Marginal and Small Farmers’ Access to Institutional Credit in South Western Punjab: A Discriminant Analysis

Punjab is one of the most progressive states of India in terms of agricultural development. The state, however, suffers from uneven access to institutional credit with large farmers having more access than small and marginal farmers. Based on a survey of 120 marginal and small farmers randomly selected in south-western Punjab and using discriminant analysis, this study examines the accessibility of small and marginal farm groups to formal credit market and their implications. The findings reveal that non-institutional credit sources accounted for an overwhelming proportion of 61% of total borrowings of marginal farmers, whereas 35% of that of small farmers. Investment in irrigation was the main purpose of borrowing by marginal farmers and purchase of farm equipment and implements for small farmers. Construction of houses emerged as the main purpose of borrowing to meet household expenditure. Among the factors differentiating respondents availing credit from institutional sources and non-institutional sources, farm income, non-farm income and size of holding appear to be significant. The extent of assets sold due to financial hardships was higher among marginal farmers (Rs. 2,11,024 per farm) than small farmers (Rs. 1,27,812 per farm). The study finds that the incidence of indebtedness had led to many social, economic, psychological and health problems in south western Punjab and makes a strong case for improving the accessibility of these categories of farmers to institutional sources of credit.