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Regular version of the site

Article

The impact of interest rate on the demand for credit in Ghana

Journal of Public Affairs. 2020. P. 1-10.
Maiti M., Ishmael Ali E., Vukovic D.

This article investigates the impact of financial liberalization on the demand for creditin Ghana. It contributes by making suggestions pertaining to questions on the effec-tiveness of interest rate liberalization in driving private sector demand for credit bothin the short and the long-run, as well as the speed of adjustments to equilibrium afterthe implementation of the financial liberalization programme. The study results indi-cate that interest rate has no significant impact on the demand for credit both in theshort-run and long-run. Moreover, inflation has a negative significant effect on thedemand for credit in the short-run. The results also suggest that about 66% of dis-equilibrium from the preceding year is corrected in the current year. However, thesefindings seem to indicates that the financial market in Ghana is not fully competitive.The oligopolistic and noncompetitive financial system may be attributable to theextreme minimum capital requirement and the emerging consolidation of commercialbanks through government takeovers as well as the various credit rationing practicesby banks aimed at reducing the risk of adverse selection and insolvency.