) concluded that the intensity of loanee farmers' crops was found higher
compared to non-loanee farmers for all farm sizes. The cropping intensity in the case of
loanee farmers was 153.52, 131.35 and 128.87 percent on the smaller sizes medium and
large farms, respectively. The respective percentages for non-loanee farmers were
calculated as 139.72, 112.03 and 102.64. In his study as much as 87 percent of
respondents suggested that the loan process should be further simplified, farmers 93
percent said that the interest rates on agricultural loans should be reduced. Another 93
percent of the farmers suggested that loans should be advanced to the farm and 53
percent felt that technical advice should be provided to loanees, so they can use the loan
in a more productive.

Karmakar (1999) concluded that the lack of capital has led to inefficient use of resources
in rural areas. It not only has a negative impact on national economic growth, but also
proved to be helped to keep the poor trapped in poverty as formalized traditional capital
markets remained out of reach of the poor. He stressed that one of the major problems
facing traditional rural credit was the poor performance of the recovery mechanism. The
poor performance is due both to internal and external factors. He further argued that the
credit policies initiated by various successive governments in India have had little impact
on rural development and has produced no benefits for stakeholders, including rural
borrowers, banks and government.

Nazli (2001) in his paper stresses that the provision of abundant credit and fast effective
supervision was crucial for the improvement of agriculture and hence economic
development. She added that, in the absence of formal credit abundant, small farmers and
poor households most often relied on expensive informal credit.

Sheikh (2001) reported that nearly 49 million poor people living in Pakistan with 34% of
its total population. The allocation of inadequate resources for education, health and rural
development had deprived the poor of the non-privileged and poverty-stricken rural areas
of Pakistan. He also showed that the perception of commercial banks' low rate of
recovery of loans obtained by the landless poor and small was not correct. He suggested
that agencies should conduct training to lend to borrowers and to oversee the use of
credit.

Banerjee (2001) was of the view that high-income earners borrowed large amounts of
credit at low cost but low-income borrowed a small amount of high-cost credit. The study
suggests a direct relationship between the credit and the level of income or wealth, while
the level of income or wealth was inversely proportional to the amount of credit.

Muhammad Wasif Siddiqi and Mazhar-ul-Haq (2003) studied credit was an important
tool which enabled the farmers to procure orders on the use of fixed capital, working
capital and consumer goods. This has been observed after the emergence of the Green
Revolution, there was exchange of many crop production technologies, to credit to
purchase inputs and needs more investment in the farm. Small farmers, with limited
capacity to finance investment, a focus on loans advanced by the credit institutions
Gained. Various policy measures were initiated in the Plan of Five successive years to
meet the demands of poor farmers and small. Malthus, the total amount of agricultural
credit thirteen folds showed an increase in 2001-02 during the 1980 to 1981. The credit
disbursed Rs.80.2 was grown per acre and Rs 84.2 per acre grown in 1980-81 and has
increased many folds in 2001-02 and Rs 939 per hectare and Rs Reaches 938 per acre
grown in nominal terms. In real terms, it increased from Rs 80 to Rs 191 and Rs 84 per
acre grown to Rs 191 per acre cultivated during the same period. The coverage of
institutional credit disbursement was only less than 24.1 percent of farms up to 6.5
hectares. The results of the regression, agricultural credit has shown a significant change
in the income of borrowers. Although the growing trend in the release constant in
nominal terms, the loans were not extended in terms of quality. To this end, it was a
problem for policy makers to make sound policies to help small farmers and deserving.

Burgess and Pande (2005) have attempted to examine the impact of the expansion of
bank branches to the output of state and poverty using panel data for the period 1961-
2000 in India. Results showed that the expansion of bank branches increase non-
agricultural production and increase the share aussi rural credit and savings.

Edet j. Udoh (2005) studied women who made up 60 to 80 percent of the workforce in
farming. They had little or no access to productive resources such as land and credit.
However, they had access to capabilities or land and credit there were insufficient
resources to control theory. Malthus, the possibility for them to play their part in reducing
poverty and food insecurity because of their disability and impaired strategic position. In
Nigeria, women have contributed significant amount of work for domestic work and
agriculture and all were involved in agricultural practices such as weeding, planting,
harvesting, transport, processing, agricultural marketing and storage. EFFECT that
followed were equally important women stakeholders in agriculture and farm
management as efficient as their male counterparts. In this regard, the need for women to
demand and control of productive resources, in light of the finances of their multiple
responsibilities cannot be overlooked, especially in the situation of insufficient financial
resources to meet increasing productivity. Farmers and entrepreneurs have extended the
scope of the production credit, and help smooth consumption. Lending to rural women to
encourage the expected adoption of improved technologies and improved the productivity
of their basic income and farm labor to reduce spending generation.

Guirkinger and Boucher (2005) found That informal credit and productive assets
endowments Were the Factors That Increase Household's credit constrained productivity.

Jirawan Boonperm Jonathan Haughton Shahidur R. Khandker (2005) Evaluated the

impact of Village and Urban Revolving Fund on Expenditure, Income, and Assets of
Households in Thailand. This fund started in 2001 WAS and Government of Thailand
Provided Amount of year $ 22.500 or one to one million bhat Every Village and urban
community in Thailand. This WAS Amount disbursed Locally run-through Committees
and villages in 4500 More than 74,000 Urban Communities. The results Showed That
Households That Borrowed from the Bank of Agriculture, Agricultural cooperatives and
revolving fund Gained more in terms of Income Than Those Who Borrowed from Other
Sources or Not Gained facility of borrowing from Any Other Source. The propensity
score matching approach generated reasonable results That Showed That the Village
Revolving Fund Appeared Produced effective and significant results like raising
Expenditures by Income by 3.3% and 1.9% in 2004.

Nuryartono et al. (2005) found That Some Under conditions 18.1 percent of the
Household Household Were Addressed as Constraints no credit. 21.5 percent of
Household Have access to formal credits in the Rural Areas of Central Sulawesi
Province. Self selection problem and collateral Constraints Were the factoring of credit
constraints. The study Tried to dig out the determinants of credit constrained Household,
Focusing on the formal credit market by using a probit model. By switching regression
model Applying the study Tried to highlight the affect of credit constrained Household on
the production of rice. Probit model results Showed That human capital, wealth and risk-
bearing significant Were Indicators in Determining Whether a Household credit
constrained or not IS. Duca and Rosenthal (1993) Arguedas That if a farmer's demand for
credit Exceeds Than supply of credit lenders AND Will Be credit constrained.

Tanvir Ahmad Zulfiqar Ahmed1 And Gill (2005) studied Agricultural Sector That Was
The Largest contributor to Pakistan's GDP. Commercial banks Were the MOST important
component of Pakistan's Financial Sector and important source for year credit for
agriculture Agricultural Sector. This study Estimated technical efficiency of the
commercial banks operating in Pakistan. The result Showed That like the factoring assets,
ownership characteristic and After merger year affects Were significant contributors to
the technical efficiency, while Agricultural lending Had No significant impact over time
on the efficiency of commercial banks. Commercial banks assets Should Increase to
Increase Their Efficiency. The study also Suggested That Government Should not
Promote mergers of banks in the Pakistani market as it HAD negative effect on the
technical efficiency of commercial banks. Foreign ownership Showed positive impact
efficiency of banks, Which Indicated That government, Should take steps to Attract
Foreign Investment in the Banking Sector, Which WAS key to growth of banking Sector.
It Was Also find no significant decline in the efficiency of commercial banks over time
WAS Observed After the start of intensive Agricultural lending by commercial banks,
hence for the betterment of the Agricultural Sector Should it be continued. In addition, it
WAS helpful for growth of agriculture as well as Sector Banking Sector.

Bashir (2006) The Agricultural Credit Concluded That Significantly Impact on the
Productivity of the wheat and sugarcane crop. Emphasize the importance of this result of
the Agricultural Credit in the presence of Other major inputs like seed, fertilizer and
irrigation. The Relationship Between Institutional Credit and Agricultural GDP WAS To
Be positive and found significant. Ten percent Increase in the Disbursement of
Institutional Credit Would Induce year of about one percent Increase in Agricultural GDP.
Similarly, water availability and Labor also Have a positive and statistically significant
impact on Agricultural Production.

