1 Implication of Microfinance Debt Burden for Household Welfare: Lessons from Ghana Theresa Mannah-Blankson 1 Abstract This paper draws on the quantitative and qualitative evidence from a dataset generated from a survey of 499 households in Ghana to explore the implication of household debt burden from access to microfinance for household financial distress and overall welfare. The findings suggest that while access to microfinance is generally good for the household, being highly indebted compromises household welfare through a reduction in expenditures, in particular food expenditures, while increasing the probability of credit constraint. The evidence suggests that debt service above 30 percent of total household expenditures creates financial distress and the observed distress is stronger for female-headed households relative to male-headed households. The analysis further shows that, a household’s level of indebtedness is influenced by the type of microfinance, the interest rate, when the household is below the poverty line, and when the household holds more loans. The share of the loan allocated to investment and when the loan user is female, however, have a negative effect on the probability of a household being highly indebted. Contrary to expectations, neither financial literacy programs offered by microfinance institutions nor the education of the household head had any significant effect on a household’s level of indebtedness. Keywords: Microfinance, indebtedness, intra-household allocation, welfare. JEL Classification: G21, D91, D120, D140, I31. 1. Introduction “The short period given to repay the loan generates anxiety for my husband and I. We now have to spend so much on our health because we both have high blood pressure. Madam, they (MFIs) are killing us slowly.” Elizabeth, microfinance client in Ghana. “I took the loan to restock my drug store. However, the location of my shop makes it difficult to increase sales. But the MFI loan officers are here every month to collect repayment and I don’t have the amount because all the things I bought with the loan are on the shelf. I have BP (meaning high blood pressure) now. I wish I could have applied for 1 Financial support for this research was generously provided by the UMASS Graduate School, the African Economic Research Consortium, West African Research Center, and the Bank of Ghana. I thank students of the Gender and Development course at Hampshire College for valuable comments. Theresa Mannah-Blankson Department of Business, Messiah College, Mechanicsburg, PA, USA. tmannahblankson@messiah.edu