Journal of Financial Services Marketing

, Volume 15, Issue 2, pp 136–159 | Cite as

Financial services consumption constraints: Empirical evidence from Rwandan rural households

  • Malimba Musafiri Papias
  • Palanisamy Ganesan
Original Article
First Online:
Received:
Revised:

Abstract

The concentration of banking and financial institutions in the city and/or urban in any developing countries in general, Rwanda in particular creates various constraints in availing and consuming different financial products and services by the rural households. The article examines the forms and determinants of credit constraint status of rural households of Rwanda and the impact of constraints variables on availing and using the range of financial products and services. The study concludes that 42.5 per cent of the Rwandan rural households surveyed face triple forms of credit constraints including self-imposed constraints, quantity rationing and risk rationing by formal financial institutions. However, quantity rationing is perhaps not as pervasive as self-imposed rationing and risk rationing by the lenders. The results from the empirically tested model revealed that in addition to demographic and socioeconomic characteristics of households, the variables constraining demand and/or supply of financial services with reference to accessibility were significant predictors of households' credit constraints. The study informs on the needs for innovative systems, products and services that would increase access relax credit constraints and improve rural consumers' welfare. The authors conclude that establishing an enabling legal and regulatory environment, providing adequate public goods and physical infrastructure, designing capacity building and technical assistance programs and maintaining political and macroeconomic stability are perhaps major public and policy issues needed for a robust rural financial market.

Keywords

financial services credit constraints rural households banking; Rwanda 
This is a preview of subscription content, log in to check access.