Kaleem Ahmad (2007) studied Islam That Prohibited use of year as interest income-
Generating source. This Article Explored Potential Viability of the forward sale
agreement Bai Salam Called year as an alternative source of financing Agricultural Under
Islamic banking. Bai Salam Was a financing method in Which advance payments for
Agriculture Produce Were made for purchase of inputs. Study Revealed That Farmers
also due to Believe Their Religious AVOID also interest-based loans. Surprisingly, none
of the Financial Institutions in Pakistan agriculture loaning Offered Under Islamic
Principles Where 95 percent of the total population WAS Muslim. Empirical Findings
Agriculture Income Concluded That 60 percent share in WAS Income of small farmers.
About 70 percent of Farmers participated in the credit market. THEY needed money for
crops purchase inputs, to pay to the Labor and machinery hire rental. Farmers Believed
That THEY Could Save up to 25 percent in Costa If They Purchased inputs on cash. The
survey also Disclosed Intermediaries That Were the financers and buyers of larger crops
in the rural economy. Only 10 percent of transactions Were Were Conducted Purely Cash
Basis. Usually the money Farmers Returned After the sale of the crop.

Nyemeck et al. (2007) the production of cocoa Farmers That Have access to credit,
THEY HAD stayed in the opposite side (in Cameroon and 2029.47 kg 1256.59 kg in
Nigeria), Would Be Much More Than That of Cocoa Farmers Without credit facilities
(950.16 kg) in Cameroon and, less (1406.72kg) in Nigeria. Hence, the Farmers Produce
That cocoa with credit facilities are the best Farmers in Cameroon, cocoa production and
Their premium IS 114% respectively and in Cameroon, 11% in Nigeria. This is also true
If They Produce cocoa Without credit. Implying and 123%, -3% premium in Cameroon
and Nigeria respectively. access to credit in cocoa production are spillover effects Creates
cocoa production.

Siudek Tomasz (2007) studied the role of co-operative banks in Agricultural Sector of
Poland as in Poland Farmers Rely Mostly on Agricultural cooperatives for credit in
Poland. The Study to Evaluate the impact of credit disbursed WAS by cooperatives from
1997 to 2006 in Agricultural Sector of Poland. Secondary data from sources like banks of
Financial Statements Containing Information Regarding Credit Issued. By using factor
analysis, Agricultural Development Assessed at nation-level and regional-level. Results
of econometric analysis of bank Suggested That region's significant impact on activity
HAS Agricultural Development and Agricultural Credit Levels. That found it in Poland
as a Whole, farm credit by cooperative banks Given Stimulated development of
agriculture in order only Two of sixteen regions (voivodships) Their positive impact and
statistically significant WAS. The Agricultural Development Affected by average farm
size and Agricultural Employment. The way in Which Contributed to agriculture
development Varied Between States, DEPENDING ON It Was How They relied on as the
Sector That Basis for Economic Growth, human welfare, Employment creation. In 2006
and forestry accounted for about 4 per One Hundred of Gross Value Added (GVA)
Produced in Polish economy, Where the food processing industry share WAS As Much as
23 Per cent of GVA. Employment in agriculture and the national importance of Greater
WAS Contributed 16 percent of it total Civilian Employment.

Nguyen (2007) attempted to highlight the characteristics of the rural credit market in
Vietnam. Using time series data for the period 1993-1998 to study also explored the
characteristics of formal and informal credit and its impact on the amount of credit
granted. The study concluded that household demand for both lenders and credit supply
in the credit market. Property, detention, education, health and distance of the bank were
the factors that influence the activities of household credit. Probability of participation in
demand and credit supply was found by using a variable and multi variate probit models.

Berhane Gardebroek Guush and Cornelis (2007) evaluated the long-term impact of
microcredit on the intensity of participation in the loan. He used a panel data set of four
rounds on 351 farm households that have access to microfinance in northern Ethiopia.
Keeping in view the data on the years 1997-2006, with three years apart, households
observed in key indicators of poverty, which are improvements of annual consumption
and housing improvements. The long-term observed data were used to measure changes
in poverty between two consecutive periods and see the long-term effects of exposure to
microfinance with the intensity of the loan participation. The results showed that
borrowing microfinance indeed causally increase household consumption and housing
improvements noted in the household. A more flexible specification that allowed the
number of times it was seen more as the credit borrowed from the lender, which proves
that the higher the borrowing relationship, the greater the effect is partly due to the effects
of Credit sustainable.

Ibrahim et al. (2007) found that in Ethiopia the informal sector was the main source of
credit in rural areas and urban areas. The study concluded that, by reducing bureaucracy,
transportation costs and other obstacles in the way of disbursement of the credit will
increase agricultural production.

Izhar et al. (2008) study attempted to assess the impact of institutional credit for
agriculture for the reform of pre (1972-1991) and after the reform was (1992-2005)
period of India. The current study also analyzed before and after the reform the reform
period and the model trends of institutional credit courses. The lowest average growth
rate of institutional credit was in the decade 1990-2000 and was the highest in the decade
1971-1980. Institutional credit has increased faster than the percentage of agricultural
gross domestic product during the post-reform. Institutional credit per cropped area has
also increased sharply on the post-reform, and the reason behind this was that the total
cultivated area has remained more or less the same during this period. In post-reform, the
share of agriculture has deteriorated to the total credit of non food banks. The study also
found that institutional credit has had a significant impact on overall agricultural
production in India.

Khalid Bashir and Muhammad Masood Azeem (2008) studied the agricultural sector was
the biggest contributor to national income (GDP) of Pakistan has been contributing nearly
21 per cent of GDP and provided employment opportunities nearly 43 percent of the
labor and materials supplied equipment for the industrial sector (especially textiles) in
Pakistan. Credit was an important tool to make entries in time increasing farm
productivity especially small.

There was a lot of constraints reported by loanees in obtaining loans. The study found
that the situation loanees problems concerning the loan that 61.4 percent of loanees felt
that the procedure for banks was long and tedious. There were 77 percent of farmers who
stated that the interest rate was too high. The views on the cooperation of banks "Farmers
staff was not good, as 45.6 percent loanee farmers were unhappy with the behavior of
officials. About 72 percent of loanees complained about not get the loan on time. Thanks
to small farms and lack of funds, security issues and security were met by 54.4 percent of
respondents while 28 percent loanees were adversely affected by rigid procedures for
reimbursement all.

Abedullah et al. (2009) in his study used stratified random sampling approach to collect
input-output and socio-economic data set to see the impact of credit on the growth of
livestock sector in rural areas. It was observed that the availability of credit increased the
livestock sector more than doubled (economies of size), which increased per family per
month income from the livestock sector by 181%. The values of elasticity of family size,
literacy rate (school year) and credit were 0.18, 0.05 and 0.06, respectively. The elasticity
of family size was highest, followed by the credit and the literacy rate, indicating that the
increased availability of credit will impact more than the investment on education for
rural people.

Elliot estimated Mghenyi 2009, in his study of group lending based concluded that the
availability of credit increased the demand for primary inputs that affect crop productivity
at the request of 40% for fertilizer has increased.
Owour (2009) studied the structure of loans in Africa and it was found by him that the
loan based group became popular in Africa. In this paper, researchers used the propensity
score method to check the effect of micro-finance credit (MFC) on crop productivity of
the borrower in Kenya. Study results were surprising and showed that as participation in
household income credit MFC productive improved by a range between $ 200 and U.S. $
260 U.S. on a single production period. However, the study also revealed the difficulties
faced by farmers and that participation in the MFC among small farmers has been
constrained by low literacy, gender inequality in the allocation of assets, poor road
infrastructure and maintenance of the structures of indigenous groups as key to political
intervention.
Dong et al. (2010) conducted a study on "The effects of credit constraints on productivity
and income of rural households in China" and showed that agricultural production was
strongly influenced by the fact that the inputs have been transformed into outputs for a
period, causing rural households to balance its budget during the season when we needed
enough to cover expenses for purchases of inputs and consumption at a time when
revenues were negligible . With limited access to farm credit has been facing problems
for crop production in this particular season. Like other developing countries, Chinese
rural households also suffer from lack of access to capital. China being one of the largest
countries in terms of rural and agricultural production, few studies have examined the
impact of credit on agriculture in China. Using survey data, the purpose of this study was
to examine how credit constraints affect farm productivity and incomes of rural
households in China. The results of this study suggests that, under the constraints of
credit, production inputs, with capacities of farmers and a maximum 'education benefits
could be achieved.

