What Drives Household Borrowing and Credit Constraints? Evidence From Bosnia and Herzegovina

Abstract

This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.Although Bosnia and Herzegovina (BiH) has experienced rapid growth in credit to households in recent years, most individuals are still credit constrained. This paper analyzes the determinants of household credit demand and credit constraints in BiH. To our knowledge, it is the first study on this topic employing household survey data (2001 and 2004) from Emerging Europe. Our results highlight the impact of the post-conflict and transitional nature of the country on the behavior of borrowers and lenders. As expected, age, income, wealth and education qualifications are the main factors driving credit market participation, while high income and high wealth lower credit constraints. In BiH, the probability of credit market participation peaks at 45 years old, considerably higher than in the advanced countries. At the same time, older individuals are significantly more constrained than their peers in the advanced countries. The results imply that the current credit boom may largely reflect the overall post-war demand, and indicate the worse-off position of the older generation in transition economy. Moreover, the results underscore the structural nature of unemployment as well as the mismatch between education qualifications and earning prospects in BiH. Education variables have no significant effect on the likelihood of being constrained, while, unlike in the advanced countries, being unemployed significantly increases the likelihood. JEL Classification Numbers:D12, D91 and E21

Nature of the SME Financing Gap: Some Evidence from Ghana

“…Demand for credit is determined by the desire to expand operations, profitability of investment relative to the cost of capital, availability and cost of other sources of funding (Bigsten et al, 2003). The supply side involves the decision of whether to lend or not and how much to lend (Chen & Chivakul, 2008). A credit constraint exists wherever the desired level of credit is higher than the amount offered by the market (Ruiz-Tagle, 2005).…”

The Contribution of the Microfinance Model to Bosnia's Post-War Reconstruction and Development: How to Destroy an Economy and Society Without Really Trying

“…Very soon up to 33% of all clients were openly admitting to repaying the microloan from a salaried job or pension, rather than from a business supported by the microloan (Maurer/Pytkowska 2011). The figures show that between 2001 and 2006 real yearly total growth of credit to households in Bosnia was 50%, compared to a 13% growth rate for credit to enterprises, including microenterprises (Chen/Chivakul 2008). Moreover, in the immediate run-up to the 'microfinance meltdown ' (2006-2008), an even larger volume of microcredit was pushed out and mainly used to purchase imported consumer goods (IMF 2010), but also, and an obvious indication that the dénouement was fast approaching, increasingly used to repay old microloans.…”

“…The result was that highly profitable household microloans used for consumption spending purposes effectively became the profit mainstay of the commercial banking sector in Bosnia. As Chen and Chivakul (2008: 3) report, 'the average real growth of credit to households between 2001 and 2006 was about 50%, while the real growth rate of credit to enterprises was only 13.5%'.…”

Crédito Al Consumo en Argentina Durante Periodos Normales Y De Crisis Económicas

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