Factors Affecting Rural Households’ Savings in Oromia National Regional State: The

Case of Sebeta Awas District. June, 2018

Tefera Misrak
Department of Development and Public Policy Management, Oromia State University.

ABSTRACT

The purpose of this study was to assess factors affecting rural household savings
behavior with the objective of examine factors that affect the rural households’ savings,
study the level of awareness on the rural households savings and identify the challenges
of rural households savings mobilization. A cross sectional data were collected from 146
sample households and both primary and secondary data were used. Primary data was
collected from rural households using interview, questionnaire from farmers by using
simple random sampling method and focus group discussion were used to collect primary
data from the sampled households. The secondary data was collected from different
source like research report, books and magazines. The data were analyzed using both
descriptive and inferential analysis. Descriptive statistics (frequency distribution, mean
and standard deviation) and inferential (multiple linear regression econometric model)
were used. The result of the study shows there are different factors that affect rural
household savings in study area; from the multiple linear regression results, five
variables had significant effect namely; household head’s education level, family size,
crop production, vegetables production, and average annual expenditure were found to
have significant effect on rural households’ savings. Based on these findings, the
researcher recommended that emphasis should be given towards strengthening different
educational opportunities, using family planning, government agricultural offices with
nongovernmental organizations should work to improve the rural households’
agricultural productivity through income diversification and minimize over expenditure.
For the law level saving of rural household the responsible bodies should give attention.
Key terms: rural households’ savings, factors and SAD.

i
 Chapter One

Introduction
1.1. Background of the Study

Saving is vital to any country economic stable and efficient, both at the household and
national levels. Economists of every school have always recognized savings as the source
of investment that fuels an economy’s long-term growth. Nations whose citizens and
leaders have acted on this insight have gained powerful competitive advantage over time.
(Abid and Afridi, 2010)

The saving rate of Ethiopia to GDP is 9.5% which is, the worst saving rate in the world as
compared to China, Bangladesh and South Africa which have a better saving rate in the
world. Ethiopia is characterized by poor saving cultures which result in very small
domestic savings available for investment. The government knowing this fact has
planned in the 5 year Growth & Transformation Plan of the country (2011 -2015) to
increase saving rate from 9.5% to 20% of the GDP (Aron et al, 2013).

According to Oromia state president office and commission plan and financial
development of oromia, report of mid review of GTP 2 nd (2016-2020) 2018, in oromia
saving and investment has closed relationships. In expansion of investment savings has
values. Oromia plan to achieve %31.4 in mid GTP 2 nd. Even if savings depends on
income by understand values saving in increasing investments by decreasing final
consumption expenditures and increasing values in oromia GDP (income) from %26.7 to
%28. This indicates well and wants to encourage its continuities in future by more
(Oromia Commission plan and financial development, 2018).

Rural households saves in cash with advantages that, cash is very portable, storable and
exchanged for almost anything. However, in both kinds saving and cash saving there are
many factors affecting rural households’ savings (Girma et al, 2014)

The purpose of this study was to study the practice of rural households savings in Sebeta
Awas District, to study the level of awareness on the rural households savings, examine
factors that affect rural households’ savings, to identify the challenges of rural
households savings mobilization in the study area and it uses as starting point for another
research on this issues in this district.
1.2. Objectives of the Study
The general objective of the study was to assess factors affecting rural households’
savings in Sebeta Awas District.
The specific objectives of this include:

1
 1. To study the practices of rural households savings in Sebeta Awas District.
2. To study the level of awareness on the rural households savings in Sebeta
Awas District.
3. To examine the factors that affects rural households’ savings in Sebeta Awas
District.
4. To identify the challenges of rural households savings mobilization in Sebeta
Awas District.

1.3. Conceptual framework of the study

Conceptually the study would be focus on issues of rural households’ savings in sebete
awas district. The researcher would be assess all factors affecting rural households’
savings not only individual independent variables see solely; It also assess how one
independent variables causes as factors for others and how rural household were affected
by its practice of saving. Rural household level of awareness had affect on decision to
savings from its income. Identify the challenges of rural households’ savings
mobilization and give recommendation to solve for future.