Sholpan (2010) showed that the financing of agricultural producers was one of the major
problems in the implementation of economic reforms in Kazakhstan. The problem was
that this type of financial sources were useful in many sectors of agriculture. State
financial support for agriculture in Kazakhstan has been insufficient to meet the demands
of farmers. For this role because of the banking sector and other non-bank institutions
such as cooperatives was significant. Econometric analysis was used to analyze the
importance of credit for agricultural production. The results suggest that access to
subsidized credit has an important role in the efficient use of agricultural inputs and also
major role in increasing agricultural productivity.

Anjani et al. (2010) studied the institutional credit has played a pivotal role in agricultural
development in India. Many institutional organizations were involved in the disbursement
of loans to small farmers. However, the part of lenders in the loan to farmers was a major
contributor among all lending institutions. In this context, the study examined the
performance of agricultural credit flow and found that the determinants were responsible
for the increased use of institutional credit in agricultural households in India. The study
based on secondary data collected from several sources, showed that institutional credit
to agriculture has increased manifolds in real terms over the past four decades. The
structure of credit disbursement has shown a significant change and we saw that
commercial banks emerged as the main source of institutional credit in recent years.
However, the declining share of investment loans in total credit was forced to sustainable
agricultural growth. The amount of institutional credit availed by farm households was
affected by a number of socio-demographic factors that have been education, farm size,
family size, caste, sex, occupation, household etc. The study suggests some suggestions
for how to ready and most important of these was the simplification of procedures for
better access to agricultural credit for smallholders and farmers less-educated/illiterate.

Omonona et al. (2010) found that maintaining and improving the efficiency of production
resources among the poor farmers under the existing tighter credit constraints required to
improve access to credit facilities and other factors involved in the loan process. The
study revealed the factors influencing the credit constraint (CC) and the production
efficiency of farm households in Oyo State, Nigeria. Primary data was used that was
collected through a questionnaire established from 120 farmers in the mixed study area.
The results of the study showed that 79.2 percent of respondents were credit constraints
and problems in the lending process. Moreover, this done crop and their production has
been found less effective with an average yield of 0,721 farm households that were forced
with 0.913. The factors that are responsible for difficulties in the lending process were
age, education, gender and dependency ratios affected farmers credit constraint when it
was revealed by the study that the size of farms, work and the amount of agro-chemicals
used were positively and significantly related to the production efficiency of farmers.
Given the greater proportion of CCFH among the agricultural community in
southwestern Nigeria, output was below potential because of lack of funds and sufficient
funds were provided, he was sure that production could increase.

Pavel et al. (2010) brought together a unique data set the farm level by using 37 409
observations and a corresponding estimator, the study was based namely on the loan
process in the CEEC and the researchers analyzed how the affected access to agricultural
credit distribution of agricultural inputs and farm efficiency in the CEE countries in
transition. It was found by the researcher that agricultural activities were limited by the
availability of funds. In addition, it was the conclusion of researchers that the use of
variable inputs and capital investments increased to 2.3% and 29%, respectively, for 1000
euros of additional credit. It was also discovered that study access to credit increases the
agricultural total factor productivity up 1.9% for 1000 euros extra credit, which is proof
that access to credit and also affects makes better use of inputs. The most important
finding of this study was that improved access to credit had a negative effect on the labor
force, because the two are interdependent.

Golait Ramesh (2010) found that being an agricultural country, agriculture has always
played a crucial role in the development of the Indian economy. Agriculture accounted
for about 19 percent of GDP and 68 of the total population was dependent on the sector.
The importance of agricultural credit was as important as other agricultural inputs, which
were essential for agriculture, and its role was also important in reducing poverty.
Government was aware of the importance of agriculture in the development of India, so
there was sincere efforts made by the Government, which were useful in creating an
institutional framework expanded to meet growing credit sector. Agricultural policies on
lending to India scheduled from time to time to keep pace with the changing needs of the
agricultural sector. The government has given special instructions for lending to
commercial banks for agriculture and the target of 18 per cent of net bank credit allocated
to the sector. Government for the eleventh Five-Year Plan has set a target of 4 per cent
share for agriculture out of the target of overall GDP growth of 9 percent, so it was
mandatory for the government to make arrangements for the adequate supply and timely
institutional credit to agriculture. It was also found in the study that there were many
reasons behind the fluctuations in demand for agricultural credit, some of which were
also (a) lack of simultaneity between the time to earn income and time the expense. (B)
More spending on fixed capital formation (c) More investment in equipment due to
technological innovations. It was also found by the researcher that the role of credit in the
increase in productivity could be dependent on the availability of credit and its
distribution. The last thing about the agricultural sector was that the delivery of credit to
the agricultural sector remained weak, which has hampered the growth of agriculture. He
was the observation that banks were still reluctant to carry on various grounds of credit
for small and marginal farmers. The situation calls for more efforts to increase the flow of
credit to agriculture, along with innovation in the delivery and marketing of products.

Sai Tang (2010) found that, due to the high risk in the rural economy in general and
particularly in the markets of agricultural production of formal assurance. It was found
that due to insufficient funds farmers were unable to cooperate with each other in times of
crisis. Farmers in developing countries suffer from natural disasters such as famine,
floods and epidemics. To facilitate these poor peasants, it was mandatory to ensure the
supply of credit to meet their needs. He also found that rural credit help poor farmers
make better production decisions of different cultures and the willingness of households
to adopt new technologies that has been useful in increasing production. Access to credit
has enabled rural households to smooth consumption in the case of adverse event. Study
also showed a positive relationship between the welfare of households and the
availability of credit. It was found in the study, which showed that the loss of 27% of
agricultural production has been associated with credit constraints in Peru. It was also the
researcher to find that the various limits set by the government were discouraging as the
government tried to promote formal loans, as it was profitable for the government.
However, this thing was detrimental to the overall growth of credit institutions. Impose
ceilings on interest rates because the credit limit poor were not able to pay, sometimes
those high interest rates and failed to take advantage of credit facilities. A number of
studies have shown that government regulations largely failed to achieve the desired
results. The informal sector credit continues to play a dominant role in lending to rural
credit and in some cases, interest rates of informal credit was higher despite the lower
amount due to the ceiling. This thing has raised the question of the effectiveness of credit
programs initiated by the government. Another view of the failure of government
programs was that the formal institutions were willing to borrow only with the
achievements of the regulatory safeguards. In addition, the fact is that most farmers were
poor and not able to fully materialize regulations collateral. The informal sector on the
other hand, was willing to lend money to borrowers who do not have valuable assets as
collateral. They were able to do so, mainly because they knew about the suffering of the
borrower to be initiated and they use better mechanisms to ensure that borrowers fully
satisfied.

Memon et al (2010) considered that agriculture was the largest sector in the economy of
Pakistan. Agriculture as a sector engaged 44.8 percent of the total labor force and
contributed 22 percent to GDP. About 66% percent of the total population lived in rural
areas. Therefore, the country's development has been associated with agricultural growth.
Agriculture in Pakistan has always been a way of life rather than a business and
stagnation suffered because of the form low productivity due to low investment in this
sector. Low investment was caused by a number of factors such as low farm incomes,
which in turn followed a low-resource productivity. Increased productivity was possible
only if the investment in this sector has been increased. Transformation of traditional
agriculture in modernized agriculture was largely dependent on the adoption of new
technologies, what was possible with modern inputs. These entries were relatively
expensive and the farmer is increasingly dependent on the market. To use them, it was
essential to control capital in the form of personal savings or borrowing. There was ample
evidence in the case of Pakistan as savings in agriculture were low and very low in the
case of small farmers. Investment capacity of a producer small majority was very low so
they were forced to obtain loans from formal or informal sources to meet their
agricultural expenditure.

