Impact of Saving and Credit Cooperatives on Rural Households Poverty Reduction in Kachabira Woreda of Kembata Tembaro Zone, Southern Ethiopia

Abstract

Ethiopia is one of the poorest countries with a per capita income of $790 and extensive poverty. Microfinance institutions especially saving and credit cooperatives have been proved in reducing poverty. However, the impact of these institutions in reducing poverty of rural households was less understood in Ethiopia and particularly in the study area. Therefore, the main objective of this study is to assess the impact of saving and credit cooperatives on rural households’ poverty reduction in Kachabira woreda of Kembata Tembaro zone, Southern Ethiopia. By using both quantitative and qualitative data, members of saving and credit cooperatives were compared with non-members of saving and credit cooperatives for assessing the impact of saving and credit cooperative on rural households’ poverty reduction. A multi stages sampling procedure was followed to select 331 sample households of whom 97 and 234 are members and non-members of saving and credit cooperative, respectively. Focus group discussions, Key informant interviews, and household survey were used to collect primary data. Secondary data was collected from journals, books, articles and office reports. The analysis employed both descriptive statistics and econometric methods. The cost of basic needs approach was employed to set poverty line in the study area. Accordingly, The Foster-Greer-Thorbecke (FGT), results shows that 26.3 % households live below the average total expenditure per adult equivalent/Year. Binary logit model shows that among significant variables hypothesized to influence participation in saving and credit cooperatives sex of household head, education level of household head, farm size, training, and dividend paid were influenced rural households’ participation in the saving and credit cooperative positively. Whereas, distance to local saving and credit cooperative office and participation in other financial institutions negatively affect rural households’ participation in the saving and credit cooperatives. Propensity score model result shows that participation in saving and credit cooperatives had a positive and significant impact on rural households’ poverty reduction (income and expenditure in Birr).Similarly, The average treatment effect on treated results indicated that the average income and the average expenditure for saving and credit cooperative members’ households was increased by 787.74 and 235.03 Birr respectively than their counterparts. Therefore attention should be given by concerned bodies to raise awareness and strengthen rural households’ participation in saving and credit cooperative.