Loan refusal, household income and savings in Ghana: a dominance analysis approach

Abstract

Many loan applicants and households face the problem of loan refusal but researchers passively discuss it and do not consider discussing its intensity. This paper uses the fifth round of the Ghana Living Standards Survey data, employing the logit and Poisson regression models on loan refusal as binary and count variables respectively. The econometric analysis of 1,600 and 1,591 households for the loan refusal and intensity of loan refusal respectively shows that income and savings inversely relate to loan refusal and the intensity of loan refusal. The dominance analysis also showed that in Ghana, household savings causes loan refusal and intensity of loan refusal more than household income. We call on financial institutions to widen their coverage, in general, and more in the rural areas so as to increase the stock of loanable funds readily available to prospective applicants, with more flexibility for rural dwellers.