Assessing the role of rural credit and saving association on the livelihood of

rural communities the case of Borana Zone

BY: - Abdi A

Table of Contents
1. Introduction......................................................................................................................................3
1.1. Background of the study...........................................................................................................3
1.2 Statement of the problem...........................................................................................................4
1.3 Objective of the study................................................................................................................5
1.3.1.General objective.................................................................................................................5
1.3.2 Specific objective................................................................................................................5
1.4 Research questions.....................................................................................................................5
1.5 Scope of the study......................................................................................................................6
 1.6 Significance of the study............................................................................................................6
1.7 Limitation of the study...............................................................................................................6
1.8 Organization of the paper...........................................................................................................6
Chapter Two.........................................................................................................................................8
2. Review Literature.............................................................................................................................8
2.1 Rural Credit Service Concept.....................................................................................................8
2.2 The role of rural credit service...................................................................................................8
2.2.1 Smooth Income And Consumption.....................................................................................9
2.2.2 Alleviation of poetry .........................................................................................................9
2.3 Lending procedures....................................................................................................................9
2.3.1 Targeting mechanism..........................................................................................................9
2.3.2 Repayment period.............................................................................................................10
2.2.2 Lending mechanism..........................................................................................................10
2.4 Factors affecting rural credit provision and collection.............................................................10
2.4.1 Shortage of extension agents.............................................................................................11
2.4.2 Limitation of infrastructural facilities...............................................................................11
2.4.3Poor payment rate...............................................................................................................11
2.5 Challenges micro finance provision.........................................................................................11
Chapter three......................................................................................................................................13
3. Research methodology and description of the study area..............................................................13
3.1 Geographical description the study area..................................................................................13
3.2 Absolute and relative location..................................................................................................13
3.1.5 Natural resource management...........................................................................................14
3.1.6 Research methodology......................................................................................................15
3.1.6. 1 Research design.............................................................................................................15
3.1.6.2 Sampling techniques......................................................................................................15
3.2 Data collection..........................................................................................................................16
3.2.1 Source and types of data....................................................................................................16
3.3 Data collecting techniques.......................................................................................................16
3.4 Data analysis...........................................................................................................................16
3.5 Interpretations of data...............................................................................................................17
 3.6 Time plan..................................................................................................................................17
3.7 Budget plan..............................................................................................................................18
Reference............................................................................................................................................19

1. INTRODUCTION
1.1. BACK GRIOUND OF THE STUDY
The delivery of credit has been one of the antipoverty tools for the development of programs. This
is because it helps unemployed thereby increasing their income and consumption. Improving credit
access to the poor also facilitates economic growth by easing liquidity constrains in production by
providing by capital to start up new production or technologies (Woldy, 2003).the provision credit
services to the poor people in the federal economy and micro-enterprises operates income of credit
recipients create employment and reduce depending and later development (Funtahun,2000).

Rural credit and saving service is crucial inputs for helping the poor farmers in raising their house
hold income. In these situation most of the farmers faced financial problems as result: they tend to
borrow substation money from difference sources.
The overall preferences of rural credit and saving association was being infective recently time
these positive changes could be attributing to police to changes in developing.

Countries (MDEFD, 2002). Credit is considered as a lubricant that helps to a push to the
development process. However supplying large amounts money to former on credit is not amend by
itself (sign 1985). Forma credit is usually considered as an essential in put to increase labor, to
boost food output and income devess. In courage employment alld thereby to alleviate poverty
credit accomplish this task, by enabling small farmer to overcome their liquidity problem and to
make from in investments. Particularly in improved from technology and inputs that could lead to
increase agricultural problem (Abote, 1976).

In the Ethiopian case freeman (1999). Has found empirical support improving farmer’s access to
adequate credit accelerates the uptake of advanced technology “many agricultural development and
micro-finance institution (MFIS) were created for political purpose. As they were established to
channel subsidized diner and government fund to farmers they lacked the market discipline and
incentives of commercial banks. The provision of credit depends on.

