Assessing the Effect of Monetary Policy on Private Sector Credit in Selected Sub-Saharan Countries

Abstract

The primary objective of this research was to scrutinize the impact of monetary policy on private sector credit across Sub-Saharan African countries. Employing the positivism method, the study embraced an explanatory research design, targeting the entire spectrum of Sub-Saharan African nations as its population. A purposive selection technique, specifically the convenience sampling method, was applied to focus on a subset of 12 Sub-Saharan African countries, covering the period from 1995 to 2021, spanning 26 years. This resulted in a sample size of 312 observations. For a nuanced analysis of the data, Stata v.16 was employed as the preferred software for panel data analysis. The analytical framework centered on the Dynamic Model, specifically utilizing the System GMM (Generalized Method of Moments). The empirical findings unveiled that broad money supply and gross domestic savings exert a positive influence on facilitating financial support for private enterprises. Conversely, inflation and real interest rates demonstrated a negative impact on the provision of credit to non-public entities. Drawing from these insights, the study proposes that African governments should formulate monetary policy frameworks aligned with the overarching goal of fostering economic growth through heightened credit accessibility for the non-state sector. Furthermore, it recommends strategic considerations for mitigating interest rates, recognizing the inhibitory effects of elevated rates on the accessibility of private sector credit. These recommendations underscore the importance of tailoring monetary policies to support and propel the growth of private businesses in the African context.