Savings, Credit and Insurance: Household Demand for Formal Financial Services in Rural Ghana

This paper estimates the determinants of household demand for savings, loans and insurances by applying a multivariate probit model on household survey data from rural Ghana.The paper states that a study of demand for financial services in developing countries that looks at only one of the three elements of the finance trinity, namely, savings products, loans, or insurances leaves out part of the story. Findings include:

• Poorer households are less likely to participate in the formal financial sector than better-off households;
• Savings products, loans and insurance usage does not only depend on the socio-economic status of households, but also on various other factors;
• Factors that influence household demand for financial services include households' risk assessment and past exposure to shocks;
• Trust in the providing institution and its products appear to play a key role.

Consumption smoothing and income generation also seem to be important reasons for demanding formal financial services in a typical rural context in Ghana. Finally, increasing supply alone may be insufficient to boost demand for financial services as increasing financial literacy and building trust may be equally important.