Mollelly Conner (2010) studied the impact of extension services and credit program for
small rice farmers in Nicaragua. The program was launched in the 2009-2010 agricultural
year, which was the driest recorded in the region. The program focused on increasing
performance through improved fertilizer application, and to reduce the loss of post-
harvest stages. The combined program of credit with agricultural extension services as an
input for agricultural production. The data used to construct indices of non-agricultural
and agricultural through the principal component analysis (PCA). The indices of variation
explained 26.23 percent of the agricultural wealth and 30.25 percent of variation in non-
agricultural wealth. The researcher assigned groups of farmers to treatments such as
extension services, extension of a loan with joint liability, and no treatment. The impact
of significant results on two program areas of participation in the formal financial market,
export crops, and significant increase in farmers growing export crops first.

D. Moro and Sckokai (2010) studied in the near future as the common agricultural policy
would be built on two pillars. In the first pillar, the main instrument for support to
producers would be the decoupled single payment scheme. In this paper, they examined
the methodological framework for the analysis of decoupled payments in the patterns of
agricultural production. Decoupled payments may have problems such as credit
constraints, market uncertainty, technological uncertainty, the choices of farm households
and non-farm decisions, uncertainty in policy decisions and long-term the impact of
decoupling on investment and land values are relevant issues that could be decoupled
payments. The implementation of the common agricultural policy in this form is proved
effective and led quickly to a rapid increase in inventories and related management costs,
including the elimination of third countries by export subsidies. It was the result of these
steps that some tools supply control policy, such as voluntary set-aside and production
quotas for milk and sugar were introduced.

Shahidur R.et al. (2010) found that credit played an important role in the development of
the agricultural sector and the country. It allowed farmers and entrepreneurs to undertake
new investments or adopt new technologies for production. He has contributed to smooth
consumption by providing working capital and reduced poverty in the process. Formal
and informal lenders were active in the rural credit markets. Without collateral
requirements, proximity, timely delivery, and flexibility in lending were some of the
advantages of informal credit. Compared to official lenders, informal lenders are not
favorable for the sustainable development because (i) it is expensive compared to the
formal sector, (ii) it is for the short term and widely used for drinking, and (iii ) is not
sufficient to stimulate investment and growth. The purpose of this study was to find the
results on the impact of agricultural credit on the well-being of households and in
particular to examine the role of public bank for agricultural development in Pakistan. It
was the study results that the effects of institutional credit was not only the determinants
of agricultural production, but also on household consumption and welfare indicators of
households. Like previous studies, we found evidence of the poor's access to formal
credit. Clearly, formal lenders are biased towards large farmers who were able to
demonstrate collateral, and the result of this skewed approach was that poor farmers and
small private credit facilities. In Pakistan, large landowners, who accounted for only 4
percent of rural households accounted for 42 percent of the formal finance, while
households of subsistence and landless, who constituted over 69 percent of rural
households, n has received only 23 percent of formal loans.

Daniel K.N. Kristina M. Johnson Lybecker (2010) tried to find the potential of
innovations in the funding environment. This paper examines the various forms of
funding and attempted to assess the effectiveness of these programs. The study looked at
two public and private forms of financing and provided policy suggestions for the support
of adequate funding for eco-innovation. The paper concludes that the challenge for
policymakers is to balance that was to encourage the funding and at the same time
removing obstacles to the process while allowing the wisdom of the market to function
and powers of the invisible hand of best investment guide. While the importance of eco-
innovation has been increasingly evident, the mechanisms for financing these
technologies remains largely unexplored. It is important to note that there was evidence
that appropriate funding can vary depending on the stage of the life cycle of innovation.
Present case studies seem to favor the factors pushing the technology early in the product
cycle in the first stage and market opportunities later in the cycle.

Shehla Amjad and Hasnu Saf (2010) presented an analysis of smallholder access to rural
credit and the cost of borrowing by using survey data from Pakistan. Rural credit in
Pakistan comes from various official and unofficial sources. Occupancy status, family
work, the status of literacy, non-farm income, the value of non-capital assets and
infrastructure quality are to be the most important variables in determining access to
credit formal. On the other hand, the total harvest area, family work, the status of literacy
and off-farm income happen to be the most important factors in determining the credit
status of small farmers from informal sources. The results show that the cost of
borrowing from official sources falls as the size of holding increases. The analysis
confirms the importance of informal credit, particularly for the smallest of small farmers
and tenant farmers.

Saima et al (2011) Tobit regression results provided an indication that the experience of
agriculture, education, access to agricultural credit, farm size and the number of farming
practices have a positive and significantly to the effectiveness of the farmers.

Maqbool Hussain Sial (2011) Agricultural credit was significantly positively to GDP,
while agriculture, water availability, cropping intensity, agricultural labor per hectare
cultivated were the factors that increase the agricultural GDP.

Agricultural credit is positively related to agricultural production and explores the one
thing per cent increase in institutional credit will increase agricultural output by six
percent. The coefficients of institutional credit, the availability of water for farm gate and
cropping intensity was higher than Iqbal et al. (2003). The dummy variable is
significantly negatively related to agricultural production, indicating that uncertainties
such as droughts, floods etc. will reduce agricultural production.

CHAPTER 3
METHODOLOGY
The accuracy of the study depends upon the Methodology and suitable analysis
technique. Without choosing the right methodology the study would be useless and of no
importance. To conduct an analytical study a systematic approach is adopted to make the
study accurate and of sufficient of importance. The selection of universe, sample,
collection of data, application of statistical and econometric techniques to analyze, verify
describe and relate various values, findings and trends present with in any type of data
(qualitative and quantitative) should be carefully applied and practiced.

The objective of this is to describe the ways, tools and techniques adopted for the
collection, analysis and interpretation of data about the study under investigation. The
research Methodology used in this study is as under

3.1: Universe

Universe is the area from which sample is taken for the study. Keeping in view the
importance of the study , it should have been conducted in the district sahiwal as the
district sahiwal has great potential for the agriculture. The district was divided into five
zones and villages were selected from theses zones. The villages chosen for the study
fairly representative of the whole district.

Table3.1: shows the villages randomly selected for the study

Sr No. Name of zone Villages

1. 11L 8/11L and 5/11L
2. 12L 111/12L and 45/12L
3. 9L 174/9L and 178/9L
4. 7R 107/7R and 103/7R
5. 6R 87/6R and 85/6R

3.2: Population

Focused problem definition is a key to successful statistical practice. In sampling, this

includes defining the population from which our sample is drawn. The definition of
population is as including all people or items with the characteristic one wishes to
understand. Because there is very rarely enough time or money to gather information
from everyone or everything in a population, the goal becomes finding a representative
sample (or subset) of that population.

According to Dixon and Massey (1969) any set of individuals or objects having some
common observable characteristics constitute a population. The focus of the study is on
the role of the credit disbursed by the commercial banks on the agricultural productivity.
National Bank of Pakistan was selected as the representative of the commercial banks on
the basis of its last year’s credit disbursement, National Bank of Pakistan is chosen
because it is the government owned bank with lowest mark up in commercial banks
except ZTBL.

3.3: Sample

Sampling is that part of statistical practice concerned with the selection of a subset of
individuals from within a population to yield some knowledge about the whole
population, especially for the purposes of making predictions based on statistical
inference.

Researchers rarely survey the entire population for two reasons (Adèr, Mellenbergh, &
Hand, 2008): the cost is too high, and the population is dynamic in that the individuals
making up the population may change over time. The three main advantages of sampling
are that the cost is lower, data collection is faster, and since the data set is smaller it is
possible to ensure homogeneity and to improve the accuracy and quality of the data. The
list of borrowers was obtained from the respective branches of the selected villages.
From each village five loanees and five non-loanees were selected for the sake of
comparison.