Political disiion and interests (Sisay , 2008) moreover the irrigator Aliabad billets of loan founds,
requirements of collateral and in it writs off, of overdue donn ser, ally undermined the effectiveness
of these agricultural developments banks and MEIS.

Therefore this study will be contends with the role of rural credit and falling association on the
invelihaods of feral communities.

1.2 STATEMENT OF THE PROBLEM

In more developing countries which characterized by bank word economic stricture of major it’s of
their population highly depends on sustainable forming system that are fading formal financial
credit service which determined by informal source (CUNDPL, 1999). These informal services
however, do not generate enough and other additional finance for to stimulate economic
development in this case borrowers are required to produce guarantor and the inters rate is
extensively (SNDP,1999).

In Ethiopia high the rural financial system is dichotomy mouse in nature. The formal and informal
sector co- exists with differences in accessibility. The two sources continue to the major source of
agriculture credit though their proportion differs. According to (Single, 1993), the baits distention
between the formal and informal sector was that the later operates outside the rules and regulations
in posed on the former by the forma financial institutions. In particarty, formal credit when ever
available, reduces but not completely eliminates informal borrow wing

Therefore, the main inversion of this research is to show the role of rural and serving service
improving the living conditions of the rural house and to assess the major factors that affect its role
at local level in Borana zone development for the people that rural credit service is the most
important. In Oromia there are a number of poor farmers and beneficiary of the service in all zones
and woredas.

To change their life life’s they borrow the money from institute of one micro- finance (OMF) and
save by doing differs on oromia regional state, no zone is out of receiving the service , not. There is
a difference in implementation.

The areas of rural and saving service highly applying and the people are being improving due to the
invitation of Zone omo micro finance (OMF) and service association to community members
except civil servants, are become the beneficial .

1.3 Objective of the Study

1.3.1. General objective

The main objective of the research is to access the role of rural credit and saving association on
livelihoods of rural credit association in Borana zone of oromia regional state of Ethiopia

1.3.2 Specific objective.

The specific objective of the study is;

1. To access the magnitude of the rural service provision in borana zone

2. To identify its contribution in improving the living condition of rural house hold in borana zone.
3. To assess the major factor which affect the effectiveness of credit service in borana zone.

1.4 Research questions

The research questions of the study includes

1. What is the magnitude of rural credit service in improving the living condition?
 2. What is the contribution of the credit service in improving the living condition of rural
households?
3. How to assess the major functions affecting the affect fineness of rural credit service in the
study area. ?

1.5 Scope of the study

the study will limited in sleeted site in borana zone, it is difficult to assess the role of rural credit
and saving service in improving the living to this it is expensive and consuming to cover the whole
woredas , which are found in borana zone.

For this reason, the study will be the limited four woreda in borana zone out of the 13 woredas from
borana zone. The Woreda Rural credit service association on the livelihood of rural communities in
oromia region, no woreda is out of receiving the service but there is difference in implementation .
so selected woreda is among them

1.6 Significance of the study

The significance of the study is to serve both academic and practical purpose of rural credit and
saving service improving the living communities of the rural households.

This study may also serve as on impute for micro finance institutions (OMFI policy makers and
other beneficiaries. Above all this research may help the managers and donors of the program to
improve their services. In addition the research may serve as on age opener and appointer to words
couther study as it is the first empirical research in the area on the role rural credit and saving
association on rural livelihood’s clients.

1.7 Limitation of the study

To conduct this research there are some problem, among them

 Shortage of finance to conduct this research paper

 Lack of cooperation from certain organization to give the available data

1.8 Organization of the paper

This paper will be organized in five chapters. The first chapter deals with the introduction part that
contain background of the study , statement of the problem , objective of the study , research
question significance of the study , scope of the study , limitation of the study and organization of
the paper chapter. The second chapter is review of related literature and the third chapter describes
about the research methodology and the area of the study . The fourth chapter deals with data
analysis and interpretation then last chapter contain conclusion and recommendation
Chapter Two

2. Review Literature
2.1 Rural Credit Service Concept
The problem of rural credit service is old in the world . it limits to specific cyclic of agricultural
production distribution over the world . it should be success, able even in to the small farmer and
other weans section , it should also encourage productive in arrestment in the desirable (Rajendran
1997).

