The Role of Rural Micro Credit in Reducing Households’ Vulnerability to Food Insecurity in Bati Woreda, Oromo Administrative Zone, Amhara Region.

Abstract

In Ethiopia microfinance institutions are becoming increasingly essential instruments in reducing poverty. Accordingly, Amhara Credit and Saving Institution (ACSI) have been providing formal financial services for rural households in Amhara region with one of its primary objectives being to reduce households’ vulnerability to food insecurity. However, there is limited knowledge on the impact of financial services by ACSI in reducing households’ vulnerability to food insecurity. This study was thus initiated to assess the role of the services in reducing rural households’ vulnerability to food insecurity in Bati Woreda, Oromo Zone Amhara region. The approach used was quasi-experimental where clients of ACSI as one group were compared with other control group which are eligible but non-clients. Both quantitative and qualitative methods of selected client households were employed for the investigation. Based on the results obtained from the explanatory survey made before employing the formal survey, the nature of the study required a two-stage stratified random sampling technique. As a result, all rural Kebeles of the woreda were first stratified using chronic vulnerability composite index in to more vulnerable and less vulnerable Kebeles. Then one Kebeles from each stratum was selected using simple random sampling technique. Households residing in the two sample Kebeles were also stratified based on their participation on ACSI program credit as ex-clients, clients, eligible non-clients, and ineligible households. The sources of information for the stratification of the households were the respective ACSI sub-branch offices and kebele committee of the two sample Kebeles. A total of 170 sample households comprising 108 clients of ACSI and 62 non-clients of ACSI were finally selected from the two sample Kebeles using simple random sampling with probability proportional to size. The proxy indicators used to measure households’ vulnerability to food insecurity were households’ own food production, income, asset, crop diversification, and income diversification. The survey results indicated that the annual mean income obtained in the year 2009/10 by sample clients is 43% and 52% higher, respectively, than of their annual mean income obtained in the year just before they participate in ACSI program credit and non-clients’ annual mean income for the year 2009/10. Moreover, as compared to non-clients larger xii proportions of sample clients have participated in more remunerative income sources: high value crop production, sheep and goat production/ fattening, beekeeping and petty trade. Results of the statistical tests carried out to identify the determinants of income source diversification also revealed that among the variables examined family size, number of economically active members of the household, farm size, livestock holding, distance to Woreda market, and participation in ACSI program credit are positively related to households income source diversification. On the contrary, distance to all-weather road is negatively related to households’ income source diversification with its implication that poor access to all-weather road has a negative influence in households’ decision to participate in more remunerative activities. In regard to asset ownership, as compared to non-clients, clients own a better quality house with more number of rooms, large number of livestock, and non-productive assets with relatively large estimated value as well as more cash savings. Furthermore, clients found to be less vulnerable to food insecurity indicating that rural households’ level of vulnerability to food insecurity is negatively associated with their participation in ACSI program credit. Moreover, clients’ level of vulnerability to food insecurity is negatively associated with amount and frequency of borrowing. Hence, for better achievement in reduction of households’ vulnerability to food insecurity, the implications for policy are raising outreach and depth of rural financial services, increasing households’ access to market through increased access to road, reliable market information and improved communications; expanding opportunities of off-farm and non-farm activities through investments that generate employment that will help rural households to increase and diversify their income sources and thereby reduce their vulnerability.