Chapter Two
Research Methodology
2.1. Description of the Study Area
Sebeta Awas district is one of the district oromia region of Ethiopia. It located at about 24
Kms southwest of the capital city of Addis Ababa. According to the data from
agricultural office of sebeta awas District in 2017 the district has about 40 Kebeles;
among these 36 of them are rural Kebeles which constitutes the largest share of the
administrative district and 4 of them are under the town kebeles (Agricultural office of
sebeta, 2017).
2.2. Research design
The major focus of the study was to get information related to saving of rural households
by collect cross sectional data from the study area. So, the research method uses for the
study was survey research design.
2.3. Data Sources and Method of Data Collection
The study was used both primary and secondary source of data. The primary sources of
data were obtained information related to demographic characteristics of the households
and forms of savings used by rural households. Interview questions and questionnaire
was used as a method of data collection for the four objectives to collect quantitative data
where as focus group discussion was used to collect qualitative data. On the other hand,
secondary data was derived from the findings state in published and unpublished
documents and literatures related to the research issues.
2.4. Sampling methods and Sample Size
Multi-stage sampling method was applied to select sample respondents to study factors
affecting rural households’ savings. First, purposive sample selection method was used to

2
select Sebeta awas district. Second, the researcher was select one kebeles from each five
clusters by simple random select. At the third stage a total of 146 respondent households
was selected randomly by using probability proportionate to size of households in five
selected kebeles have rural household 2175.
2.5. Method of Data Analysis
The tools for quantitative data analysis were used descriptive statistics. Moreover, OLS
regression analysis was applied for identifying significant factors affecting rural
households’ savings. The qualitative data which was gathered through focus group
discussion was analysis through narration and description. Econometric Model
Specification; in this research double-log or linear model was used.
Chapter Three
Result and discussion
3.1 Introduction
This chapter deals with the empirical findings and discussion of the results obtained from
descriptive and econometric analysis on factors affecting rural households’ savings.
3.2 Descriptive Results and Discussion of factors affecting RHHS
3.2.1 Practice of rural households savings.
3.2.1.1 Characteristics of respondents by sex and age
Sex is one of the variables that can explain rural households’ savings.
Age is predicted as one of factors affecting rural households’ savings. As human become
elder their saving habit becomes decrease.

Table 4.1; Characteristics of respondents by sex and age

Sex of respondents Frequency Percent
Male 119 81.5
Female 27 18.5
Total 146 100.0
Age of respondents
18-35 28 19.2
36-53 105 71.9
54-71 13 8.9
Total 146 100.0
Source: Own field survey data, 2018
3.2.1.2 Characteristics of Respondents by Marital status and educational level
Most of the respondents were married. Education is one of the major factors affecting
rural household saving status. Education enhances the capacity of individuals to obtain,

3
process, and utilize information through different sources. It is required to make saving
decision.
Table 4.2; Characteristics of Respondents by Marital status and educational level
Marital status of respondents Frequency Percent
Married 122 83.6
Single 20 13.7
Widowed 4 2.7
Total 146 100.0
Education level of respondents
Illiterate 10 6.8
1-4 69 47.3
5-8 41 28.1
grade 9-12 21 14.4
Dip, Degree, MA 5 3.4
Total 146 100.0
Source: Own field survey data, 2018
3.2.1.3 Characteristics of Respondents by Religion and family size
Religion plays a role in affecting the saving status of the rural households. Family size of
respondents is an important factor for the saving status of the rural households.
Table 4.3; Characteristics of Respondents by Religion and family size
Religion of respondents Frequency Percent
Orthodox 89 61.0
Protestant 23 15.8
Wakefata 31 21.2
Islam 3 2.1
Total 146 100.0
Family size of respondents
0 22 15.1
1-4 42 28.8
5-8 42 28.8
9-12 40 27.4
Total 146 100.0
Source: Own field survey data, 2018
3.2.1.4 Characteristics of Respondents by Land size and access to credit
According to the survey result shown in table 4.4, most of respondents land size was
category of 1-4 hectare which covers 95 (65.1%) from sample respondents. Respondents’
access to credit and not access to credit were equal 73 (50%). The challenges to get
access credits were bureaucracy at formal financial institution and there were no enough
money saved at saving and credit cooperatives (SACCO).

Table 4.4; Characteristics of Respondents by Land size and access to credit

4
Land holding size of respondents Frequency Percent
Had no own land 24 16.4
1-4 hek. 95 65.1
5-8 hek. 22 15.1
9-12 hek. 5 3.4
Total 146 100.0
Respondents access to credit
No 73 50.0
Yes 73 50.0
Total 146 100.0
Source: Own field survey data, 2018
3.2.1.5 Characteristics of respondents by Socio economics descriptive Statistics
Most variables mean result was greater than Std.deviation; this indicates the spread of the
data about the mean of the data set is proper and there was only very little outlier.