Rural credit saving association is vital instrument, part circularly, for subsistence farmer and plays
biracial role in improving the living communities of households, power utilizations of the credit
service become sufficient when saving should be complemented with aridity program . it could be
protected the poor from impact of un forced crisp and emergencies in their house holed micro
business from saving should be complemented with aridity program it could be protected the poor
from impact of unforced crisp and emengeeices in their house holed micro business from saving
further in to dept and enable poor house hold to plan and manage their limited researcher more
effectively to meet their basic need (Ficher ,2002).

2.2 The role of rural credit service

The role of rural credit service and saving association is very pocurerfal for agricultural
improvement if it is widely use and unadvisedly used . During high price and home price function /
supply function that farmers would face higher risk, according to stayed I, (2004) under suitable
auricular credit.

I, The credit should be related to the requirement of goods from plan .

II, There should be optimum measure of supervision and desistance in the utilization credit service
by credit makers.

III, There must be flexibility to face counting concise like floods or aroughts floods and raw
materials market opportunity , investment capital foreign , exchange and labor farces needed to
economy .
2.2.1 Smooth Income And Consumption
Credit service plays on important role in I ncome and consumption smoothing nutshell. Improved
access to financial service could be ad two principal effects on house hold, out come. Firstly it
could be raised the exceptive valve of income and therefore of consumption and future investment
and asset accumulation .

Second it could be decree’s the variance of income and cons gumption . Form the insecure food, it
is particularly important to reduce the deuce side restacks following bellow minimum levels of
disposable income for consumption of food [ csiwb]

2.2.2 Alleviation of poetry .

According to the world bank rural credit and saving association play a role alleviation of poverty in
rural area .accuse to small and rural farmers to micro credit had not generally addressed the credit
need of small all . rural farmer, because their priority of founding to the poor and because of some
perceived problem w/c include , dmong others .

A, risk of invest in agriculture

B, seasonality of agricultural of agricultural production

C, poor loan repayment performance of agricultural lending

D, technical nature of agricultural production system

2.3 Lending procedures

2.3.1 Targeting mechanism

As information gained from bolo so bombe worded credit service had saving institution and
cooperation (2008) the gathering of loan priority is given for the poorest section , the beneficiaries
are selected for sustainability purpose.
2.3.2 Repayment period
The existing agricultural lending institution usually collected loan annually. Some case , the
repayment period is determined based on the condition of the area and type of activity in the area.

2.2.2 Lending mechanism

The lending mechanism of reedit service and saving institution of boloso bombe woredas (2008)
duna , report are obtained

Borrowing group will be formed to 8 to 10 members after the necessary training is being , then start
their works according to group they formed .

Relatives would not organize in one and some group

All members would attend regular meeting which will be contacted at the center level to discus
about the loan application and other important issues as well as to process the varies binaural
transaction with the designed loan officers.

Are did committee would be for heed every level of the credit and saving in over to check whether
the loan a perches would be from according to the rules and collections of the institution.

When we say in practical aspects some borrowing groups were not because of living conditions of
group that moss, some groups use for consumption purpose and others use for merelandize purpose
, due to this they are not profitable. So , the solution was given aloneness about the credit service
for the credit taker (KLKWLCSI 2019).

2.4 Factors Affecting Rural Credit Provision And Collection

in spite of the fact that financial assistance makes the poorest of poor economical strong and
sufficient rural fence had number of constrict which could be summarized as follows as foolw based
on the report obtained from the BBCSi and cooperative report (2008).
2.4.1 Shortage of extension agents

2.4.2 Limitation of infrastructural facilities

Statement the poor development of infrastructures milliding road, telephone, service , electricity ,
etc limits finally delivery of inputs, tasks, or technical assistance by developing agents to ensure
proper utilization of credit by formers further attended market out left farmers to sell their product
repay the loan (woeda administrative bur each )

2.4.3Poor payment rate

Along literature in development economics examines the optimize design of credit contract when
clients were unable to provide collateral and there is limited liability (Ray, 1998). However, this
literature had paid scant attention to control teat urges of the typical credit contract offered by micro
financed institution (MFI) frequent repayment in grouping setting.

