Impact of Bai Salam on financial inclusion and agro-production Business: A case of wheat producing small farmers in Faisalabad

Abstract

Financial exclusion, in terms of lack of access to credit from formal financial institutions, is high for small and marginal farmers, (Nouman, 2013). It is stylized fact that agricultural financing is extremely conducive in agricultural production businesses and help to improve farm productivity. A paramount number of financial institutions are involved in such financing globally and in local settings in all of the nations. Islamic Agricultural financing is an innovation, has been, currently, introduced in agro-production businesses. Islamic Agriculture financing mode may Include Bai Salam (advance payment) Murabaha, Modaraba and Musharika. There is great gap in the literature concerning empirical work regarding the impact of Salam on agro production business. Therefore this study has been devised to observe the impact of Salam, extended by Wasil foundation, on financial inclusion of the small farmers as well as their wheat production business in Faisalabad district. In this regard data has been collected from 90 Salam clients (i.e. treatment group) and 100 non-Salam farmers (i.e. control group) from target area using close ended questionnaire. Descriptive statistics, paired and independent sample t-test, multiple linear regression (MLR) and probability regression (PR) analysis were rendered, respectively, to achieve the results of the study. Moreover relationship of age, education, family size, farm size, loan taken, cost of land preparation, cost of labor, cost of irrigation and cost of chemicals with output of wheat using MLR were estimated while probability of financial inclusion was gauged with the change in age, education, farm size, tendency status, soil fertility, ratio of bread earners in family and off farm income using logistic regression. The results of this study confirms significant differences in financial inclusion, inputs purchasing, amount of output per area, revenue and profit per unit area between treatment and control group. Moreover, similar results were obtain in case of pre and post scenarios of Salam clients/respondents. As far as regression results are concerned it is explored that age and irrigation cost have significant negative relationship with wheat yield while cost of land preparation and chemicals and loan taken have significant positive relationship with output. Moreover, logistic regression results indicate that Age, farm size soil fertility, and ratio of bread earners in family positively affect where tenancy status negatively to financial inclusion, respectively. On the basis of results of the study, it is strongly recommended to offer Salam on wider scale to enhance financial inclusion and increase per acre output of wheat which will lead to food security and reduction in poverty.