Analysis Of Determinants Of Demand For Credit: A Case Study Of Central Division Of Laikipia Distric

Abstract

Despite presence of credit providers, credit inaccessibility remains a major issue in Kenya. Credit plays an important role in the economy by increasing investment, production and consumption and thereby economic growth and development in general. Using primary data collected from Central Division of Laikipia District, and employing Heckman two-step model and multinomial logit model estimations, we analyze demand for credit. The study has found out that education level, interest rates, and distance from the credit providers relate negatively to amount of credit demanded. However, repayment period and income have positive relationship to the amount of credit demanded. From the study’s findings, credit inaccessibility can be attributed to household and individuals’ characteristics as well as credit providers’ attribute. While government concerns primarily have been on the supply of credit, the focus should be improved credit accessibility through addressing factors that adversely affect demand for credit. These factors include: low levels of education; low level of income to household/individuals; high interest rates; short repayment period; and lack of information on the available of credit providers.