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How should rural financial cooperatives be best organized? Evidence from Ethiopia

Kibrom Abay, Bethlehem Koru, Gashaw Abate and Guush Berhane

No 100, ESSP working papers from International Food Policy Research Institute (IFPRI)

Abstract: What is the optimal size and composition of Rural Financial Cooperatives (RFCs)? With this broad question in mind, we characterize alternative formation of RFCs and their implications in improving the access of rural households to financial services, including savings, credit, and insurance services. We find that some features of RFCs have varying implications for delivering various financial services. The size of RFCs is found to have a nonlinear relationship with the various financial services RFCs provide. We also show that compositional heterogeneity among members, including diversity in wealth, is associated with higher access to credit services, while this has little implication on households’ savings behavior. Similarly, social cohesion among members is strongly associated with higher access to financial services. These empirical descriptions suggest that the optimal size and composition of RFCs may vary across the domains of financial services they are designed to facilitate. This evidence provides suggestive insights on how to ensure financial inclusion among smallholders, a pressing agenda and priority of policy makers in developing countries, including Ethiopia. The results also provide some insights into rural microfinance operations which are striving to satisfy members’ demand for financial services.

Keywords: ETHIOPIA; EAST AFRICA; AFRICA SOUTH OF SAHARA; AFRICA; finance; economic development; rural finance; Rural financial cooperatives; compositional heterogeneity; wealth diversity; social cohesion (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-afr, nep-agr, nep-dev and nep-mfd
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Journal Article: HOW SHOULD RURAL FINANCIAL COOPERATIVES BE BEST ORGANIZED? EVIDENCE FROM ETHIOPIA (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fpr:esspwp:100

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