Pakistan’s economy is largely agrarian and provides income to the majority of population. The farmers, particularly the small farmers, are facing problems in early adoption of new technologies because of financial shortages. Over 90% farmers in Pakistan have landholding of less than five acres, hence majority of the farmers suffer from low yields and negligible profits.

Farmers rarely have access to formal finance and often borrow money through informal and unequal means. However, over the past two decades, the growth of microfinance industry with a particular focus on access to finance for small farmers has helped remedy the situation. Microfinance gives the opportunity to small entrepreneurs to expand their income generating sources. According to the World Bank, access to finance for agriculturists can play a pivotal role in eradicating poverty.

The example of Muhammad Pehlwan from Chak Grusar, Bahawalnagar, provides strong case in favor of this stance. Muhammad Pehlwan was a small farmer, cultivating a leased landholding. Due to lack of finances, Pehlwan bought the inputs on credit. Pehlwan used to get the cash 03 to 04 months after the sale of crops. From this cash, Pehlwan repaid the local money lenders who had lent him money to buy seeds and fertilizers. Muhammad Pehlwan belonged to a category of farmers who remain tied up with Arti and informal money lenders in a never-ending loan cycle.

Pehlwan came to know about agri financing through a leading bank, Khushhali Microfinance Bank. He took his first loan of PKR 10,500 to buy inputs on cash. Later, he was able to sell his crop share in the main market; the loans helped him to generate good profits. Seeing the benefits of investments through loans, Pehlwan kept taking further loans and eventually, over the course of ten years, he is now cultivating 10 acres of land.

An entrepreneur at heart, Pehlwan also diversified into milk supply business. He is selling more than 80 kg milk every day in the nearby city. He has well-founded plans to set up his own dairy farm. Farmer financing can be a fundamental tool when used properly through institutional finance and correct advisory to break the vicious poverty cycle. Credit access to small and marginalized farmers leverages the strengths that exist in the agriculture value chain.