Determinants of Access to Credit and Loan Amount: Household-level Evidence from Urban Ethiopia

Household level analysis of credit rationing is restricted to rural data sets collected mainly from South East Asia. In Africa, credit constraints are often investigated using firm level data. Empirical evidence on determinants of credit constraints and amount borrowed by urban households is almost non-existent from Sub-Saharan Africa. Using an extended direct approach, we analyzed the Fourth Round Ethiopian Urban Household Survey (2000) to separate households that do not have access to credit from those who do. We find a high percentage (i.e. 26.6%) of credit-constrained households, the majority of which constitute discouraged borrowers. A probit model and a tobit procedure that allows potential selectivity bias identified factors affecting households’ likelihood of being credit constrained and the volume of loan amount respectively. Our analysis found geographical location of households, current household resources, schooling of the household head, value of assets, collateral, number of dependants, marital status and outstanding debt as significant factors. Finally, we consider the policy implications of our results