The Impact of Access to Credit on Welfare Inequality in Malawi

Abstract This study evaluates the implications that access to credit has on welfare inequality in Malawi in order to address the gap left in previous studies concerning credit. The study employed data from Malawi’s Integrated Household Survey 2017 and used the propensity score analysis to examine what impact access to credit may have on the welfare of Malawian households using consumption per capita as a proxy for household welfare. The study further proceeded to use the generalized Lorenz curve, the Theil indexes as well as the Gini to examine the inequalities present in welfare among the households that access credit and those that do not. The results showed a positive impact of access to credit on welfare as households with access to credit experience lower levels of inequality than those without. However, a closer examination of the Theil’s indexes found that factors unrelated to access to credit had a stronger effect on inter-household inequalities than access to credit. The results imply that the impact that access to credit has on welfare inequality is a positive one, but its effect is substantially small. Thus, implying that policies aimed at enhancing distribution of credit should continue. Simultaneously, a more holistic approach on reducing inequality should be included at both household level and national level to achieve a desired result.