3.4: Data Collection

Data collection is the process of gathering the data and its process. Data collection is used
to obtain information to keep on record, to make decision about the defined problem to
pass information on to others.This research is a primary research. Interview schedule was
made for the present study keeping in view the objectives of the study.Data was collected
from the field by interviewing all the respondents. Questionare was made to cover all the
aspects of the study.

3.4.1: Interview Schedule

An interview is a data-collection technique that involves oral questioning of respondents,

either individually or as a group. Answers to the questions posed during the study were
recorded by the interviewer.

3.4.2: Pre-Testing

Pre-testing is used to reliability and accuracy of the interview schedule. It’s a trial and
error procedure where the successful trial are adopted and errors were avoided in the final
study. In pre-testing of interview schedule fifteen respondents were selected to check the
reliability. Respondents selected for pre testing were not included in sample later on.
After pre testing amendments were made in questionnaire for best findings.

3.5: Data Analysis

On the basis of research objectives the collected data was broadly categorized and a
comparison was made between loanees and non-loanees. The data was statistically
analyzed and reported in the forms of tables. The statistical techniques applied were
averages, percentages, and multiple regression analysis.

3.5.1: Avrages

Averages in the current study were calculated through following formula;

Avg = Σ Xi/ [n]

Where,

Σ Xi= Sum of individual variables

n = number of observations in particular group

3.5.2: Percentages

Percentages were calculated by using following formula;

P= n/N * 100
Where,
P= percentage

n = number of observation in a particular group

N = total number of respondents

3.5.3: Multiple Regression Analysis

Two separate regression models were used to check the dependence of agricultural
productivity of wheat and cotton on different inputs major is the agricultural credit.

1) ln wyield = β0 + β1 ln sbpcost + β2 ln scost + β3 ln ircost+ β4 ln ppcost + β5 ln

loan+ µ1

ln wyield = natural log of the per acre wheat yield in mds.

ln sbpcost = natural log of the per acre seed bed preparation cost.
ln scost = natural log of the per acre seed cost.
ln ircost = natural log of the per acre irrigation cost.
 ln ppcost = natural log of per acre plant protection cost.
ln loan = natural log of amount of loan disbursed.
β0, β1, β2, β3, β4, β5 = parameters of the model to be estimated.
µ1 = disturbance term.

2) ln cyield = β0 + β1 ln sbpcost + β2 ln scost + β3 ln ircost+ β4 ln ppcost + β5 ln

loan+ µ1

ln cyield = natural log of the per acre cotton yield in mds.

ln sbpcost = natural log of the per acre seed bed preparation cost.
ln scost = natural log of the per acre seed cost.
ln ircost = natural log of the per acre irrigation cost.
ln ppcost = natural log of per acre plant protection cost.
ln loan = natural log of amount of loan disbursed.
β0, β1, β2, β3, β4, β5 = parameters of the model to be estimated.
µ1 = disturbance term.

3.6: Limitations

During the present study different problems and constraints were faced Some of them
were:
3.6.1: Resource constraints

The resources were limited to conduct the study. Travelling was difficult to the
respondents for the collection of data.

3.6.2: Hesitation of farmers to provide data

Farmers were hesitated to provide data. Though it was bit relaxed and easy to get the
information from the loaners with due reference of the ACOs. However, the reality is that
local community does not trust the outsiders completely. Respondents are hesitant to
provide critical information to strangers and misguide in this respect. Respondents
hesitate to give information regarding their income, consumption, and details of their
property exactly. The most common question, which was asked by the people was what
benefit would be for them for sharing this information. Most of the time it was very
difficult to convince the illiterate and less educated people about the importance and
nature of the study. In some cases, people were living in joint family and they had not
separate information regarding their expenditures. Therefore, it was very difficult to find
their exact income and expenditures.

3.6.3: Time Constraint

Time factor was major problem on the researcher. Research was done at time when bank
officials and farmers were busy and researcher had the time constraints.

CHAPTER 4
RESULTS AND DISCUSSION
Analysis and interpretation of data are important steps in social scientific research.
Without these steps generalization and predictions cannot be made which is the ultimate
objective of the research. The prime objective of this research study was to check the
impact of the credit disbursed on the agricultural productivity and at to give some policy
measures on the basis of the findings of the research study. This chapter is organized in a
sequence where the first section defines the social characteristics of the respondents, the
second section gives the agricultural profile of the respondents, while at the end the last
section gives the results of the multiple linear regression.

4.1: Profile of the Loanee and Non-loanee Farmers

4.1.1: Education level of the respondents

Table 4.1 shows the status of the education among the loanee farmers and non-lonee
farmers. There is higher percentage of the loanee farmers who are graduate or above.
Similarly there are 20 percent of the loanee farmers were F.A/F.Sc, while only 12 percent
of the non-loanee farmers were at this level of education. The highest percentage of the
loanee farmers is 24 which were at matric level. The highest percentage of the non-loanee
farmers was 38 which were having education up to primary level.

Table 4.1: Distribution of the farmers on the basis of the education level

Education level Loanee Non-Loanee

Frequency Percent Frequency Percent
Illiterate 10 20 10 20
Primary 7 14 19 38
Matric 12 24 12 24
F.A/FSc. 10 20 6 12
Graduation/Above 11 22 3 6
Total 50 100 50 100
Figure 1: Distribution of the farmers on the basis of the education level

4.1.2: Family size of the respondents

The table 4.2 shows that the highest percentage of the loanee farmers was having family
size of 6. while the least of them was having family size of 3 and 10. while the highest
percentage of the non-loanee farmers was having family size of 6 and the least of the
percentage is for family size 4.

Table 4.2: Distribution of the farmers on the basis of the family size

Number of Family Loanee Farmer Non Loanee Farmer

Member Frequency Percent Frequency Percent
3 2 4 0 0
4 5 10 4 8
5 8 16 8 16
6 12 24 11 22
7 7 14 7 14
8 11 22 8 16
9 3 6 6 12
10 2 4 6 12
Total 50 100.0 50 100.0

Figure 2: Distribution of the farmers on the basis of the family size

4.1.3: Age of the respondents:

The table 4.3 shows the distribution of the loanee and non-loanee farmers on the basis of
age group. 24 % of the respondents from the loanee farmers were from age group 36-40,
while 20 % were from the age group 41-45. 16 % of the respondents were from the age
group 31-35. while on the other hand the distribution of non-loanee farmers shows that
30 % of the respondents were from the age group 36-40 while 24 % of the respondents
were from the age group of 41-45. The least percentage from the non-loanee farmers was
from the age group of 46-50 which was 8 %.

Table 4.3: Distribution of the Farmers on the basis of the age

 Age Group Loanee Farmer Non Loanee Farmer
Frequency Percent Frequency Percent

26-30 6 12 5 10
31-35 8 16 8 16
36-40 12 24 15 30
41-45 10 20 12 24
46-50 7 14 4 8
Above 50 7 14 6 12
Total 50 100 50 100

4.1.4: Farming experience:

The table 4.4 shows the farming experience of the respondents. The distribution among
the loanee farmers and non-loanee farmers is quite clear when we see the farming
experience. The average farming experience of the loanee farmers is 19.76 years while
the average farming experience of the non-loanee farmers is 20.82 years. It means in
experience the non-loanee farmers are having more years. The overall average farming
experience for the whole sample was 20.29 years.

Table 4.4: Distribution of the Farmers on the basis of the Farming experience
 Loanee Farmers Non-loanee
Farming experience Overall (Years)
(Years) Farmers (Years)
Years
19.76 20.82 20.29

Figure 3: Distribution of the Farmers on the basis of the Farming experience

4.2: Wheat
Table 4.5: Area Owned and Area under wheat crop

Non-loanee
Loanee Farmer Farmer Overall
Mean Total Area (Acres) 24.78 23.64 24.21
Mean WheatArea (Acres) 7.70 7.30 7.50

The table shows the area owned by the farmers in the sample area. The data shows that
the mean total area for the whole sample was 24.2 acres. The mean total area for the
loanee farmers was 24.78 acres, while for the non-loanee farmers this was 23.64 acres.
Secondly the table also shows the area under the wheat crop for the sampled respondents.
The loanee farmers were having 7.70 acres under the wheat crop averagely while the
non-loanee farmers were having 7.30 acres under the wheat crop. In total 7.50 acres was
the average for both types of the farmers.

