Determinants of household access to bank credit in Lesotho

Abstract

Access to bank credit has become one of the key elements in improving households’ incomes and their standards of living in an economy. Extensive research has been conducted on the determinants of household access to bank credit in many African countries, however, no similar study has been carried out in Lesotho. This study therefore examines the various factors that influence household access to bank credit in Lesotho. The study was conducted using the 2002/2003 Household Budget Survey (HBS) data set. The probit model was specified and used to determine the various factors that influence credit accessibility in Lesotho. The Empirical results suggested that being married, being widowed, having a primary, secondary, vocational, teacher/technical training, and university education, paid employment, business ownership, and the log of income had a positive impact on household access to bank credit. However, household access to bank credit was negatively influenced by being a female-headed household, being in farming, being in informal employment, and rural location. These variables were statistically significant at 10 percent level of significance. The policy recommendations from this study are that the government should maintain and enhance the on-going policy reforms that were aimed at promoting gender equality in the credit markets, and those intended at encouraging access to bank credit in the rural areas. In addition, to ensure the efficiency and effectiveness of these policies as well as the institutions involved in the implementation of these policies, the study recommends the revision of such policies.