Table 4.5; Characteristics of respondents by socio economic

Livest Crop Vegetab Income Expen Market Transa FFI
ock produc les from diture distance ctional Distance
produ tion producti nonfarm from home cost from
ction on home
Mean 14.64 30.32 5.95 277.40 42970 6.71 29.32 18.36
Std. 6.353 14.35 28.86 1447.98 22262. 3.121 28.73 10.962
Deviation 7
Minimum 0 5 0 0 9500 2 8 2
Maximum 36 78 210 10000 83496 15 100 45
Source: Own field survey data, 2018
3.2.2 Rural household level of awareness on savings.
3.2.2.1 Respondent household awareness on advantages and motivate RHHS
Table 4.6; Respondent household awareness on advantages and motivate RHHS
Know adv. of Saving in FFI Frequency Percent
No 29 19.9
Yes 91 62.3
no idea 6 4.1
some extent 20 13.7
Total 146 100.0
Advice to aware and motivate RHHS
No 32 21.9
Yes 93 63.7
no idea 1 .7
some extent 20 13.7
Total 146 100.0

5
Source: Own field survey data, 2018.

Knowing about advantage of saving is important factors to encourage rural household

saving in FFI and to improve life of households. As result shown in table 4.6, most of the
respondent households have awareness on advantage of savings 91 (62.3%).
3.2.3 Challenges on rural household savings mobilization
3.2.3.1 Challenges on credit taking, procedure and IR of saving that affect RHHS
There were many challenges with RHH on mobilization of rural household savings.
Saving is much interconnected with credit. The most idea was on no challenges on
procedure of saving. These indicate that as financial institution number increase to get
acceptance within customer it do better respect and procedure of saving for customer.
There was no so much interest rate also affect RHHS.

Table 4.7; Challenges on credit taking, procedure and IR that affect RHHS
Respondents idea on credit taking Frequency Percent
no idea 36 24.7
Bureaucracy of formal financial institution 38 26.0
Lack enough saving money in SACCO 52 35.6
lack of understanding 20 13.7
Total 146 100.0
Respondents idea on procedure of saving
No 75 51.4
Yes 28 19.2
no idea 19 13.0
some extent 24 16.4
Total 146 100.0
Challenges on interest rate
No 70 47.9
Yes 34 23.3
no idea 32 21.9
some extent 10 6.8
Total 146 100.0
Source: Own field survey data, 2018.
3.3 Econometric analysis of factors affecting rural households’ savings
Econometrics is important to check the theory by practices and also to forecast the feature
policy required to solve the problems. In this sub section the major factors that influence
rural household saving were presented and discussed.
Education level of respondents: - It is categorical variable measured in grade. Result
shown in table 4.8, As expected it had a positive relationship with the rural household
saving and it was found it to be statistically significant (t-value = 2.413, p=.016).

6
Family size of Respondents: - It is categorical variable measured in number of family.
As expected it had a negative relationship with the rural household saving and as shown
in table 4.8, it was found to be statistically significant (t-value = -2.231, p=.027).
Crop production: - It is a continuous variable and it is crucial variable on factors
affecting rural households. The (t-value = 4.48, P=0.00), the positive and significant
relationship indicates that as crop production of household increases by 1 quintal their
saving status increases by 85.238 ETB.
Vegetables production: - It is a continuous variable. It is one part of income for rural
household and measured by quintal. The (t-value = 42.52, p=.000), the positive and
significant relationship indicates that as vegetables production of household increases by
1 quintal their saving status increases by 353.810 ETB.
Expenditure: - It is continuous variable. The annual expenditure of the rural households
was calculated in ETB. The (t-value = -3.559; P=.001) the negative and significant
relationship indicates that as the expenditure of household increased by 1 ETB their
saving is decreased by -.051 ETB.
Sex: - The (t-value =-1.749; P=0.083). This implies that being male or female headed
household had no statistically significant effect on saving decision of the households.
Age: - The t-value (t=-1.749; P=0.171) this implies that being age of headed household
had no statistically significant effect on saving status of the rural households.
Marital status: - It is dummy variable. The (t-value =-1.178; P=0.241). The being
prediction single household was save more than marriage household. But there is no
statistically significant effect on saving status of the households.
Religion: - The t-value (t=0.999; P=0.320). There is no statistically significant effect on
saving status of the households based on religion.
Land size: - The t-value (t= -0.221; P=0.825). This result implies there is no statistically
significant effect on saving status of the households by landholding size of respondents.
Livestock production: - The t-value (t= 0.897; P=0.371). This result implies there is no
statistically significant effect on saving status of the households by number of livestock
on respondents.
Income from nonfarm: - The t-value (t= 1.928; P=0.056). This result implies there is no
statistically significant effect on saving status of the households by amount of nonfarm
income on respondents.
Market distance: - The t-value (t= -1.080; P=0.282). This implies that being market
distance of farmers from its home had no statistically significant effect on saving status of
the households.
Transactional cost: - The t-value (t= 0.387; P=0.700). This implies that being
transactional cost of farmers to save money at FFI had no statistically significant effect
on saving status of the households.
FFI distance: - The t-value (t= -1.48; P=0.141). This implies that being FFI distance of
farmers from its home had no statistically significant effect on saving status of the
households.

