Determinants of credit demand and credit constraints among households in Ghana.

This paper investigates the determinants of and trends in credit demand and credit constraints of households with respect to both formal and informal financial institutions in Ghana. Trends and explanatory factors over 1992-2013 using pooled data from four Ghana Living Standards Surveys are analysed using the Heckman Probit model. Estimates for the full population reveal that tertiary education is a significant determinant of both credit requests (positively) and credit constraints (negatively). In the rural population, household heads that were widowed or separated and those that lived below the poverty line are more likely to request credit and also more likely to experience credit constraints. In the urban population, the aged are less likely to request credit but more likely to experience credit constraints. The policy implication is that financial inclusion measures targeted to people living below the poverty line, the widowed and separated in rural communities are needed to respond to their relatively high demand for credit services and overcome their exclusion from access to credit that could help in generating income to reduce poverty. The sex of a household head is significant for binding credit constraints in the full population and the urban sample, but not significant in the rural sample. Surprisingly, the study finds a decline in the proportion of households requesting credit in the full population as well as rural and urban areas, indicating increasing self-exclusion.