Resource information
Although the potentially negative
impacts of credit constraints on economic development have
long been discussed conceptually, empirical evidence for
Africa remains limited. This study uses a direct elicitation
approach for a national sample of Rwandan rural households
to assess empirically the extent and nature of credit
rationing in the semi-formal sector and its impact using an
endogenous sample separation between credit-constrained and
unconstrained households. Being credit constrained reduces
the likelihood of participating in off-farm self-employment
activities by about 6.3 percent while making participation
in low-return farm wage labor more likely. Even within
agriculture, elimination of all types of credit constraints
in the semi-formal sector could increase output by some 17
percent. Two suggestions for policy emerge from the
findings. First, the estimates suggest that access to
information (education, listening to the radio, and
membership in a farm cooperative) has a major impact on
reducing the incidence of credit constraints in the
semi-formal credit sector. Expanding access to information
in rural areas thus seems to be one of the most promising
strategies to improve credit access in the short term.
Second, making it easy to identify land owners and transfer
land could also significantly reduce transaction costs
associated with credit access.