Table 4.8; Analysis of Factors affecting rural household savings by MLR

Model variable Unstandardized Standardi T Sig. Collinearity

7
 Coefficients zed Statistics
Coefficie
nts
B Std. Beta Tole VIF
Error ranc
e
(Constant) 1791.691 1750.75 1.023 .308
Sex -891.662 509.832 -.028 -1.749 .083 .903 1.107
Age of respondent 570.355 414.638 .024 1.376 .171 .761 1.313
Marital status 550.947 467.851 .021 1.178 .241 .770 1.298
Education Level 682.513 280.275 .052 2.435 .016* .518 1.931
Religion 239.006 239.171 .017 .999 .320 .796 1.257
Family size -547.525 245.373 -.046 -2.231 .027* .552 1.813
Land size -78.643 355.508 -.004 -.221 .825 .623 1.604
Livestock production 41.204 45.913 .021 .897 .371 .419 2.388
Crop production 85.238 19.026 .100 4.480 .000** .478 2.093
Vegetables production 353.810 8.321 .837 42.52 .000** .617 1.620
Income from nonfarm .290 .150 .034 1.928 .056 .752 1.330
Expenditure -.051 .014 -.093 -3.559 .001** .354 2.822
Market distance -80.225 74.272 -.021 -1.080 .282 .663 1.508
Transactional cost 3.547 9.169 .008 .387 .700 .513 1.948
FFI distance -43.848 29.631 -.039 -1.480 .141 .338 2.962
** Significant at 1 % and *significant at 5%
Source: Own field survey data, 2018.

Model summary
As shown in table 4.9, model summary result the value of R 2=0.969 that means 96.9% of
the regression of dependent variable is explained by independent variables in this analysis
and it indicates here was the better goodness of fit of the regression plan to sample
observation.
Table 4.9; Model summary
Model R R Square Adjusted R Std. Error of the
Square Estimate
1 .984a .969 .965 2272.670
Source: Own field survey data, 2018.

Chapter Four
Conclusions and Recommendations
4.1 Conclusion
In this study the researcher attempted to assess the factors that affect rural household
saving in sebeta awas district. The descriptive analysis showed that rural households had

8
no surplus cash to save, low income, they had no enough awareness on saving and there
were some challenges to mobilization of RHHS on SACCO; procedure and interest rate
with bank. From the model result it was concluded that education level of household,
family size of household, income level of household and expenditure of household have
significant relationship with the dependent variable (rural household savings) because the
p-values of them were less than 0.05 (p<0.05) and their coefficient shows that the
direction of their relationship. The coefficient of determination (R 2) value also shows that
the dependent variable (rural household saving) was 96.9% explained by independent
variables. That means there is strong relationship between dependent variable and
independent variables.
4.2 Recommendation
Rural household should try to do double crop production to improve their saving status
via increases their income. Price stability policies targeted on agricultural policy should
be appropriately formulated. Educational level was significant variable on saving habit of
rural household. In order to make illiterate rural households have better understanding
towards savings and make decision to save, emphasis should be given towards
strengthening different educational opportunities. Formal financial institution and related
sectors also should give awareness to improve their saving status. In SACCO it required
professional support after it organized to develop its knowledge about saving. Health
policy should implement family planning program to improve saving status via
minimizing expenditure. The government recommends giving more attentions to the
household how to save some proportion of their income which uses them in the future
and also educate them to save in the formal institution.

5. References

Abid,S and Adfrid, G.(2010). Assessing the household saving pattern of urban and rural
households in Muzaffarabad dist. Pakistan journal of life and social science 8(2),137-141.

Agriculture office of sebeta awas district, (2017). Work plan of 2017 year of Agriculture office of
SAD. Sebeta

Aron H, Nigus A, Getnet B.(2013). Assessment of Saving Culture. Among Households in

Ethiopia. Journal of Economics and Sustainable Development, 4 (15), 1-2. Retrived January 13,
2018 from www.iiste.org

Girma T, Belay K, Bezabih E, and Jema H.(2014).Saving patterns of rural households in East
Hararghe. Journal of Development and agricultural Economics, 6(4):177-183.
Doi.10.589/JDAE2013. Retrieved January 13, 2018 from www.academic journals.org.

Oromia Commission plan and financial development. (2018). Report of mid review of GTP 2 nd.
Addis Ababa.