4.2.1: Land preparation cost:

The table 4.5 shows the land preparation cost for the wheat crop for the loanee and non-
loanee farmers. The data is quite clear in this respect showing the high percentage of the
loanee farmers which is 66 % were using above 4000 on the land preparation. While the
most of the non-loanee farmers were expending 1000- 2000 on the land preparation.
From this comparison it is quite clear that the loanee farmers have more to expend for the
use of land preparation. This was made possible due to the loan they received in time.

Table 4.5: Land preparation cost of wheat

Land Loanee Farmers Non loanee Farmers

Preparation
Cost
Frequency Percentage Frequency Percentage

5 10 22 44
1000-2000

2001- 4000 12 24 21 42

Above 4000 33 66 7 14

Total 50 100.0 50 100.0

Figure 4: Land preparation cost of wheat

4.2.3: Nutrient Cost

the table 4.6 shows the distribution of the loanee and non-loanee farmers on the basis of
the nutrient cost. According to the findings of the study the high percentage of the loanee
farmers was using 4001 to 8000 rupees on the nutrient for the crop. While the non-loanee
farmers fell in the range of 1000 to 4000 and 4001 to 8000 equally. From this again it is
quite evident that the loanee farmers are using more for the nutrient use as compared to
the non-loanee farmers. This is possible just because of the credit the loanee farmers able
to receive in time.
Table 4.6: Nutrients cost of wheat
Nutrient Cost Loanee Farmers Non loanee Farmers
Per Acre
Frequency Percentage Frequency Percentage

16 32
1000-4000 23 46
33 66
4001 -8000 24 48
1 2
Above 8000 3 6
Total 50 100.0 50 100.0
Figure 5: Nutrients cost of wheat

4.2.4: Seed Cost

The table 4.7 shows the distribution of the loanee and non-loanee farmers on the seed
cost. The table shows that both the loanee and non-loanee farmers higher percentage is
expending in the range of 500 to 1000 while 20 % of the loanee farmers were using more
than 1000 over seed. 24 % of the non-loanee farmers were using more than 1000 rupees
for the seed.

Table 4.7: Seed cost of wheat

Seed Cost Per Loanee Farmers Non loanee Farmers

Acre

Frequency Percentage Frequency Percentage

1 to 500
5 10 7 14
500 to 1000
35 70 31 62
Above 1000
10 20 12 24
Total
50 100.0 50 100.0
Figure 6: Seed cost of wheat

4.2.5: Irrigation Cost

The distribution of the farmers over the irrigation cost is shown in the table 4.8. 50
percent of the loanee farmers were having expense of 1501 to 3000 rupees on the
irrigation. 34 % of the loanee farmers were having expense of 1000 to 1500 rupees while
16 % of the farmers were having expense of above 3000 rupees on the irrigation. On the
other hand the highest percentage of the non-loanee farmers (78%) is having expense of
1500 to 3000 rupees on the irrigation for wheat. While just 10 % and 12 % of the non-
loanee farmers were having expense of 1000 to 1500 rupees and above 3000 rupees
respectively.

Table 4.8: Irrigation cost of wheat

Loanee Farmers Non loanee Farmers

Irrigation cost
Frequency Percentage Frequency Percentage

1000 – 1500 17 34 5 10.0

1501 – 3000 25 50.0 39 78

Above 3000 8 16 6 12
Total 50 100.0 50 100.0

Figure 7: Irrigation cost of wheat

4.2.6: Plant Protection Cost

Plant protection measures are very important for the maintenance and high yield of any
crop and wheat crop specifically. The most percentage of the loanee farmers were having
expense of 500 and above while most of the percentage of the non loanee farmers were
having expense of 500 and less than 500 rupees. From this comparison it is quite clear
that the loanee farmers use more than the non-loanee farmers on the plant protection
measures.

Table 4.9: Cost of Plant protection of wheat

Loanee Farmers Non loanee Farmers

Plant
protection cost Frequency Percentage Frequency Percentage

0 – 500 5 10 29 58

501 – 1000 22 44 20 40

Above 1000 23 46 1 2
Total 50 100
50 100

Figure 8: Cost of Plant protection of wheat

4.2.7: Harvesting Cost

the last part of the farmers expense comes at the harvesting time. The table 4.10 shows
the distribution of the loanee and non-loanee farmers on the harvesting cost. The data
shows that most of the loanee farmers use more for harvesting than the non-loanee
farmers. From the table, 90 % of the loanee farmers were having expense of 2001 to 8000
while 98 % of the non-loanee farmers were having expense of less than 4000 rupees.

Table 4.10: Cost of Harvesting of wheat

Loanee Farmers Non loanee Farmers

Harvesting
Cost Frequency Percentage Frequency Percentage

5 10
0 – 2000 29 58
22 44
2001 – 4000 20 40
23 46
4001 – 8000 1 2
Total 50 100 50 100
Figure 9: Cost of Harvesting of wheat

4.2.8: Income from Wheat

The table 4.11 shows the distribution of the loanee and non-loanee farmers on the income
from the wheat. The result is were worth seeing, as the most of the percentage of the
loanee farmers (88 %) is having per acre income of wheat 20000 and above while the
most of the non-loanee farmers (87 %) were getting less than 30000 rupees per acre from
wheat. These results are very important and emphasizing for the importance of the wheat.

Table 4.11: Income generated from wheat production

Loanee Farmers Non loanee Farmers

Income
Frequency Percentage Frequency Percentage
5 12
Below 20000 29 47
22 38
20001 – 30000 20 40
23 50
Above 30000 1 13
Total 50 100 50 100

Figure 10: Income generated from wheat production

4.3: Cotton

Pakistan is the fourth largest producer of cotton after China, USA and India. Its overall
contribution to the world production of cotton in 2004–2006 was 8 percent. It produces
about 2.3 million tons of cotton. Cotton is the main cash crop of Pakistan. It is second in
terms of area to wheat, which is the country’s staple food. Area annually planted under
cotton is around 3 million hectares and accounts for 15 percent of the total cropped area
(Cororaton et al., 2008). Cotton accounts for 7.3 percent of the value added in agriculture
and about 1.6 percent to GDP (GoP, 2009).

4.3.1: Area Owned and Area under

The table 4.12 shows the distribution of the farmers on the basis of the area under cotton
crop. The loanee farmers were having 12.24 acres of land under cotton crop while the
non-loanee farmers were having 15.16 acres of land under cotton crop. The overall mean
area under cotton crop was found to be 13.70 acres.
Table 4.12: Area owned and under cotton crop

Non-loanee
Loanee Farmer Farmer Overall
Mean Total Area (Acres) 24.78 23.64 24.21
Mean Cotton Area (Acres) 12.24 15.16 13.70

4.3.2: Land Preparation Cost

Land preparation is the most important the initial task for farming purpose. So this needs
a very clear and intense consideration while performing. The table 4.13 shows the land
preparation cost among the loanee and non-loanee farmers. 46 % of the loanee farmers
were spending more than Rs. 4000 for the land preparation purposes. 34 % of the loanee
farmers were spending less than Rs. 4000 but more than Rs. 2000 for the land preparation
while only 20 % of the loanee farmers were spending less than Rs. 2000. on the other
hand the non-loanee farmers most of the percentage is spending Rs. 2001 to 4000 on the
land preparation while just 24 % of the non-loanee farmers were spending more than Rs.
4000 as compared to 46 % of the loanee framers. While 36 % of the respondents were
spending less than Rs. 2000 but more than 1000 on the land preparation.

