An Assessment of the Access to Credit-Welfare Nexus: Evidence from Mauritania

Abstract

This paper evaluates the impact of access to credit from banks and other financial institutions on household welfare in Mauritania. Household level data are used to evaluate the relationship between credit access, a range of household characteristics, and welfare indicators. To address the threats of potential endogeneity, an index of household isolation is used to instrument access to credit. Evidence on the validity of the exclusion restriction is provided showing that household isolation is unrelated with households and area characteristics six years prior to the measurements on which this analysis is based. Results show that households with older and more educated heads are more likely to access financial services, as are households living in urban areas. In addition, greater financial access is associated with a reduced dependence on household production and increased investment in human capital. The policy conclusions from our analysis support strategies for expanding financial infrastructures in underserved rural areas of Mauritania.