2.5 challenges micro finance provision

The responses obtains from the sample respondents were triangulates with the experts and
authorities affiliated to micro finance service provision.

The following constraints were for warded and individual interview as the main afcallenges
hindered micro finance services provision in the study area.

1. Lack of application of technologies during focus group discussion with officials and exerts
of omo micro finance institution (OMF) lock of application of technological for running the
business and addressing the clients was hen tined as the aim challenges . it was mentioned
by the participants . they are using a manual system with pen and paper and there is no
digital record keeping system it was marked by all participants , that the institution is not
using internal (for web based communication with head office, potential state holders and
with other branches ) no mobile banking system for SMS remainder as loan repayments,
repayment data and to know their saving and no digital documentation system to manage
port folio of elements generally, if was stated that lack of investments on techndegies had
limited their ability to grow response to demands and compete.
2. Lack of saving culture:- as it was understood during focus group discussion saving
mandatory requirement to get aridity so rues and all newly attending credit users are
required to make initial saving . however , the participant to focused group discussion
 (FGD) both from the community and the institution clearly regaled that there is no strong
saving culture or cereals’ rather than saving money in informal institution .
due to the lack of saving culture in the community, the institution facing cheongsam in
service provision .
3. Lack of incentives :- the participants of focused group discussion both from the community
and he institution cheaply aisolosed the limitation capacity of omo micro finance institution
(OMFI ) in companion to the huge demand of the service 14 residents in the area.
The importance of participation of others stake holder in the micro finance service prison
was also considered to be inquiry for which there has been no established a fracture
incentive service responsible body.
4. State turn over:- during focused goop discussion with the official and experts as well as the
beneficiaries of the OMO – micro finance institution workers turnover was mentioned as the
main challenge faced by the intimation . In discussion with the staffs, they key red son was
identified to law salary rate and absence of incentive package .
5. Problem related with institutional capacity building the result of key informant in for views
and focused group discussion indicated that there was lack of focus in the targeting
institution that there was lack of focus in the targeting institution capacity building . in the
focus group discussion with experts and officials OMO – micro finance institution it was
and indicated that the organizations cheaply lacks vision of targeting instituzonal capacity
building to meet the growing funds for training and capacity building was also mentioned to
be main problem . `
6. Clement mobility :_ as result the organization is being for to prefer dealing with clients of
gibed above assecuritr for their investment . it was mentioned that large number of clients
were reported to change their residence affect king credit from the institution .
Chapter three

3. Research methodology and description of the study area

3.1 Geographical description the study area

3.2 Absolute and relative location

The study was conducted in bolosso bome woredas parts of the woliata zone , Sothern Ethiopia
which located at 37,39 , to 37,63 longitude 6,79 to 7’60 ‘N latitude

it is found to 435 km form Addis Ababa to both east direction and 39 km form Wolaita sodo total to
south east direction on the was to areka. According to ( 2014 October 10) report bososso bombe had
85 km of all weathered roads and 39 dry weather road , for an average road densits of 161km
perform square kilometers it is bordered on south of areka woredas on the south west by kambata
tambarr woredas , on the west by gunon woredas , on the north by base woredas , on the east by
dawaro zone, and douth east by bolosso bombe woredas.

Topography

The to pogurahy of boloso bombe is characterized by high land and low land above 65% is steep
slope, 25% of the that surface and 10% is gentle slope. The area of the woredas is entirely mountain
plain and valley.

The woredas has an altitude ranging between tom- 2260 m masts (wiki pediaoryn (BB special
woredas).

Climatic condition

Climatic condition of bolosso bombe woredas :- differ according to affitudinal variations due to the
geograplacal and geological structure the argaro – ecology – ecology of the woredas is woyna dega
kolo and degain nature
Economic activity

Agriculture is the dominant economic activity in the woredas . About 85% of the population
depends on mixed forming . rural people on Wolaita zone in generals and in the study areas in
particular, proportion , of audits and make in important contribution to gavel hoods , it shows that .

