THE EFFECTS OF SOCIAL NETWORKS ON CREDIT ACCESS AND WELFARE IN THE NORTHERN REGION OF GHANA

Abstract

Food insecurity persists in emerging countries as a result of low agricultural production and rising food prices. Despite the significant impact of credit on agricultural output, most smallholder farmers, particularly in rural regions, lack access to credit. Social networks have a significant impact on farmer behavior and, could influence their credit decisions. The purpose of this study was to investigate the effect of social networks on smallholder access to institutional input credit, as well as the impact of peer credit on household income and food security. The multistage sampling approach was used in this study to first purposively select two districts and then randomly sample ten villages. In all, 400 farm households were randomly sampled across the ten villages. The spatial Durbin model (SDM) and an endogenous switching regression (ESR) model were then used to analyse the data. Age, residential status, durable assets, mobile network availability, and distance to the closest source of credit are among the socioeconomic elements that influence families' decisions regarding credit, according to the results of the SDM model. The findings demonstrate that a 1% increase in the share of peers in the farmer's network with access to credit, reduces own credit access by 0.15% (endogenous effects). Similarly, most of the peer characteristics that increase peer access to credit tend to decrease the farmer's likelihood of credit access (contextual effects). The ESR results also demonstrate that an increase in the share of peers with credit, significantly increases household income by 0.9%, and their food consumption score by approximately 6.5 points. Furthermore, the treatment effect estimates for both income and food security indicate that credit users gained highly in terms of income and food consumption than non-users. This shows that credit availability and access have beneficial effects on households. It is consequently proposed that credit services be made available to these communities and that attractive loan terms be offered, such as expanding the payback time, among other things, to promote credit access.