The Heckman two-stage procedure is used to identify and rank the determinants of internal and external credit rationing in rural households using data sourced from two districts in the former KwaZulu homeland. The results confirm international findings that high transaction costs faced by rural households limit their access to formal credit markets. Income and savings levels are significant determinants of the level of credit obtained, with savings acting as a substitute for credit. Better access to financial markets will require public investment in rural infrastructure, literacy and vocational training, and legal reform in order to lower transaction costs, improve income levels, and facilitate the efficient use of collateral. Savings lose their value as a source of information when lending institutions are distinct from savings institutions, and moveable assets carry high collateral-specific risk in the absence of an efficient judicial system.


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