References

  1. Nwanna, G.I. (1996) Rural financial markets in West Africa: Roles, experience, constraints and prospects for promoting rural development. Center for Economic Research on Africa, School of Business – Mont Clair University, Upper Mont Clair, New Jersey 07043.Google Scholar
  2. Wenner, M. and Proenza, J.F. (2000) Rural Finance in Latin America and the Caribbean: Challenges and Opportunities. Washngton DC: Inter American Development bank, Sustainable Development Department, Microenterprise Unit. Working Paper, March.Google Scholar
  3. Duong, B. and Izumida, Y. (2002) Rural development finance in Vietnam: A micro econometric analysis of household survey. World Development 30 (2): 319–335.CrossRefGoogle Scholar
  4. Gonzalez-Vega, C. (2003) Deepening Rural Financial Markets: Macroeconomic Policy and Political Dimensions, Lead Theme Paper on paving the way forward for Rural Finance. An International Conference on Best Practices; June 2–4, Washington DC, USA.Google Scholar
  5. Conning, J. and Udry, C. (2005) Rural financial market in developing countries. In: R.E. Evenson, P. Pingali and T.P. Schultz (eds.) Handbook of Agricultural Economics, Agricultural Development: Farmers, Farm Production and Farm Markets. North-Holland: Elsevier.Google Scholar
  6. Nguyen, C.H. (2007) Access to credit and borrowing behaviour of rural households in a transition, International Conference on Rural Finance Research: Moving Results into Policies and Practices; 19–21 March, Rome, Italy, http://www.fao.org/ag/ruralinconference/docs/papers_theme/access_credit.pdf.
  7. Cuevas, C. and Graham, D.H. (1984) Agricultural lending costs in Honduras. In: D.W. Dale Adams, D.H. Graham and J.D. Von Pischke (eds.) Undermining Rural Development with Cheap Credit. Boulder, CO: Westview Press.Google Scholar
  8. Chaves, R.A. and Gonzalez-Vega, C. (1996) The design of successful rural financial intermediaries: Evidence from Indonesia. World Development 24 (1): 65–78.CrossRefGoogle Scholar
  9. Vaessen, J. (2001) Accessibility of rural credit in Northern Nicaragua: The importance of networks of information and recommendation. Savings and Development XXV (1): 5–32.Google Scholar
  10. Miller, C. (2009) Examining Design and Innovation in Rural Finance for Addressing Current and Future Challenges: Twelve Key Challenges in Rural Finance. Rural Finance Workshop – Pre-Event of SEEP Annual Meeting; 26 October 2004, Washington DC, http://www.seepnetwork.org/content/library/detail/2062.
  11. Von Pischke, J.D. (1994) Agricultural lending costs in Honduras. In: D.W. Dale Adams, D.H. Graham and J.D. Von Pischke (eds.) Undermining Rural Development with Cheap Credit. Boulder, CO: Westview Press.Google Scholar
  12. Skees, J.R. (2003) Risk Management Challenges in Rural Financial Markets: Blending Risk Management Innovations with Rural Finance, Lead Paper on paving the way forward for Rural Finance. An International Conference on Best Practices; 2–4 June 2003, Washington DC.Google Scholar
  13. Bester, H. (1985) Screening versus rationing in credit markets with imperfect information. American Economic Review 75 (4): 850–855.Google Scholar
  14. Heywood, W.F. and Nuria, de la Peña (2003) Legal and Regulatory Requirements for Effective Rural Financial Markets, Lead Paper on paving the way forward for Rural Finance. An International Conference on Best Practices; 2-4 June, Washington DC.Google Scholar
  15. National Bank of Rwanda. (2006) Micro – Finance Institutions under Liquidation. National Bank of Rwanda, Press Release; October 2006.Google Scholar
  16. Winter, N.A. and Temu, A. (2005) Liquidity constraints, access to credit and pro-poor growth in rural Tanzania. Journal of International Development 17: 867–882.CrossRefGoogle Scholar
  17. Zeller, M. (1994) Determinants of credit rationing: A study of informal lenders and formal credit groups in Madagascar. World Development 22 (12): 1895–1907.CrossRefGoogle Scholar
  18. Aryeetey, E. and Udry, C. (1997) The characteristics of informal financial markets in sub-Saharan Africa. Journal of African Economies: Supplement 1997 (1): 161–203.Google Scholar
  19. Swinnen, J.F.M. and Gow, H.R. (1999) Agricultural credit problems and policies during the transition to a market economy in central and Eastern Europe. Food Policy 24: 21–47.CrossRefGoogle Scholar
  20. Demsetz, R.S. (2000) Bank loan sales: A new look at motivations for secondary market activity. The Journal of Financial Research XXIII (2): 197–222.CrossRefGoogle Scholar
  21. Stiglitz, J.E. and Weiss, A. (1981) Credit rationing in markets with imperfect information. American Economic Review 71 (3): 393–410.Google Scholar
  22. Guirkinger, C . and Boucher, S. (2007) Credit constraints and productivity in Peruvian agriculture. International Conference on Rural Finance Research: Moving Results into Policies and Practices; 19-21 March 2007, Rome Italy.Google Scholar
  23. Kashuliza, A.K. and Kydd, J.G. (1996) Determinants of bank credit access for smallholder farmers in Tanzania: A discriminant analysis application. Savings and Development 20 (3): 285–304.Google Scholar
  24. Bergstresser, D. (2001) Banking market concentration and consumer credit constraints: Evidence from the survey of consumer finances. Cambridge, MA: Department of Economics, MIT.Google Scholar
