Financial literacy and repayment problems among microcredit clients: A minor field study in Tanzania

University essay from Handelshögskolan i Stockholm/Institutionen för nationalekonomi

Abstract: This paper investigates the relationship between financial literacy and repayment problems among clients of a microfinance institution (MFI) in Dar es Salaam, Tanzania. The awareness of financial literacy is continuing to increase while recent research has found significant correlation between financial literacy and financial performance and behaviours such as stock-market investment and pension planning. Through a survey of cross-sectional data we measure the effect of financial literacy on repayment problems in a number of OLS regressions. The main finding of the survey is that the microcredit clients who had higher level of financial literacy show a higher risk of having repayment problems. This indicates that other unobserved factors besides financial literacy affect the repayment behaviour of microcredit clients.

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