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Improving loan repayment in Ghana: Does financial literacy matter?

Author

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  • Samuel Tawiah Baidoo
  • Hadrat Yusif
  • Enock Kojo Ayesu
  • Walid Mensi

Abstract

Loan defaults continue to be a major challenge that confronts financial institutions in developing countries and this impedes their potential role in sustainable development. Given the enormity of loan defaults, policymakers have devoted much attention to the phenomenon by implementing strategies and policies aimed at improving loan repayment to avert the situation. To complement the effort of policymakers, several empirical studies have also been conducted regarding loan repayment determinants; but what is worrying is that none of these studies emphasises the role of financial literacy, especially in the Ghanaian context. This study therefore examines the potential effect of financial literacy on loan repayment. We rely on primary data and employ the binary probit regression for the analysis. The results reveal a positive and significant relationship between financial literacy and loan repayment. This means that enhancing financial literacy improves loan repayment significantly which will in turn ensure sustainability of the financial institutions. The level of education of borrowers is also revealed to play a key role in loan repayment. Given the findings, the study sheds new lights on how loan repayment can be improved to ensure a vibrant banking sector.

Suggested Citation

  • Samuel Tawiah Baidoo & Hadrat Yusif & Enock Kojo Ayesu & Walid Mensi, 2020. "Improving loan repayment in Ghana: Does financial literacy matter?," Cogent Economics & Finance, Taylor & Francis Journals, vol. 8(1), pages 1787693-178, January.
    • Handle: RePEc:taf:oaefxx:v:8:y:2020:i:1:p:1787693
    DOI: 10.1080/23322039.2020.1787693
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    Cited by:

    1. Dr Sigah, Donny Marclary Ayibazuomuno & Lubo Ebisine, 2024. "Real Sector Development and Poverty Reduction in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(8), pages 1817-1829, August.
    2. N P R Deyshappriya & N Fernando & K M N Jeewanthi, 2024. "Financial Literacy and Its Impact on Loan Repayment Decisions: Evidence from Rural Households in Sri Lanka," Economic Issues Journal Articles, Economic Issues, vol. 29(1), pages 71-92, March.
    3. Susan Mumbi Mungai & Dr. Peter Njuguna, 2023. "Influence of Non-Accounting Information on Credit Decisions of Microfinance Banks in Kenya," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(6), pages 668-686, June.
    4. Andualem Kassegn & Ebrahim Endris, 2022. "Factors affecting loan repayment rate among smallholder farmers got loans from the Amhara Credit and Saving Institution: In the case of Habru District, Amhara Regional State, Ethiopia," International Area Studies Review, Center for International Area Studies, Hankuk University of Foreign Studies, vol. 25(1), pages 73-96, March.

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