Factors influencing the Demande on Consumer Loans in Morroco

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Financial Intermediation Project:

Factors influencing the Demand on Consumer Loans in Morocco

Boutaina Hakam

Amine AlMechatt

Supervised by: Pr. Samir Aguenaou

Table of Contents

I.        Introduction        3

II.        Background and Objective of the Study        4

III.        Literature review        4

IV.        Model specification        8

V.        Methodology        10

VI.        Results Analysis        11

VII.        Limitations and Future Developments        18

VIII.        Conclusion        19

References        20

Abstract

        Nowadays, the consumer loans have become more and more important and their demand is growing everyday. The purpose of this paper is to identify different factors that influence the demand on consumer loans in Morocco. Our study has been supported by previous and different studies in this area, in which they identify variables such as the interest charged on loans, the consumer price index and the households’ savings. To be able to examine the factors influencing the consumer loans’ demand, we gathered data from 2010 to 2014 on a monthly basis and conducted a regression analysis. After this analysis, we found that the variables (CPI and Savings) were significant except from the interest charged on loans. Moreover, the regression enabled us to notice the negative relationship between the interest charged on loans and the demand on consumer loans, and the positive relationship between both the CPI and the Savings and the demand on consumer loans.

1. Introduction 

In Morocco, consumer loans represent an important part of the households ‘debt. In deed, the use of consumer loans by Moroccan households has increased the leverage of those households making consumer loans being the second source of indebtedness after mortgages. This financial product represents an important factor for the increasing consumption in morocco. Since the gross consumption is an important part of the GDP growth. This sector has emerged in the late 30’s in morocco and it is characterized nowadays as a highly competitive sector. This growing demand on consumer loans is characterized by an increasing middle class as well as a continuous economic growth.

Consumer loans are financial products proposed by financial institutions to households to finance their various acquisitions. Contrary to other types of loans ,a financial institution doesn’t always specify to households how to spend the money they got from financial institutions. So this money is not allocated to a specific purchase; however, it can be. Consumer loans and the interest perceived on them by the financial institutions is a very important feature of the purchasing power of households. As an example, if the interest rate on consumer loan increases the purchasing power of the households being part of this economy will decrease. However in our study we will study what are some factors that influence the demand on consumer loans. Therefore, in our project we will analyze empirically what are some determinants of the demand on consumer loans.

1. Background and Objective of the Study

According to the articles we have discussed and the research we have done we noticed that there is many factors influencing the demand on consumer loans. We have noticed also the development of this sector from 2001 to nowadays. Indeed, of we campare the total amount of consumer loans on 2001 and the total value of loans on December 2013 this amount has increased by 475%. The devlopement of this sector can be explained by:

1. A general decrease of the debtor interest rate related to consumer loans.
2. The development of the Moroccan economy that was driven by the household’s consumption. (Consumer expenditure)
3. A political aim from the central bank the increase access to loans to a bigger number of households by increasing continuously the interest rate on loans.
4. We noticed also that the increase in savings was going hand in hand with the decrease of the level of personal savings.

In this paper we aim to prove the impact of each of independent variables on the demand on consumer loans.

1. Literature review

The first article states that lots of people think that the demand for consumer loans is inelastic relative to change in prices. It also tries to respond to the question whether or not the demand for consumer loans is elastic enough so that it can support price reduction as a way of attracting more loan volume.

However, the aim of this paper is to develop the evidence of the elasticity of demand for consumer loans by relating the actual structure of the rate used by the lender and the rate that would be expected under two statements. The first assumption is that the demand for consumer loans is inelastic and the second one is that in contrary, the demand for consumer loans is elastic. The results of the study showed that for the first assumption of the inelasticity of demand, there is no relationship between legal ceilings on finance charges and the rates charged on most types of loans provided by banks; and the extensive use of better rates on the more attractive types of loans.

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