An empirical investigation on the effects of financial credit on household welfare: who benefits most?

This thesis includes six chapters analysing the effects of financial credit on household welfare. The motivations for this study stems from the need to understand how financial credit policies work best in welfare improvements and who benefits most from financial credit policies. These are eventually aimed at suggesting optimal financial credit strategies on targeted households. While the first chapter provides a general introduction of the thesis, the second chapter follows a novel quantitative systematic approach to answer the question on what the available evidence says on the effects of financial credit on welfare for Africa. The bulk of the existing evidence has focused on regression and descriptive analysis to give conclusions on the effect of micro-finance on welfare with few randomized control trials. Other systematic evidence has focused on financial inclusion like insurance, health, savings and their consequent effect on the economy. The findings show that 59% of the studies covered overall favours a positive direction of impact of micro-credit on welfare. However, when considering individual estimates rather than the overall conclusions of a paper, the evidence of this effect is more mixed, in terms of the number of estimates that show positive significant effects compared to the number of estimates that show insignificant effects. 
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\nThe third chapter builds on the gaps highlighted by the systematic evidence to examine the impact of financial credit on household welfare for Nigeria. Prior to this research, micro panel causal evidence for lower-middle income economies is very scarce and arguments in literature has been conflicting due to endogeneity problems around selection bias and unobserved heterogeneity (time invariant factors), debates around the external validity of Randomized Control Trials (RCTs) and the inadequacies of cross-sectional study conclusions resulting in correlation results. The analysis addressed these endogeneity problems using a longer data period through the propensity score matching (addressing selection bias problems) and the difference in difference (addressing time invariant heterogeneity issues) methodologies. The results show that although financial credit improves welfare in terms of consumption per capita, this effect is not present for other welfare measures. 
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\nThe fourth chapter attempts to answer the question of who benefits most from financial credit. The analysis goes beyond the usual mean effect regressions found in the previous literature to provide arguments to identify who really benefits from micro-credit. The results from this chapter suggest that there are heterogeneities in the welfare outcomes because of obtaining credit. Specifically, financial credit significantly affects households that are at the low to median quantiles of the distribution for the most part in African countries and hence, the need for governments and development organisations to target these households in their financial credit policies. 
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\nThe fifth chapter investigates whether financial credit is sensitive to gender. The results show that economic and social factors and the interaction between them are important determinants of obtaining financial credit for both male headed and female headed households in African countries. There are found to be positive effects from micro-credit on the various distribution of welfare for both genders. The effect is greater for female headed households. 
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\nThe last chapter summarises the conclusions from the thesis with policy suggestions. As an implication from the thesis, financial credit improves welfare only in the short-run for specific welfare measures and for households categorised as low to median quantile levels for the most part. Furthermore, financial credit empowers the female headed households and can be used as a policy measure to encourage female headed households to allocate more time to income generating activities.

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