Factors influencing demand for credit from formal and informal sources in Gujranwala district, Pakistan : a case of Commercial Banks and Arties

Abstract

The intention of this research was to examine the effects of social and economic factors on credit demand of rice growers from arties and banks in Gujranwala district, Pakistan. The Crosssectional data from 313 randomly selected loan beneficiaries (rice growers), were obtained. The data were analyzed by using multiple regression, t-test, percentages and frequency distributions. It was concluded that factors which showed significant results in both sources banks and arties were farm size, income level, time requirement, payback period and no. of dependent schooling children. Apart from the mentioned factors which other studies have also established, more interesting factors have been identified by this study including the question of trust between Arties and borrowers built on information of borrowers on reputation obtained by Arties and also follow up by arties on borrowers’ use of credit. Here information seems to play a crucial role in building trust and therefore easing conditions for borrowing since most borrowers received their loans without any collateral conditions. Based on these results, it is suggested that banks must improve the amount of loans to agriculture sector in general and to rice growers in particular taking into account information and follow up of their clients. The lenient polices must be formulated by banks regarding collateral securities so that small scale rice growers can avail the loan facilities at lesser collateral conditions. Besides it, arties must reduce commission rate and other type of charges (per acre fixed quantity of rice). The least but not the last, rice must use the loan for same purpose for which it is granted.