Variations in Agriculture Credit Allocation: Evidence from Mann Whitney U Test

Background: Farmers need credit to meet the production costs and invest in agriculture activities, and with rising input costs, the situation becomes increasingly challenging, necessitating more accessible and adequate financial support. However, the untested notions of farmers' misutilization of agriculture credit restrict the banks and government from increasing the credit limit for farmers. Objective: This study was formulated to understand credit allocation purposes and their extent and to test any difference in allocation for agricultural and non-agricultural purposes. Methods: An ex-post facto study was conducted in the two districts of Gujarat state of India, where more acreage was under rice cultivation. With a purposive selection of talukas and villages, a sample size of 230 was finalized and contacted randomly using an interview schedule. The Mann-Whitney U test was performed to know any significant difference between the allocation scores for agricultural and non-agricultural purposes. Results and Conclusions: Descriptive statistics as frequency and percentages showed credit allocation for short-term agricultural activities such as procuring seeds (69.20%) and fertilizers (66.50%). Conversely, a notably lower credit allocation towards long-term investments like purchasing livestock and machinery (74.73%, 54.30% opted never) indicates a preference for immediate over long-term agricultural needs. The Mann-Whitney U test results reveal a significant difference (Z = 14.711, p < .001) between the allocation scores for agricultural and non-agricultural purposes, with a higher mean rank for agricultural activities. Though there was a reduction in the diversion of agricultural credit to non-agricultural purposes, the potential for optimal credit utilization has not been fully realized. Significance: The study suggests increasing loan amounts, simplifying application procedures, strengthening extension services, expanding Direct Benefit Transfer schemes, conducting financial literacy programs, and implementing robust monitoring and awareness campaigns to enhance efficient and ethical loan use, thereby fostering sustainable agricultural development.