Assessing the Impact of Credit Constraints on Farm Household Economic Welfare in the Hinterland of Kinshasa, Democratic Republic of Congo

Abstract

This study investigates the impact of credit constraints on farm household economic welfare. Data were cross sectional and collected at household level in the Hinterland of Kinshasa, Democratic Republic of Congo. The sample survey consists of 202 farm households randomly selected. The survey was conducted from February to March 2008. The non-parametric method known as the Propensity Score Matching was applied to compute the impact of credit constraints on farm household welfare. The credit constraints were identified based on direct questions to households about their credit status. The household economic welfare was measured using the consumption approach. The results from descriptive statistics establish the existence of high level of credit constraints among farm households in the area of study. The majority of farm households (71%) have to endure credit constraints. The results of descriptive statistics indicate that the lack of collateral, the loan terms conditions, the credit technology, the higher level of agricultural risks, the high interest rates and the low returns on farming activities explain the limited access to credit by farmers. The results of logit model show that household social capital, household access to remittances, household land holding and household access to extension service tend to reduce the probability of being credit constrained, while the household size tends to increase the propensity of being credit constrained. The results of the propensity score matching report that credit constraints reduce per capita food consumption per day from -197 FC to -219 FC (-0.35$ to -0.39$). The impact of credit constraints on per capita non-food consumption per day is quite difficult to be supported. The results report that only ATT obtained from Radius estimator shows a negative and significant effect at p<0.010. The average effect of credit constraints on per capita total consumption per day is estimated at about -328 FC (-0.59$) under Radius matching, -269FC (-0.48 $) under Kernel matching and -280 FC (-0.50$) under Stratification matching. The average impact on the ratio of per capita total consumption per day to poverty line of 1$ and to poverty line of 2$ ranges from -0.59 to 0, 48 and from -0.29 to -0.23, respectively. The study concludes that the improvement of farm household access to credit could result in increasing economic welfare.