IMPACTS OF RURAL CREDIT ON HOUSEHOLD’S FOOD SECURITY AND INCOME: THE CASE OF KURFA CHELE WOREDA, EAST HARARGHE ZONE, ETHIOPIA

Abstract

In Ethiopia microfinance institutions are becoming increasingly essential instruments in reducing poverty. Improving the delivery of financial services to the poor helps the poor to increase their disposable income, asset ownership, and cushion consumption during food deficit periods. Accordingly, Oromia Credit and Saving Share Company has been providing formal financial services for rural households in Oromia region for the last two decades. Large number of studies examined the impact of microcredit on self-employment activities. However, there is limited knowledge on the impact of Oromia Credit and Saving Share Company credit program to what extent farm households using the program are better off than those who do not use credit service and whether or not there exists variability in income and food security status among farmers. This research was intended to fill these gaps in the study area. The study was conducted in Kurfa Chele Woreda of East Hararghe Zone, with the objective of assessing the impact of rural credit on household’s food security and income. The main research question or counterfactual statement of the study was “what happened in income and food security status to those who had participated in credit program, had not taken part in the program?” A multistage sampling method was used to select 180 (82 Credit users and the rest being non-user) sample households were interviewed. The data were xvii analyzed using descriptive analysis, inferential statistical tools and an econometric propensity score matching model. The result showed that, participation in the rural credit program was affected by year of education, family size in AE, voluntary saving and participation in training positively but, livestock holding and extension advice were found to affect participation in rural credit program negatively. A matched comparison of calorie intake and annual income outcomes were performed on the households who have shared similar pre-intervention characteristics except the program and participation in the program had brought a more than 59% increase in annual income and 21% increase in the calorie intake of the participant households. The sensitivity analysis also showed that all the matching estimators resulted in statistically significant effects of the program on participating households. Therefore, for effectiveness of the credit program the study finally recommended that crosslinking households with year of education to those beneficiaries that have minimal understanding of credit and saving, targeting households with greater number of family size, emphasizing on the saving behavior of the program beneficiaries and finally enhancing the effectiveness of the credit program through the management systems, ensuring that sufficient extension workers in place were viewed to enjoy expected results from the program.