An Analysis of the Impact of Financial Literacy on Credit Utilisation Behaviour of the Farmers in Kamburupitiya DS division


  • R.P.S.A. Gunawardhana Department of Agricultural Economics, Faculty of Agriculture, University of Ruhuna, Sri Lanka
  • K.N.N. Silva Department of Agricultural Economics, Faculty of Agriculture, University of Ruhuna, Sri Lanka



Agriculture is the major livelihood of the rural populations in many developing countries, including Sri Lanka. In order to feed the increasing number of mouths, subsistence agriculture is moving towards commercialised agriculture in order to increase production. On that point, agricultural credit plays a vital role in obtaining the mesentery inputs like land, machinery, seeds, fertilisers, pesticides, and labour force. However, as a result of the mismanagement of loan utilisation by farmers due to poor financial literacy, they were not able to get the expected return on agricultural loans. Therefore, this investigation was carried out in the Kambutupitiya DS division in the Matara District to find out the impact of financial literacy on the credit utilisation behaviour of the farmers and to determine the factors affecting their credit utilisation behaviour and financial literacy. The population consisted of 125 borrowers from Govijana Bank, which belongs to the agrarian service department, and 60 farmers were selected using simple random sampling. Data were analysed descriptively and statistically using SPSS. The credit facility was fully utilised only by 25% of the respondents, partially utilised by 35%, and the remaining 40% mis-utilised the loan. The study revealed that socio-demographic characteristics such as age, educational level, income level, loan size, and purpose of the loan do not have any significant influence on the credit utilisation behaviour of the farmers. However, family size has a significant impact on credit utilisation behaviour (P=0.016). Only 17% of the respondents have sound financial literacy. The majority of farmers have a moderate level of financial literacy (65%) and 18% of farmers have a lower level of financial literacy. Educational level (P=0.001) and income level (P=0.012) have a significant influence on financial literacy and age has not significantly impacted the financial literacy level of farmers. In the Sri Lankan context, there are opportunities to do further research at the provincial and national levels. The research suggests that policies should be implemented to incorporate financial knowledge at all levels of the education system.

Keywords: Agriculture, Agricultural Loan, Credit Utilisation, Financial Literacy, Govijana Bank