DETERMINANTS OF ACCESS TO AND SOCIO-ECONOMIC IMPACTS OF RURAL FINANCIAL SERVICES IN ETHIOPIA: THE CASE OF DOBA AND KARSA DISTRICTS OF OROMIA REGION

Abstract

The objectives of this study are to identify determinants of access to rural financial services and analyze socio-economic impacts of the services in Ethiopia. A sample of 414 rural households was randomly selected for the study. Descriptive statistics and econometric models were applied to realize the objectives. Multinomial logistic regression model was applied to analyze determinants of access of rural households to rural financial services, and multinomial logit model, and Generalized Propensity Score Matching technique were used to analyze the economic impacts of the rural financial services. Descriptive statistics (qualitative & quantitative research) was applied to analyze social impacts and comparative socio-economic benefits of the cooperative financial institutions versus MFIs The results of the study showed that access to rural financial services was significantly affected by farm land size, market distance, religion, man equivalent, distances of RFSPs, education level, livestock holding, engagement of HHs in to off/non-farm activities and sex. This means, access statuses of the rural households to cooperative based microfinance institutions (RuSACCOs, VSLAs & SILCS) was positively affected by farm land size, education level, & adult equivalent; and negatively affected by distance to market, religion, sex, & engagement in to off-farm activities. And access statuses of the rural households to the MFIs was positively affected by farm land size, livestock holding, education level & adult equivalent; and negatively affected by religion, sex, market distance, distance to RFSP and participation of the households in off-farm activities. The results from generalized propensity-score matching methodology indicate that access to rural financial services increased service user rural households’ income. The impact varied with the duration of client ship between the rural households and the service providers. Even though it not uniform, the study results indicate that as the duration of client ship increases the magnitude of impact increases. Moreover, the microfinance service users were found to have higher saving, access to children schooling, accessing to services such as telephone, curbing social problems, improved housing conditions, and change in consumption habits as compared to the non-users. The probability of engagement in off/non-farm activities was significantly higher for microfinance users than their counterparts. This implies that rural microfinance helps households diversify sources of income, and capacitate them to escape poverty. The study also showed that households that accessed finance through cooperative based financial institutions have significantly more savings than those accessing the services through MFI although with lower loan size, which is one of the major challenges for the former. The study further showed that there was significant difference in income from off/non-farm activities of those accessing finance through coop based financial institutions and those accessing finance through MFIs. These enabled them to diversify income sources and avert risks of seasonal income shortages. The study also showed that users of coop based FIs were at better statuses in housing condition, children schooling, and consumption habits. The findings of the study implied that rural financial services access (depth and outreach) should be given attention as these are at lower coverage but contributing for socio-economic betterment of the rural households significantly. Moreover, the findings of the study implied that, creating conducive operational environment for Coop FIs and enabling/capacitating the same calls for attentions from policy makers and development practitioners, as for any other (even more) financial service providers. In other words the findings from this study showed that rural financial service providers are supposed to work on maintaining their client ships with the existing user households in addition to promoting others