Factors responsible for rural household participation in institutional credit programs in Pakistan

Abstract

Institutional credit plays a pivotal role in increasing farm production and improving the socioeconomic life of farmers. However, procuring credit from formal lending institutions is not easy. A number of pre-conditions are to be fulfilled to qualify for the institutional credit. This paper explores the factors that account for a household’s participation in formal agricultural credit programs. The study was conducted in 2005 to 2006 in northwest Pakistan. Using regression analysis, the study finds that education and farm size are important determinant for a household to participate in institutional credit program. The study concludes that the formal lending institutions need to devise a credit delivery mechanism based on relaxed pre-conditions which small and landless farmers could easily fulfill.    Key words: Institutional credit, participation, collateral, farm production.