There is a high enrolment of women under versified action and the contribution of the Devers if
incaution actives to ash incomes in particularly import and for poor house hold .

The single most important activity is trading which laboring for other is also important activity is
trading while laboring for other is also important consideration of the histories and social contexts
is this critic as for atrium understanding of like heed of change and the changing role and
importance of divers if incaution activity ( Cors well, 2001).

3.1.5 Natural resource management

Natural resource segregation in the worded affects regardless of the concerts efforts of soil and
water conservation activist by the government communist and there development actors operators
operating there area .

Wide spears soil conservation activists such as hill side tract ring gully tearetment using checks
dams , hills side drovers have contribute to some expects to erosion , gully stabilization as well as
reservations of natural vegetations cover , at present there is 17,000 hectors . bolos bombe re
habilitated hill side which can be allocated to land less youth [ annual narrative report , (December
31 , 2012).
3.1.6 Research methodology

3.1.6. 1 research design

The study will be used both qualitative and quantized research design to achieve the objective the
objective and to answer the research questions

Qualitative study design will be used to describe and will summarize data will be obtained through
observation and quantitative data is applicable to phenomenon that can be express in numerical data
is applicable to phenomenon that can be express in numerical or quantization . therefore, the
research design is the descriptive about the area.

3.1.6.2 Sampling techniques

In this study mule- stage sampling techniques will be used in the first stage boloso bombe woredas
will be porosity selected based on larger number of clients to RCSA and believe to be information
rich woredas in the zone ; in the seconds stage one keble is selected randomly out of the total kebele
in the woredas and signally using simple random sampling techniques.

3.1.6.3 Sampling size

As far as sampling size are concerned the total users of credit services are 4002 out of these
researchers will take 40 respondents from the selected kebeles sample size because of time and
financial constraints the researcher will be shared the total sample of woreda

Sample size formula

N
n= 2
1+ N (e )

Where

n= designed the sample size

N=designed total number of population size

e= designed maximum variability or margin of error (20%=0.2)

1= designated the probability of the event occurring sources; Yamane , et 1967)

3.2 Data collection

3.2.1 source and types of data

the research will use both primary and secondary data source the primary data obtain from sample
respondents , service state holder and field of the study area . the primary data will obtain from
questioners for sample respondents , tedious for service state holders and observation by directing
locking the field of study area.

3.3 Data collecting techniques

Generally the researcher will use different instrument to collect data in appropriate ways such as on
questionnaires for some respondents to collect appropriate information in detail way, key informant
interview will be used collect accurate information from woreda saving and credit office. Relieving
document related to the study such as books, internet sources and annual reports of woredas credit
office.

3.4 Data analysis

To analyze and present the data, the research will be use sample and descriptive statistical
techniques like tables. Percentage, charts and graphs to present quantitative data and will be used
some qualitative narrative to analyze and to present the data from different source use different
instruments.
 3.5 interpretations of data
The researcher takes 40 respondents from out of the total population of 4002 respondents .

3.6 time plane

Time plane is a written account of now by which the researcher the researcher spend their time to
carry out the research project.

No Activity Dec Jun Feb Mer Apr Mdy June

1 Submitting X
proposal or
Showing
2 Conducing X
advisor
3 Problem X
identificatio
n
4 Literature X
review
5 Personal X
developme
nt
6 Data X
analysis
and method
7 Data X
analysis
and method
8 Reporting X
9 Presentatio X
n
3.7 budgeting plan
Budgeting plant is the table for any project operation in the cost will includes to conduct this
research and that will planed

No Item Quality Unit of budget Total beget

1 For paper 2 pack 100 200
2 Secretary 1 160 160
3 Transportatio 6 7 42
n
4 Binding 1 200 200
5 Printing 1 200 200
6 Pen 5 4 20
7 CD/ plash 1 10 10
8 Unexpected - 500 500
9 Total - - 1332
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