An Analysis of Financial Literacy, Interest Rate Conditions, and Consumer Borrowing Behaviour in Ghana: A Case Study of Small-Borrowers

Borrowing money has become difficult for many small borrowers in developing countries because interest rates are often high, lenders are many, and not everyone understands loan conditions well. This study examined how financial literacy and interest rate conditions influence borrowing behavior among small borrowers in Asante Akim North Municipality of the Ashanti Region of Ghana. 

The study used cross-sectional survey data from 417 respondents and applied binary logistic regression to analyze borrowing participation, as well as borrower-only regression models to examine loan amount and repayment behavior. Financial literacy was measured using knowledge, behavior, and attitude indicators, while interest-rate conditions were captured through lending-rate context and borrowers’ perceptions of borrowing costs. 

The results show that financially literate respondents were more likely to borrow, borrowed larger amounts, and repaid better. Interest-rate conditions had a weaker direct effect on borrowing behavior, but their moderating effect became more evident when combined with financial literacy. The study recommends borrower education, clearer loan disclosure, and stronger responsible lending supervision.