The Impacts of Improvements in the Delivery of Credit from Formal and Semi-Formal Financial Institutions: Evidence from Ghana

Abstract

This study examines the impacts of improvements in delivery of credit from formal and semi-formal financial institutions to households in Ghana. The main interest of the study is to exploit plausibly variations in access to credit from these institutions, since before the passage of the Borrowers and Lenders Act, 2008 (Act 773) and the Non-Bank Financial Institutions Act, 2008 (Act 774) in 2008, households in the country could hardly borrow from the formal financial institutions. Particular attention is paid to a number of socioeconomic outcomes, including agriculture, non-farm businesses, and expenditure. This paper documents evidence of a decline in the share of households who have some informal borrowing, reduction in agricultural activities, and increases in non-farm business activities as well as increases in the number of non-farm business employees. While the reforms altered the borrowing patterns of households, it did not necessarily induce demand for credit. This paper also finds improvements in consumption, profits (both farm and non-farm activities) and loan repayments.