DOI: https://doi.org/10.14710/dijb.8.2.2025.145-155

Assessing the impact of credit conditions on household well-being through repayment pressures in Botswana and Zimbabwe.

1Department of Finance and Fiscal Sciences, National University of Science and Technology, Zimbabwe

2Faculty of Business and Economic Sciences, National University of Science and Technology, Zimbabwe

3Department of Actuarial Science and Risk Management, National University of Science and Technology, Zimbabwe

4 Department of Finance and Fiscal Sciences, National University of Science and Technology, Zimbabwe

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Open Access Copyright 2025 Diponegoro International Journal of Business under http://creativecommons.org/licenses/by-sa/4.0.

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Abstract

Amidst tightening global monetary conditions, this study investigates how repayment distress functions as a transmission channel between interest rate fluctuations and household financial well-being (HFWB) in Botswana and Zimbabwe. Drawing on Credit Market Theory, Debt Overhang perspectives, the Financial Accelerator and Financial Stability frameworks, the analysis applies a novel tree-based mediation approach to assess the interplay among borrowing costs, loan performance and human development outcomes. Empirical results reveal a pronounced mediating effect in Botswana (Indirect Effect = -0.0581; R² = 0.963), suggesting that non-performing loans (NPLs) amplify the adverse consequences of rising interest rates for households. Conversely, Zimbabwe exhibits a weaker mediation pathway (Indirect Effect = -0.0000; R² = 0.784), shaped by macroeconomic volatility, hyperinflation and dependence on informal credit markets. These findings underscore the importance of context in shaping credit risk and monetary transmission. Policy implications point to strengthening regulatory oversight and NPL management in Botswana, while in Zimbabwe, macroeconomic stabilization and formal credit deepening are critical. By offering one of the first comparative applications of tree-based mediation modelling in Sub-Saharan Africa, this study contributes new empirical evidence to debates on financial inclusion, household vulnerability and development in low- and middle-income economies.

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Keywords: household financial well-being; human development index; interest rates; loan performance; tree-based mediation modelling

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