Financial reform and credit extension in Lesotho

The study on which this article is based was concerned with establishing whether the lending behaviour of Lesotho's commercial banks in relation to the private sector has changed following the reforms that have been implemented since 1980. The influence of macroeconomic variables on agricultural credit and on private sector lending provided through the existing commercial banks during the period 1980 to 1993 was examined. The results showed a high and significant association between total credit extension and the general performance of the economy. Macroeconomic variables such as returns on financial securities in Lesotho and bonds in the Republic of South Africa, bank discount rates and the interest rates on saving deposits applicable in Lesotho had a key effect on the extension of credit by commercial banks to the private sector. The study concluded that credit extension activities in Lesotho during the study period were sensitive to the macroeconomic environment.