Credit Demand and Credit Rationing in the Informal Financial Sector in Uganda

Uganda is one of the few African countries which has experienced quite substantial growth in the period since 1990. Growth of GDP has been estimated at 6.9% per annum for the period 1990-2002, compared to only 2.6% for all African countries and Ugandas own far weaker performance of 2.9% in the 1980s (World Bank 2004: 183) This paper focuses on identifying the factors that influence credit demand and also those that result in the poor being credit rationed by lenders. An understanding of both these sets of determinants could assist policy formulation to enhance the welfare of the poor through improvedcredit access. In this respect we were fortunate in having a dataset that contains questions not only on actual credit given, but also on loans applied for.This allows us to investigate both credit demand and credit supply, and to model these using observed household and individual characteristics.