Credit constraint and rural household welfare in the mezam division of the north‐west region of cameroon

Abstract

The purpose of this study is to examine the effect of the rural household’s head and household characteristics on credit accessibility. This study also seeks to investigate how credit constraint affects rural household welfare in the Mezam division of the North‐West region of Cameroon. Using data from a household survey questionnaire, we found that 36.88% of the households were credit‐constrained, while 63.13% were unconstrained. A probit regression model was used to examine the determinants of households’ credit access, while an endogenous switching regression model was used to analyze the impact of credit constraint on household welfare. The results from the probit regression model indicate the importance of the farmer’s or trader’s organization membership, occupation, and savings to the household’s likelihood of being credit-constrained. On the other hand, a prediction from the endogenous switching regression model confirms that households with access to credit have a better standard of welfare than a constrained household. From the results, it is necessary for the government to subsidize microfinance institutions, so that they can take on the risk of offering credit to rural households.