Household Welfare Impact of Saving In Microfinance Program: Empirical Evidence from Amhara Credit and Saving Institution, Ethiopia

Abstract

Ethiopia has a favorable macro policy environment and regulatory framework to promote local
and national development. Accordingly, Amhara credit and Saving Institution (ACSI) which is
one of the big MFIs in Ethiopia which has been established with the purpose of targeting to rural
and urban poor people so as to reduce poverty throughout the region and the nation as well. So
the prime purpose of this study is to examine the welfare impact of microfinance program in
reference to ACSI. The study reports a survey of 270 clients of ACSI in urban areas of south
wollo zone specific to clients of four branches residing in Dessie, Kombolcha and Haik towns.
The Heckman selection model is used to analyze the impact of microfinance program on saving
mobilization and hence household welfare. Results in the present study revealed that The
significant and positive coefficient of the Inverse Mills ratio signifies that OLS would produce
upwardly biased estimate which explains by how much the welfare in terms of expenditure is
shifted up due to the selection effect. The estimated value of rho also suggests that there is a
positive correlation between the unobservable of the choice participation equation and the
expenditure equation, which may mean that those factors which increase the likelihood of
participating in saving scheme tend to raise the welfare of the households through increasing
their expenditure. In conclusion, microcredit program is positively influencing saving
mobilization directly or indirectly. This means, there is a compulsory saving program which
directly influencing the clients as a rule to save while receiving loan from MFI and also after the
clients engage in different business activities they try to save voluntarily because they think that
savings would be their future hope to improve their financial status as well as improve their
living standard. Although the contributions from participation in the microfinance program
particular ACSI is on good position, it is possible to say that the MF intervention could not fully
bring about needed change in terms of household welfare for the majority of the clients.
Therefore, one of the duties of Microfinance program intervention should be to work hard to
enhance the impact of the program on client’s economic and social wellbeing.