Choosing Not to Borrow: An Evaluation of Perception and Socio-Cultural Factors Underlying Voluntary Self-Exclusion

Abstract

The purpose of this study is to investigate the underlying socio-cultural factors that drive the majority of microentrepreneurs to voluntarily exclude themselves from seeking external finance, despite complaints of severe financial constraints. Using structured questionnaire, we collected data on some 176 microentrepreneurs in Ashanti region of Ghana. A simple conceptual framework was utilised to classify various forms of financially constrained and unconstrained microenterprises. A logistic regression technique was then applied to a utility function model of credit demand. The findings suggest that voluntary self-exclusion is not only driven by microenterprises’ socio-economic characteristics, but most significantly, by owners’ perception of access to external finance difficulties and negative cultural-religious biases towards credit use or borrowing as well as financial illiteracy. The study further finds that most microentrepreneurs are interest inelastic or insensitive, suggesting that they are more interested in easier and faster access to finance rather than the cost of borrowing.