Effect of Credit on Household Welfare: The Case of “Village Bank” Model in Bomet District, Kenya

Type Thesis or Dissertation - Master thesis
Title Effect of Credit on Household Welfare: The Case of “Village Bank” Model in Bomet District, Kenya
Author(s)
Publication (Day/Month/Year) 2009
Page numbers 0-0
URL http://core.kmi.open.ac.uk/download/pdf/6377321.pdf
Abstract
In recent years, governmental and nongovernmental organizations in many low-income countries have introduced credit programs targeted to the poor. Many of these programs specifically target the poor on the premise that they are more likely to be credit constrained and have restricted access to the wage labour market. Though participation is by choice, little is known about the role of credit on welfare. The purpose of this study was then to assess the role of credit service on welfare of the microfinance clients. It was also to enable the microfinance institutions assess if they are achieving the intended objectives of their program. The study area was Bomet District and the sample was drawn from Mulot and Silibwet “village banks”. A sample of 125 “village bank” members was selected, out of which 91 had used the credit service and the other 34 had not. Primary data on the selected respondents were collected using a structured interview schedule and secondary data were obtained from the selected “village banks” operating in the study area and relevant government departments in the district. The study used analysis of variance and Heckman’s selection model which corrects for selectivity bias in the sample. This consists of a probit equation (borrowing participation equation) and target equation of household expenditure. The results from the study indicated that farm income, off-farm income, distance to market and household assets influences the probability to participate in “village bank” credit. The household income of credit participants was also higher than that of the nonparticipants. There was a positive relationship between the amount borrowed and household expenditure. Age of the household head, farm income, distance to market and off-farm income also plaid a significant role in influencing the wellbeing of a household.

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