The impact of loan accessibility on household welfare: An empirical analysis in Lesotho

This paper examines the effects of credit access on household spending, using data from the 2021 Finaccess household survey in Lesotho. Data from 2,999 households was analyzed, 1,805 of which had access to credit and 1,194 did not. Using propensity score matching (PSM), the average treatment effect was estimated to understand the impact of access to credit on essential household expenditures, including food, transportation, health, clothing, education, income, and rent. Inverse probability weighting regression adjustment (IPWRA) and Mahalanobis distance matching (MDM) were also used to minimize biases and address confounding. The findings reveal that spending in all categories tends to significantly increase for households with access to credit. These findings emphasize that credit access promotes household welfare, thereby highlighting the importance of loan acquisitions and urging stakeholders and policymakers to improve financial literacy.