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Savings, Credit, and Insurance: Household Demand for Formal Financial Services in Rural Ghana

Author

Listed:
  • Mirko Bendig
  • Lena Giesbert
  • Susan Steiner

Abstract

This paper argues that the study of the demand for financial services in developing countries leaves out part of the story if it looks at only one of the three elements of the so-called finance trinity—that is, savings products, loans and insurance—as is largely done in the literature. In contrast to previous research, this study assumes that households’ choices for any of these services are strongly interconnected. Therefore, the paper simultaneously estimates the determinants of household demand for savings, loans and insurance by applying a multivariate probit model to household survey data from rural Ghana. On the one hand, the estimation results confirm the common finding that poorer households are less likely to participate in the formal financial sector than better-off households. On the other hand, there is empirical evidence that the use of savings products, loans and insurance depends not only on the socioeconomic status of households, but also on various other factors, such as households’ risk assessment and past exposure to shocks. In addition, trust in the providing institution and its products appear to play a key role.

Suggested Citation

  • Mirko Bendig & Lena Giesbert & Susan Steiner, 2009. "Savings, Credit, and Insurance: Household Demand for Formal Financial Services in Rural Ghana," Global Development Institute Working Paper Series 7609, GDI, The University of Manchester.
  • Handle: RePEc:bwp:bwppap:7609
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    References listed on IDEAS

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    1. Kati Schindler, 2010. "Credit for What? Informal Credit as a Coping Strategy of Market Women in Northern Ghana," Journal of Development Studies, Taylor & Francis Journals, vol. 46(2), pages 234-253.
    2. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
    3. M. M. Pitt & S. R. Khandker, 2002. "Credit Programmes for the Poor and Seasonality in Rural Bangladesh," Journal of Development Studies, Taylor & Francis Journals, vol. 39(2), pages 1-24.
    4. Jain Nishant & Bhat Ramesh, 2006. "Factoring affecting the Demand for Health Insurance in a Micro Insurance Scheme," IIMA Working Papers WP2006-07-02, Indian Institute of Management Ahmedabad, Research and Publication Department.
    5. Mikkel Barslund & Finn Tarp, 2008. "Formal and Informal Rural Credit in Four Provinces of Vietnam," Journal of Development Studies, Taylor & Francis Journals, vol. 44(4), pages 485-503, April.
    6. Kochar, Anjini, 1997. "An empirical investigation of rationing constraints in rural credit markets in India," Journal of Development Economics, Elsevier, vol. 53(2), pages 339-371, August.
    7. Morduch, Jonathan, 1999. "Between the State and the Market: Can Informal Insurance Patch the Safety Net?," World Bank Research Observer, World Bank Group, vol. 14(2), pages 187-207, August.
    8. Stefan Dercon, 2002. "Income Risk, Coping Strategies, and Safety Nets," World Bank Research Observer, World Bank Group, vol. 17(2), pages 141-166, September.
    9. Navajas, Sergio & Schreiner, Mark & Meyer, Richard L. & Gonzalez-vega, Claudio & Rodriguez-meza, Jorge, 2000. "Microcredit and the Poorest of the Poor: Theory and Evidence from Bolivia," World Development, Elsevier, vol. 28(2), pages 333-346, February.
    10. K. Spio & J.A. Groenewald, 1996. "Rural Household Savings and the Life Cycle Hypothesis: The Case of South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 64(4), pages 217-223, December.
    11. Gupta, K L, 1970. "Personal Saving in Developing Nations: Further Evidence," The Economic Record, The Economic Society of Australia, vol. 46(114), pages 243-249, June.
    12. Kimuyu, Peter Kiko, 1999. "Rotating Saving and Credit Associations in Rural East Africa," World Development, Elsevier, vol. 27(7), pages 1299-1308, July.
    13. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, October.
    14. Jonathan Morduch, 1995. "Income Smoothing and Consumption Smoothing," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 103-114, Summer.
    15. Gulnur MURADOGLU & Fatma TASKIN, 1996. "Differences In Household Savings Behavior: Evidence From Industrial And Developing Countries," The Developing Economies, Institute of Developing Economies, vol. 34(2), pages 138-153, June.
    16. Ranjula Bali Swain, 2002. "Credit Rationing In Rural India," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 27(2), pages 1-20, December.
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    Citations

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    Cited by:

    1. Olomola, Aderbigbe & Gyimah-Brempong, Kwabena, 2014. "Loan demand and rationing among small-scale farmers in Nigeria:," IFPRI discussion papers 1403, International Food Policy Research Institute (IFPRI).
    2. SAM, Vichet, 2019. "Formal Financial Inclusion in Cambodia: What are the Key Barriers and Determinants?," MPRA Paper 94000, University Library of Munich, Germany.
    3. repec:sek:jijobm:v:7:y:2019:i:1:p:125-143 is not listed on IDEAS
    4. Alejandra Campero & Karen Kaiser, 2013. "Access to Credit: Awareness and Use of Formal and Informal Credit Institutions," Working Papers 2013-07, Banco de México.
    5. Bendig, Mirko & Arun, Thankom Gopinath, 2011. "Enrolment in Micro Life and Health Insurance: Evidences from Sri Lanka," IZA Discussion Papers 5427, Institute of Labor Economics (IZA).
    6. Yusuf Ibrahim Kofarmata & Shri Dewi Applanaidu & Sallahuddin Hassan, 2016. "Determinants of Demand for Credit: A Conceptual Review," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 3(1), pages 6-10.
    7. Samuel Sekyi, 2017. "Rural Households’ Credit Access and Loan Amount in Wa Municipality, Ghana," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 506-514.
    8. repec:bla:agecon:v:49:y:2018:i:5:p:575-586 is not listed on IDEAS
    9. Arun, Thankom Gopinath & Bendig, Mirko, 2010. "Risk Management among the Poor: The Case of Microfinancial Services," IZA Discussion Papers 5174, Institute of Labor Economics (IZA).

    More about this item

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • R22 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Other Demand

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