Table 4.13: Cost of land preparation for cotton

Land Loanee Farmers Non loanee Farmers

Preparation
Cost
Frequency Percentage Frequency Percentage

10 20 18 36
1000-2000
17 34 20 40
2001- 4000
23 46 12 24
Above 4000
50 100.0 50 100.0
Total
Figure 11: Cost of land preparation for cotton

4.3.3: Nutrient Cost

The fertilizers and farm yard manure are very important for the development of the crop.
they are very necessary in these days as the soil doesn’t meet the nutrient requirements of
the crops. The table 4.14 shows the cost on the nutrients for the cotton crop. it is quite
clear from the table that the loanee farmers are spending more on the nutrient application
to cotton as compared to the non-loanee farmers. 66 % of the loanee farmers were
spending in the range of Rs. 4001 to 8000 while 48 % of the non-loanee farmers were
spending in this cost range.

Table 4.14: cost of nutrients for cotton

Loanee Farmers Non loanee Farmers

Nutrient Cost
Frequency Percentage Frequency Percentage

14 32 17 46
1000-4000
18 66 16 48
4001-8000
Above 8000 8 2 7 6
Total 50 100.0 50 100.0
Figure 12: cost of nutrients for cotton

4.3.4: Seed Cost

Table 4.15 shows the distribution of the farmers’ cost on the seed purchase. 62 % of the
loanee farmers and 60 % of the non-loanee farmers were spending in the range of Rs. 501
to 1000 for the seed purchase. While 26 % of the loanee farmers and 30 % of the non-
loanee farmers were spending below Rs. 500 on the seed purchase. Just 6 % and 7 % of
the loanee and non-loanee farmers respectively spending above Rs. 1000 on the seed
purchase.

Table 4.15 cost of seed of cotton

Loanee Farmers Non loanee Farmers

Seed cost
Frequency Percentage Frequency Percentage

Below 500 13 26 15 30

501 – 1000 31 62 30 60

Above 1000 6 12 5 10
Total 50 100.0 50 100.0

Figure 13:cost of seed of cotton

4.3.5: Irrigation Cost

Table 4.16 shows the distribution of the farmers on the irrigation cost for the cotton crop.
36 % of the loanee farmers were spending in the range of Rs. 4001 to 8000 while 50 % of
the non-loanee farmers were spending in this range. While 24 % of the loanee and 34 %
of the non-loanee farmers were spending in the range of Rs. 1000 to 4000 for irrigation.

Table 4.16: irrigation cost of cotton

Loanee Farmers Non -loanee Farmers

Irrigation Cost
Frequency Percentage Frequency Percentage

1000 – 4000 12 24 17 34
4001 – 8000 18 36 25 50
Above 8000 10 20 8 16
Total 50 100.0 50 100.0
 Figure 14: irrigation cost of cotton

4.3.6: Plant Protection Cost

The table 4.17 shows the distribution of the farmers on the plant protection cost. It is
quite evident from the table that the loanee farmers has expend more on the plant
protection measures. 38% of the loanee farmers spend more than Rs. 2000 for the plant
protection while only 8% of the non-loanee farmers spend more than Rs. 2000 for this
purpose.

Table 4.17: Cost of plant protection for cotton

Loanee Farmers Non loanee Farmers

Plant
protection cost Frequency Percentage Frequency Percentage
14 28 26 52
0 – 1000
17 34 20 40
1001 – 2000
19 38 4 8
Above 2000
Total 50 100 50 100

Figure 15: Cost of plant protection for cotton

4.3.7: Harvesting Cost

The table 4.18 shows the distribution of the farmers on the basis of the harvesting cost.
Only 26 % of the loanee farmers were spending less than Rs. 2000 for harvesting purpose
as compared to 42 % of the non-loanee farmers. While 34 % of the loanee farmers were
spending in the range of Rs. 4001 to 8000 while just 22 % of the non-loanee farmers were
spending on harvesting in this range. While 40 % of the loanee and 36 % of the non-
loanee farmers were spending in the range of Rs. 2001 to 4000 for harvesting purpose.

Table 4.18: Cost of harvesting of cotton

Loanee Farmers Non loanee Farmers

Harvesting
Cost Frequency Percentage Frequency Percentage
0 – 2000 13 26 21 42

2001 – 4000 20 40 18 36
4001 – 8000 17 34 11 22

Total 50 100 50 100

Figure 16: Cost of harvesting of cotton

4.3.8: Income from Cotton:

The trend of the income from the cotton producers is quite like that of the wheat
producers. The loanee farmers were getting more returns as compared to the non-loanee
farmers. Most of the loanee farmers (82 %) were getting more than Rs. 20000 per acre
from cotton while just 46 % of the non-loanee farmers were getting return more than Rs.
20000.

4.19: Income generated from cotton production

Loanee Farmers Non loanee Farmers

Income
Frequency Percentage Frequency Percentage
Below 20000 9 18 17 34

20000 – 30000 19 38 20 40

Above 30000 22 44 3 6
Total 50 100 50 100

Figure 17: Income generated from cotton production

4.4: Regression Analysis for wheat

The result of the regression analysis is presented in the table 4.20. As Cobb Douglas
production function was used, so the estimated coefficients are elasticities of production.
The intercept of the model is -1.654, which shows the natural log of the expected yield
when all the inputs are zero. Its t value is -2.109 which is significant at significant level
0.011. The coefficient of the credit is 0.026 which shows that by increasing one percent
of the loan amount the there will be 2.6 % increase in the wheat yield. It is highly
significant with a t-value of 8.667. The results of the research findings show that all the
coefficients are having the appropriate signs which the theory explains. All the
coefficients are significant except the seed bred preparation cost but the sign is
appropriate with the theory.

Table 4.20: Regression analysis of wheat crop

Coefficients t stat Sig.

Regression
β Std. Error
Analysis
Constant -1.654 .785 -2.109 0.011
Ln sbpcost 0.37 0.379 0.976 0.389
Ln scost .378 .139 2.719 0.020
Ln ircost 0.098 .046 2.130 0.010
Ln ppcost .033 .023 1.452 0.149
Ln loan .026 .003 8.667 .000

ANOVA
The ANOVA table shows the overall significance of the model. According to the research
findings the F-value is 46.67 which highly significant. The total sum of the square is
1.010 while regression and residual sum of squares are 0.700 and 0.310 respectively.
Table 4.21: Analysis of variance of wheat

ANOVA Sum of df Mean Square F Sig.

Square
Regression 0.700 5 0.140 46.67 0.000
Residual 0.310 94 0.003
Total 1.010 99

R- Square and Adjusted R-Square:

R-square is 0.693 which shows that the independent variables are showing almost 69% of
the impact on the dependent variable which is acceptable in the social sciences. The
adjusted R-square is 0.682.

R Square 0.693
Adjusted R Square 0.682

4.5: Regression analysis for cotton

The result of the multiple linear regression for the cotton crop is presented in the table
4.22. The findings of the research study show that the all the variables are impacting
significantly on the dependent variable which is the yield of the cotton. The signs of the
independent variables are exactly the same as the theory explains about them. While only
the result of the irrigation cost on the cotton yield is insignificant. The most important
finding is the impact of the loan received by the farmers with positive sign and the
coefficient value of 0.015, which shows that by increasing 1% of the loan amount the
yield will increase by 1.5%. Similarly the result of the coefficient of the seed bed
preparation cost is 0.05 with a significance level of 0.012. The value of the coefficient for
plant protection cost is 0.021 which is highly significant at a significance level of 0.000.
Table 4.22: Regression analysis for cotton
Regression Coefficients
t stat Sig.
Analysis β Std. Error
Constant -0.30 0.500 -0.60 0.550
Ln sbpcost 0.050 0.020 2.50 0.012
Ln scost 0.060 0.032 1.86 0.070
Ln ircost 0.021 0.013 1.538 0.129
Ln ppcost 0.111 0.033 3.29 0.000
Ln loan 0.015 0.007 2.142 0.011

ANOVA

The ANOVA table shows the overall significance of the model. The F-value for this
model is 26.99 which is significant at a significance level 0.000. This shows that the
model is highly significant. The total sum of square is 1.150 while the regression sum of
square and residual sum of square is found to be 0.680 and 0.470 respectively.

Table 4.23: Analysis of variance of cotton

ANOVA Sum of df Mean Square F Sig.

