Abstract:
he study evaluated the impact of microfinance on rural households’ income and saving in
Chiro district of West Hararghe Zone. Primary data were collected from 206 (103
participant and 103 non-participant) randomly selected households from five kebeles of
Chiro district. Propensity score matching method was employed to analyze the impact of
participation in microfinance program on household income and saving. This method was
checked for covariate balancing with a standardized bias, t-ratio, and joint significance
level tests. Furthermore, sensitivity analysis of the estimated participation effect to
unobserved selection bias was checked using Rosenbaum bounds procedure. The logit
model results showed that participation in microfinance and outcomes are significantly and
positively influenced by age, read and write and primary level of education and number of
livestock owned, but negatively affected by sex and size of land holding. The study revealed
that participation in microfinance has significant positive impact on the income and saving
of participant households. Results showed that income and saving of participant households
were higher than non-participating households by 44.57 % and 165.94 %, respectively. The
study concludes that participants of MFI have significantly improved the household income
and saving. The sensitivity analysis also shows that the impact result estimates were
insensitive to unobserved selection bias. Therefore, the study recommended that the
company is expected to focus on those significant factors to improve participation of rural
households in microfinance program and income and saving, review its loan policy, expand
its outreach to all rural kebeles, reform its follow up and support mechanism and raising
financial management capacity of its clients to improve further the impact on its clients and
achieve its objectives
