Microfinance is a Non-productive and Expensive Source of Borrowing: A Case Study of District Sargodha (Pakistan)

Tahir Mahmood,Allah Bakhsh

doi:10.52223/jei0201201

Abstract

The study examines Pakistan’s microfinance institutions' performance and checks the productivity of microfinance institutions. For this purpose primary data was collected from a sample of 260 respondents from 6 microfinance banks in Sargodha District. This paper examined the livestock sector and the impact of microfinance on livestock productivity. According to the results of the role of microfinance was non-productive due to the high cost of borrowing, small loan size, high feed cost and use of the loan in a non-productive term. According to the results microfinance productivity is negative due to small loan size and high cost of borrowing. While the productivity of borrowing amount for large farm size is positive which is three times greater as compared to small farm size. So results showed that the efficiency of production increase through large scale farming. Small loan size and high cost of borrowing is a basic cause of negative microfinance productivity. Small loan size is not benefited for investment because the loan amount is unable to meet the basic requirements at the farm level for the increase in productivity of livestock farming. The main reason for the high productivity of livestock financing in large farming is due to its economies of size. Replacement of dilapidated equipment with modern equipment is one way to increase productivity in an organization. Large loan size decreases the inefficiency in input costs. The major three factors of livestock productivity are the amount of interest rates, milk production and feed cost which are responsible to make efficient use of loan amount in its productivity. Productive capacity is a basic characteristic of large farm size and loan productivity depends on productive capacity.

Highlights

Microfinance, known as microcredit, is a financial service that offers loans to poor’s, small business owners who don't have access to traditional sources of capital
The current study underhand is conducted to check the impact of microfinance on livestock productivity
According to the results shown in table 1 microfinance productivity is negative due to small loan size and high cost of borrowing

Summary

Introduction

Microfinance, known as microcredit, is a financial service that offers loans to poor’s, small business owners who don't have access to traditional sources of capital. Bakhsh / Journal of Economic Impact, 2(1), 1-5, 2020 offering microfinance to small farmers in livestock by the micro-financing intuitions in Pakistan is to stop the exploitation of the poor caused by costly informal credit and to offer facilities to provide small loans to poor at a comparatively lower cost. Most developing countries including Pakistan offering financing services to an only minor segments of the population. According to Mahmood et al (2016) microfinance had been playing an important role in poverty reduction and improvement of the living standard of people in developing countries, like Pakistan. Critics note that women are often forced to hand over the amount of loans to men who use that loan for their purposes. The current study underhand is conducted to check the impact of microfinance on livestock productivity

Methodology

Results and Discussion

Conclusions