In this paper we develop an econometric framework to analyse the effect of household credito n the economic welfare of households and use cross-sectional data from the two households surveys undertaken in 1992/1993 and 1997/1998 to derive empirical evidence. Our findings confirm that household credit contributes positively and significantly to the economic welfare of households in terms of per capita expenditure, per capita food expenditure and per capitanon-food expenditure. The positive effect of credit on household economic welfare is regardless of whether they are poor or better-off households. We also find that credit has a greater positive effect on the economic welfare of poorer households and find that the age of the household head, the household size, land ownership, and savings and the availability of credit at village level are key factors that affect household borrowing. Some policy implications are drawn.