Determinants of Accessibility of Loans by Household Enterprises in Developing Countries : Evidence From Ghana

ABSTRACT

The problem of access to loans faced by household enterprises (HEs) is the motivation for this study. The study examined the determinants of access to loans in the various financial sectors. The objective of this study was to identify the factors that influence HEs’ access to loans in general and also their access to formal and informal loans, and also new strategies to finance HEs. The study focused on entrepreneurial characteristics and enterprise features that influence access to loans in Ghana. The study employed an informal enterprise survey of 729 household enterprises conducted in 2013 by the World Bank in Ghana. The Heckman Probit regression with sample selection model was used to estimate the determinants of access to loans because of the possibility of sample selection bias. But the ordinary Probit Model was later used for the estimations since there was no existence of selection bias. The results for total loans revealed that entrepreneur’s gender, household size, HE size and possession of assets are all positive significant factors that influence HEs’ access to loans. For the formal financial market, the results showed that the determinants of formal loans are entrepreneur’s experience, HE age, HE size and possession of asset. All these significant determinants of access to formal loans showed a positive relationship except HE age which indicated a negative relationship. Finally, the determinants of access to informal loans are entrepreneur’s gender and household size. In view of this, the study recommended that financial institutions should provide free training programs geared towards equipping HE entrepreneurs with the right loan application skills. Also, the government should formulate policies directed towards giving loans to female entrepreneurs in order for their HEs to move beyond survival to the place of growth and expansion. In addition, the government should provide loans for HEs in the transition from young to adulthood to enable such enterprises to cater for their sharp increase in cost.