  25. Ekumah, E.K. and Essel, T.T. (2001) Gender Access to Credit under Ghana's Financial Sector Reform: A Case Study of two Rural Banks in the Central region of Ghana. International Labour Organization. IFLIP Research Paper. 2001: 01–04.Google Scholar
  26. Mahajan, V. (2007) Rural finance in contemporary times: Interface with microfinance, sub theme on dealing with risk and legacy, colloquium based on the workshop on microfinance. IIMA, Vikalpa 30 (2): 89–91.Google Scholar
  27. Pal, S. (2002) Household sectoral choice and effective demand for rural credit in India. Applied Economics 34 (14): 1743–1755.CrossRefGoogle Scholar
  28. Feder, G., Onchan, T. and Raparla, T. (1998) Collateral, guarantees and rural credit in developing countries: Evidence from Asia. Agricultural Economics 2: 231–245.CrossRefGoogle Scholar
  29. Mugume, A. (2003) Credit constraints among Ugandan firm: Microeconomic evidence. East African Journal of Rural Development 19 (1): 52–65.Google Scholar
  30. Gamal, I., Kedir, A. and Torres, S. (2007) Household-level Credit Constraints in Urban Ethiopia. Department of Economics, University of Leicester/Discussion Papers in Economics. 2007; RePEc: lec: leecon: 07/3.Google Scholar
  31. Zeller, M ., Akhter, A., Suresh, B., Broca, S., Diagne, A. and Sharma, M. (1996) Rural Financial Policies for Food Security of the Poor, Methodologies for a Multi Country Research Project, FCND Discussion Paper No. 11.Google Scholar
  32. Diagne, A. (1999) Determinants of Access to and Participation in Formal and Informal Credit Markets in Malawi. International Food Policy Research Institute, FCND, Discussion Paper No. 67, Washington DC.Google Scholar
  33. Diagne, A., Zeller, M. and Sharma, M. (2000) Empirical Measurements of Households Access to Credit and Credit Constraints in Developing Countries: Methodological Issues and Evidence. International Food Policy Research Institute, FCND Discussion Paper No. 90, Washington DC.Google Scholar
  34. Gilligan, D.O., Harrower, S. and Quisimbing, A. (2005) How Accurate are Reports of Credit Constraints? Reconciling Theory with Respondents’ Claims in Bukidnon, Philippines. BASIS Collaborative Research Support Program Working Paper, University of Wisconsin – Madison.Google Scholar
  35. Mehta, S.C., Lalwani, A.K. and Han, S.L. (2000) Service quality retailing: Relative efficiency of alternative measurement scales for different product-service environments. International Journal of Retail and Distribution Management 28 (2): 62–72.CrossRefGoogle Scholar
  36. Devlin, J.F. (2002) An analysis of choice criteria in the home loans market. International Journal of Bank Marketing 20 (5): 212–226.CrossRefGoogle Scholar
  37. Sukhwinder, S. and Leach, J. (2005) Towards building an inclusive financial sector: Lessons from South Africa. Economic and Political Weekly XL (17): 1726–1730.Google Scholar
  38. Schrieder, G.B. and Theesfeld, I. (2000) Improving bankability of small farmers in Northern Vietnam. Savings and Development XXIV (4): 386–403.Google Scholar
  39. Zeller, M. (1995) The demand for financial services by rural households - Conceptual framework and empirical findings. Quarterly Journal of International Agriculture 34 (2): 149–170.Google Scholar
  40. Abate, A., Keshava, T.R., Mahesh, N. and Lalitha, A. (2003) Determinants of flow of institutional credit to agriculture in Karnataka State. Finance India XVII (2): 545–560.Google Scholar
  41. Norusis, M.J. (1994) SPSS/PC+ Advanced Statistics V4.0. Chicago, IL: SPSS.Google Scholar
  42. Hair, J.F., Anderson, R.E., Tatham, R.L. and Black, W.C. (1998) Multivariate Data Analysis, 5th edn. Upper Saddle River, NJ: Pearson Education.Google Scholar
  43. Hosmer, D.W. and Lameshow, S. (1989) Applied Logistic Regression. New York, NY: John Wiley and Sons.Google Scholar
  44. Okeahalam, C. (2007) Economics of access in a developing country: An analysis of firm-conduct in financial services. International Journal of Social Economics 34 (2): 923–942.CrossRefGoogle Scholar
  45. Zineldin, M. (1996) Bank strategic positioning and some determinants of bank selection. International Journal of Bank Marketing 14 (6): 2–22.CrossRefGoogle Scholar
  46. Edris, T.A. and Almahmeed, M.A. (1997) Services considered important to business customers and determinants of bank selection in Kuwait: A segmentation analysis. International Journal of Bank Marketing 15 (4): 126–133.CrossRefGoogle Scholar
  47. Owusu–Frimpong, N. (1999) Patronage behaviour of Ghanaian bank customers. International Journal of Bank Marketing 17 (7): 335–341.CrossRefGoogle Scholar
  48. Dusuki, A.W. and Abdullah, N.I. (2007) Why do Malaysian customers patronize Islamic banks. International Journal of Bank Marketing 25 (3): 142–160.CrossRefGoogle Scholar
  49. Saunders, G.S., Bendixen, M. and Abratt, R. (2007) Banking patronage motives of the urban informal poor. Journal of Services Marketing 21 (1): 52–63.CrossRefGoogle Scholar

Copyright information

© Palgrave Macmillan, a division of Macmillan Publishers Ltd 2010

Authors and Affiliations

  • Malimba Musafiri Papias
    • 1
  • Palanisamy Ganesan
    • 1
  1. 1.National Council for Higher EducationKigaliRwanda

Personalised recommendations