Credit Access and Poverty in Ghana: Does the Source of Credit Matter?

Poverty remains a concern for policymakers across the globe because a considerable number of individuals are still poor and unable to make a decent living for themselves. Among the efforts to combat poverty is to enhance the income of individuals by improving access to credit. Extant studies have investigated the nexus of poverty and credit access, but the majority of them tend to focus on microcredit without considering the broader theme of credit. Moreover, most of the studies ignored the potential endogeneity inherent in credit access. Again, studies that focused on Ghana are concentrated on some specific areas, districts, or municipalities of the country which does not reflect the country-wide effect of credit access on poverty. To bridge these study gaps, we analyzed the impact of accessing credit on poverty using more representative data within an instrumental variable (IV) framework that is robust to endogeneity. Besides, we extend the discussion by showing how the poverty impact of accessing credit from formal sources differs from informal ones. Using data from the 2016/2017 round of the Ghana Living Standards Survey (GLSS), we found that accessing credit generally deepens the poverty status of Ghanaians. However, the specific impacts of credit sources indicate that accessing credit from formal sources is more effective in reducing the propensity to be poor in Ghana. Additional findings show that age, income, and location of the individual have significant impacts on their ability to access credit to better their lives. It follows that efforts by the government to improve financial inclusion to roll in more people will increase credit access from formal financial institutions and help reduce poverty in Ghana.