Access to Microcredit and Income Inequality in Burkina Faso

Abstract

The issue of inequality has figured prominently in Burkina Faso's development policies in recent years. Thus, in the PRSP, Axis 1 clearly stipulates that the policy for accelerating the country's growth should be based on equity. Also, in the SCADD, which from 2011 to 2015 constituted the reference framework for national policy, axis 2 states "consolidation of human capital and promotion of social protection". In addition, the current national development framework proposes to reconcile the objectives of transforming economic, demographic and social structures with the difficulties of the context, reducing inequalities and sustainably improving people's well-being, against a backdrop of security and health crises and the risk of social cohesion crumbling.

The highly unequal income structure in Burkina Faso can be partly explained by problems of access to credit due, among other things, to asymmetric information, which excludes people with precarious living conditions. Authors such as Honohan (2008), Kempson et al (2004) and Kempson (2006) have found that the higher the rate of access to banking services, the lower the level of income inequality. However, can access to microcredit play a role in reducing income inequality in Burkina Faso ?

The aim of this article is to analyse the effects of microcredit on income inequality in Burkina Faso. To test the relationship between access to microcredit and inequality, we can use a simple regression model, in this case ordinary least squares (OLS). However, if access to microcredit is endogenous, OLS will suffer from biases, such as variable bias, reverse causality bias and measurement error (Beck, 2008). Under these conditions, and in order to improve the quality of our results, we adopt the instrumental variables method, more specifically double least squares (DLS). This method has the advantage of not being affected by any specification errors. The econometric analyses show that the credit variable is negatively correlated with income inequality, indicating that microcredit can help reduce income inequality in Burkina Faso. The results also show that the level of education is negatively correlated with income inequality in Burkina Faso. One implication of economic policy may be the establishment of credit institutions that are more determined to pursue their social mission by making microcredit more accessible to poor households.