Square
Regression 0.680 5 0.136 26.99 0.000
Residual 0.470 94 0.005
Total 1.150 99
R- Square and Adjusted R-Square:

The R-square value for this model is 0.612 which shows that the approximately 61% of
the change in the dependent variable which is cotton yield is caused by the proposed
independent variables. The adjusted R-square is 0.580 for this model.

R Square 0.612
Adjusted R Square 0.582
CHAPTER 6
SUMMARY AND CONCLUSION

Pakistan is a country with most of the population living in rural areas and earn their
livelihood from agriculture. For sustainable development, it is necessary to develop this
sector and the rural masses. We can see that the developed nations have ignored
agriculture, but with modern techniques, they have boosted their productivity. Pakistan
can’t prosper if it flourishes, and agriculture with this sector of agriculture developed, we
can compete in the industry. The industry can’t survive without agriculture developed,
and industrialization is no more the solution of the problem.
One of the main reason behind the development of agriculture in Pakistan is the lack of
funds. Most farmers are poor and unable to adopt new technologies and farm
mechanization is the only way to succeed. Credit sector in Pakistan has grown rapidly in
recent years, which has also improved crop productivity. ZTBL was the main contributor
to the financing of agriculture, but the role of commercial banks is also increasing day by
day. Currently private commercial banks compete with other institutions and ZTBL
agricultural loans and it is interesting to note that commercial banks have exceeded and
the share of commercial banks was around 49 percent in 2009.

In the present study comparison is made between the productivity of the farmers which
use the loanes and which are not using the loans for the wheat and cotton crops in district
sahiwal. Constraints faced by the farmers are also highlighted in this study. The
commercial bank selected for the study was National Bank of Pakistan. District sahiwal
was divided into three zones to conduct the study, two villages from each zone were
selected. The list of the borrowers was obtained from the respective branches of the
National bank of Pakistan. Only the regular borrower were selected to show the real
picture of the study. 100 farmers were selected in which 50 were loanee and 50 were non-
loanees. Regression model was used for the study.
On the basis of information obtained from farmers, following results were summarized;

1) Higher percentage of the loanee was graduate. Similarly there are 20 percent of the
loanee farmers were F.A/F.Sc, while only 12 percent of the non-loanee farmers were
at this level of education. The highest percentage of the loanee farmers is 24 which
were at matric level. The highest percentage of the non-loanee farmers was 38
which were having education up to primary level.

2) Results showed the highest percentage of the loanee farmers was having family size
of 6. while the least of them was having family size of 3 and 10. while the highest
percentage of the non-loanee farmers was having family size of 6 and the least of
the percentage is for family size 4.

3) 24 % of the respondents from the loanee farmers were from age group 36-40, while
20 % were from the age group 41-45. 16 % of the respondents were from the age
group 31-35. while on the other hand the distribution of non-loanee farmers shows
that 30 % of the respondents were from the age group 36-40 while 24 % of the
respondents were from the age group of 41-45. The least percentage from the non-
loanee farmers was from the age group of 46-50 which was 8 %.

4) The average farming experience of the loanee farmers is 19.76 years while the
average farming experience of the non-loanee farmers is 20.82 years.

5) The loanee farmers were having 7.70 acres under the wheat crop averagely while
the non-loanee farmers were having 7.30 acres under the wheat crop. In total 7.50
acres was the average for both types of the farmers.

6) High percentage of the loanee farmers which was 66 % were using above 4000 on
the land preparation for wheat. While the most of the non-loanee farmers were
expending 1000- 2000 on the land preparation for wheat.
7) According to the findings of the study the high percentage of the loanee farmers
was using 4001 to 8000 rupees on the nutrient for the wheat crop. While the non-
loanee farmers fell in the range of 1000 to 4000 and 4001 to 8000 equally.

8) Loanee and non-loanee farmers higher percentage is expending in the range of 500
to 1000 while 20 % of the loanee farmers were using more than 1000 over seed. 24
% of the non-loanee farmers were using more than 1000 rupees for the seed for
wheat crop.

9) 36 % of the loanee farmers were spending in the range of Rs. 4001 to 8000 while 50
% of the non-loanee farmers were spending in this range. While 24 % of the loanee
and 34 % of the non-loanee farmers were spending in the range of Rs. 1000 to 4000
for irrigation on wheat crop.

10) The most percentage of the loanee farmers were having expense of 500 and above
while most of the percentage of the non loanee farmers were having expense of 500
and less than 500 rupees for plant protection on wheat crop.

11) The loanee farmers use more for harvesting of wheat crop than the non-loanee
farmers. 90 % of the loanee farmers were having expense of 2001 to 8000 while 98
% of the non-loanee farmers were having expense of less than 4000 rupees.

12) The most of the percentage of the loanee farmers (88 %) is having per acre income
of wheat 20000 and above while the most of the non-loanee farmers (87 %) were
getting less than 30000 rupees per acre from wheat. These results are very important
and emphasizing for the importance of the wheat.

13) The loanee farmers were having 12.24 acres of land under cotton crop while the
non-loanee farmers were having 15.16 acres of land under cotton crop. The overall
mean area under cotton crop was found to be 13.70 acres.
14) 46 % of the loanee farmers were spending more than Rs. 4000 for the land
preparation purposes for cotton. 34 % of the loanee farmers were spending less than
Rs. 4000 but more than Rs. 2000 for the land preparation while only 20 % of the
loanee farmers were spending less than Rs. 2000. on the other hand the non-loanee
farmers most of the percentage is spending Rs. 2001 to 4000 on the land preparation
while just 24 % of the non-loanee farmers were spending more than Rs. 4000 as
compared to 46 % of the loanee framers. While 36 % of the respondents were
spending less than Rs. 2000 but more than 1000 on the land preparation for cotton
crop.

15) Loanee farmers are spending more on the nutrient application to cotton as compared
to the non-loanee farmers. 66 % of the loanee farmers were spending in the range of
Rs. 4001 to 8000 while 48 % of the non-loanee farmers were spending in this cost
range.

16) 62 % of the loanee farmers and 60 % of the non-loanee farmers were spending in
the range of Rs. 501 to 1000 for the seed purchase. While 26 % of the loanee
farmers and 30 % of the non-loanee farmers were spending below Rs. 500 on the
seed purchase. Just 6 % and 7 % of the loanee and non-loanee farmers respectively
spending above Rs. 1000 on the seed purchase for cotton crop.

17) 36 % of the loanee farmers were spending in the range of Rs. 4001 to 8000 while 50
% of the non-loanee farmers were spending in this range. While 24 % of the loanee
and 34 % of the non-loanee farmers were spending in the range of Rs. 1000 to 4000
for irrigation for cotton.

18) 38% of the loanee farmers spend more than Rs. 2000 for the plant protection while
only 8% of the non-loanee farmers spend more than Rs. 2000 for the purpose of
plant protection for cotton crop.

19) Only 26 % of the loanee farmers were spending less than Rs. 2000 for harvesting
purpose as compared to 42 % of the non-loanee farmers. While 34 % of the loanee
farmers were spending in the range of Rs. 4001 to 8000 while just 22 % of the non-
 loanee farmers were spending on harvesting in this range. While 40 % of the loanee
and 36 % of the non-loanee farmers were spending in the range of Rs. 2001 to 4000
for harvesting purpose of cotton.

20) The loanee farmers were getting more returns as compared to the non-loanee
farmers. Most of the loanee farmers (82 %) were getting more than Rs. 20000 per
acre from cotton while just 46 % of the non-loanee farmers were getting return
more than Rs. 20000.
 RECOMMENDATIONS

1) There is a need to train the farmers, how to properly utilize the agriculture credit
to avoid the misuse of credit as it shown by the results that most of the literate
farmers are loanee and they are gaining more benefits than the illiterate.

2) Landing procedures of the commercial banks are difficult and unaffordable for the
small farmers. So one window operation should be introduce for the betterment of
rural households.

3) Financing for the adoption of modern technology should be on subsidized mark

up rate.

4) Crop insurance should be introduced to minimize the hesitation of farmers to avail

the agriculture loan.
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