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Impact of access to credit on income and food security in Malawi

  • Diagne, Aliou
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    The paper departs from the standard practice that takes the estimated marginal effects of either the amount of credit received or membership in a credit program as measures of the impact of access to credit on household welfare. The marginal effects of the formal credit limit variable on household welfare, controlling for the credit limit from informal sources as well as the credit demanded from both sources, measure the marginal effects of access to formal credit. The main finding of the paper is that access to formal credit, by enabling households to reduce their borrowing from informal sources, has marginally beneficial effects on household annual income. However, these effects are very small and do not cause any significant difference between the per capita incomes, food security, and nutritional status of credit program members and noncurrent members. Moreover, the beneficial substitution effect reflects only the fact that reduced borrowing from informal sources makes informal loans play a lesser role in the negative impact that borrowing (from formal or informal sources) has on net crop incomes. The marginal effects on household farm and nonfarm incomes resulting from mere access to formal credit (without necessarily borrowing) are positive and quite sizable, but not statistically significant. Land scarcity and unfavorable terms of trade for the smallholders' farm products remain by far the factors that most constrain per capita household income growth in Malawi. The paper concludes that the necessary complementary resources and economic environment are not yet in place for access to formal credit to realize its full benefits for Malawi's rural population.

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    Paper provided by International Food Policy Research Institute (IFPRI) in its series FCND discussion papers with number 46.

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    Date of creation: 1998
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    Handle: RePEc:fpr:fcnddp:46
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    1. Schmidt, Peter & Strauss, Robert P, 1975. "The Prediction of Occupation Using Multiple Logit Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(2), pages 471-86, June.
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    3. Zeller, Manfred & Diagne, Aliou & Mataya, Charles, 1998. "Market access by smallholder farmers in Malawi: implications for technology adoption, agricultural productivity and crop income," Agricultural Economics, Blackwell, vol. 19(1-2), pages 219-229, September.
    4. Alderman, Harold & Garcia, Marito, 1994. "Food Security and Health Security: Explaining the Levels of Nutritional Status in Pakistan," Economic Development and Cultural Change, University of Chicago Press, vol. 42(3), pages 485-507, April.
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    6. Pitt, M.M. & Khandker, S.R., 1996. "Household and Intrahousehold Impact of the Grameen Bank and Similar Targeted Credit Programs in Bangladesh," World Bank - Discussion Papers 320, World Bank.
    7. Feder, Gershon & Lau, Lawrence J. & Lin, Justin Y. & Xiaopeng Luo, 1991. "Credit's effect on productivity in Chinese agriculture : a microeconomic model of disequilibrium," Policy Research Working Paper Series 571, The World Bank.
    8. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    9. Diagne, Aliou & Zeller, Manfred & Sharma, Manohar, 2000. "Empirical measurements of households' access to credit and credit constraints in developing countries," FCND briefs 90, International Food Policy Research Institute (IFPRI).
    10. Zeller, Manfred & Ahmed, Akhter U. & Babu, Suresh Chandra & Broca, Sumiter S. & Diagne, Aliou & Sharma, Manohar, 1996. "Rural finance policies for food security of the poor," FCND discussion papers 11, International Food Policy Research Institute (IFPRI).
    11. Eswaran, Mukesh & Kotwal, Ashok, 1990. "Implications of Credit Constraints for Risk Behaviour in Less Developed Economies," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 473-82, April.
    12. Dean Karlan & Xavier Gine & Jonathan Morduch & Pamela Jakiela, 2006. "Microfinance Games," Working Papers 936, Economic Growth Center, Yale University.
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