IMPACT OF MICROFINANCE ON RURAL HOUSEHOLDS’ INCOME AND SAVING: THE CASE OF OROMIA CREDIT AND SAVING SHARE COMPANY IN CHIRO DISTRICT OROMIA NATIONAL REGIONAL STATE, ETHIOPIA

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