IMPACT OF CREDIT SERVICE ON RURAL HOUSEHOLD FOOD SECURITY: THE CASE OF OMO MICROFINANCE INSTITUTION IN SORO DISTRICT OF HADIYA ZONE, SOUTHERN ETHIOPIA

Abstract

Credit is one of the most essential tools that contribute to the improvement of the livelihoods of households by fulfilling financial needs and helping to ensure food security. The main purpose of this study was to identify the role of financial intermediation in the food security status of rural households in the Soro District of Hadiya Zone, Ethiopia. Four rural Kebeles were randomly selected. The total sample respondents were 248 out of whom 108 were beneficiaries of credit service and 140 were nonbeneficiaries. Both probit and endogenous switching regression (ESR) models were used to estimate the determinants that affect the participation of household heads in credit services and the impact of credit service on the food security of rural households respectively. Probit model results showed that the sex of the household head, age of the household head, education of the household head, contacts to extension agents, and off/non-farm income had a significant and positive association with participation in credit service. However, distance from the source of credit negatively and significantly influenced the participation in credit service. Household dietary diversity score (HDDS) and calorie intake were used as outcome indicators for food security. Accordingly, the study used 2200 kcal/AE/day as cut-off point to classify households as food secure or food insecure. The descriptive results indicated that 57.26% of sampled households were food secure while 77.78% of clients and 41.43% of non-clients were food secure. The impact results obtained from ESR models indicated that HHDS and calorie intake would have decrease by 1.028 points and 504.23 kcal per day respectively for participants if they had decided not to participate in credit services. On the other hand, non-beneficiaries’ HDDS and calorie intake would have increased by 1.836 points and 210.87 kcal per day respectively if they decided to participate in credit services. Therefore, it is recommended that the microfinance institutions and other concerned bodies should work more on increasing rural households’ participation in credit services to improve the food security status of participant households. In addition, the institution should expand its outreach to rural areas.