Influence of Financial Literacy on Micro-Credit Accessibility Among Rural Households in Tanzania

Abstract

Purpose: Microcredits will remain crucial to rural households over a long period as they provide small loans to the needy, making it an essential aspect of rural finance. Due to the rural credit market's structure and financial inclusion problem, rural households often have trouble accessing microcredit. This paper analyzes the influence of financial literacy (FL) on microcredit accessibility in rural households in Tanzania. Methodology: Using a large dataset of Finscope households survey in Tanzania, a binary logit estimation technique was utilized to determine the influence of financial literacy on credit accessing decisions of rural households. In addition, a descriptive analysis was done from the selected sample. Findings: Generally, the analysis showed that financial literacy had a negative and significant effect on the micro-credit accessibility decision of rural households in Tanzania. Education level has a significant positive influence on micro-credit attaining decisions. Practical implication: The outcome of this research is helpful to policymakers and micro-credit institutions as they provide an insight into the influence of financial literacy on microcredit accessibility. The study recommends financial literacy programmes be established in rural areas to enlighten the citizens about the benefit and proper uses of borrowed money. Originality/Value: This paper used actual surveyed data from Tanzanians in all regions. The results are robust to different categories of households and control variables that can also affect micro-credit accessibility decisions.