Determinants Of Households Saving And Credit Use In Horo District Of Horo Guduru Wollega Zone

Abstract

In Ethiopia, among other things, lack of finance is one of the fundamental problem hampering production, productivity and income of rural farm households. Since access to institutional finance is very limited, the majority of the poor are forced to search financial services through informal channels. The study is sought to assess and identify factors that determine rural household’s savings and credit use in the study area. A two stage random sampling method was employed to select four peasant associations out of twenty-two. Structured interview schedule was developed, pre-tested and used for collecting quantitative data from196 rural households. Focus group discussion, group interview and field observations were also held to generate qualitative data. Descriptive statistics and logit model were used to analyze the data. The output from the study indicates that 110(56.12%) of the sampled ruralhouseholds were formal credit users, whereas the remaining 86(43.88%) were non-credit users. It is also found out that credit use to rural households is still limited and the difference between the two groups in use of credit from the formal sources was also statistically significant. Rural households acknowledge group lending that solves the problem of collateral requirement by lending institutions and the provision of saving services by MFIs while strongly criticizing the isolation of the very poor rural households the group formation. A total of fourteen explanatory variables were included in the empirical model out of these, nine were found to be statistically significant. Age, gender, level of income, year of schooling, number of livestock in TLU, distance, off-farm income, group lending and saving experience were as evidenced by the model output. Therefore, policy aimed to accelerate mobilization of savings and credit use in the area could be successful if these factors and problems are taken into consideration to save and use credit from the formal financial sources.