Household allocation of microfinance credit in Kyrgyzstan

The limited endowment of resources that usually characterised low-income households imposes a binding trade-off between current and future consumption. In many transition countries, microfinance represents the primary source of credit other than informal moneylenders for low-income households which is the situation in the Kyrgyz Republic. Thus, this study analyses the determinants of household microfinance credit allocation in Kyrgyzstan from 2006 to 2010. We model the household’s behaviour through a multivariate approach to allow for multiple choices at the same time. Results indicate that mobile phone and livestock ownership were identified as two key factors which increase the probability of borrowers using microfinance credit for productive purposes. Furthermore, borrowers in the rural Naryn region, one of the poorest areas in Kyrgyzstan, have a higher probability of allocating their loans toward food purchases and the smallest probability of allocating credit toward starting a business or other productive purposes.