Credit program outcomes: coping capacity and nutritional status in the food insecure context of Ethiopia
Introduction
Ethiopia is one of the least developed countries in the world, ranking 168th out of 173 countries in the 2002 UNDP Human Development Index (United Nations Development Program (UNDP), 2002). The per capita GDP was US$ 668 in 2000, and 31.2% and 76.4% of the population live on less than US$ 1 and US$ 2 per day, respectively (World Bank, 2002). Chronic food insecurity and poverty are endemic to Ethiopia. Conditions are worsening due to frequent droughts, and the population is progressively becoming more vulnerable and impoverished. An estimated 14.3 million people were affected by drought in 2002, and 11.3 million people faced severe food shortages with an additional 3 million at risk (Ethiopia Network on Food Security, 2002; EM-DAT: The OFA/CRED International Disaster Database, 2003). Food insecurity, exacerbated by drought, is rooted in dwindling income earning opportunities, the gradual erosion of the household asset base, and chronic poverty.
In recent years, USAID has provided an average of $220 million in food aid annually as compared with only $4 million in agricultural development aid (Thurow, 2003). While food aid has saved lives, it has contributed to a precarious situation of increasing destitution, vulnerability, and environmental degradation while the underlying causes of food insecurity have been left unaddressed. In the context of Ethiopia, where humanitarian aid is a frequent necessity in the prevention and mitigation of food shortages and famine, attention to development strategies is required if the increasing vulnerability and destitution of the population is to be reversed. Within this framework, sustainable development strategies that do not depend on the international donor community are essential if reconstruction and local development are to occur in a steady and uninterrupted manner. Stimulation of local economies is a requisite factor for restoration of individual livelihoods and reduction of vulnerability at both the household and community level. The role of microfinance institutions, which target poor and vulnerable population groups and work to stimulate local economies, is particularly relevant in Ethiopia and other similar contexts as it is a people-centered local development strategy that works to enhance protective mechanisms against disasters and other harmful events.
Microfinance can be defined as “provision of banking services such as savings, credit and money transfer to poorer people who cannot access ordinary mainstream banking services” (Wilson, 2003). While microfinance is typically viewed as an economic development strategy, it can also serve as a relief and survival strategy in disaster situations and in the transition from relief to development aid. Microfinance is a better long-term option than humanitarian assistance because it creates employment, expands economic opportunity, and stimulates local level development. Microfinance programs that facilitate reconstruction and sustainable development are important in the transition from an aid-economy to self-sufficiency.
As a consequence of disasters, households are likely to have fewer individuals that are formally employed or earning income and more dependants. Human capital loss results in changes in household morphology including higher dependency ratios and increased proportions of households that are headed by women and children. Disaster-affected households that have experienced changes in family structure and those that have been forced to sell assets are more vulnerable to risk. A study of failure of coping mechanisms and famine in Ethiopia found significant differences in coping abilities between poor households and relatively wealthier ones, where the impact of famine varied according to household income and asset base; relatively wealthy households coped better than poor households, and income distribution was also related to changes in food consumption (Webb, von Braun, & Yohannes, 1992). Murduch summarized the relationship between poverty and disasters and concluded, “inflation, recession, drought, flood, illness and civil war hit hardest those households that are least well equipped to handle the shocks. Harder still… poverty is a source of vulnerability, and repeated exposure to downturns reinforces poverty” (Murdoch, 1999). Thus, there is a need to build endowment and financial and economic capacity into vulnerable populations to enable the most at-risk groups to withstand both chronic conditions and sudden shocks in both food and social security. At the household level, microfinance can serve as a vulnerability reduction strategy by promoting access to assets and increasing production.
During and after natural disasters, households frequently alter their behavior through coping mechanisms that aim to avoid liability and/or reduce risk. Coping capacity refers to the individual or household's ability to deal with risk, including resiliency. A multitude of factors contribute to coping capacity at both the individual and household levels. A conceptual framework of household and coping capacity and well-being is presented to illustrate the complex nature of coping and the potential interactions between determinants of coping capacity (Fig. 1). In the relief and reconstruction context, microfinance may serve to reduce vulnerability by providing access to capital, which protects clients against future risk and allows them to cope with economic losses resulting from disasters and prolonged insecurity (Sebstad & Cohen, 2000). In Mali, participation in lending programs increased household ability to deal with periods of crisis and economic difficulty, and clients were less likely than incoming clients to report periods of acute food insecurity (Dunford, 2001).
Microfinance is a particularly relevant approach in countries where disadvantaged groups tend not to benefit from involvement in the formal economy; in most developing nations, the majority subsists on income from microenterprise activities with the informal sector accounting for 20–70% of all employment (Wilson, 2001; Waters, Kombe, & Hong, 2001). From an ethical standpoint, poor populations are the most likely to be negatively effected by disasters, making such groups logical targets for vulnerability reduction strategies. From a development standpoint, where revival of informal and local economies is necessary for reconstruction and the restoration livelihoods, microfinance is logical approach because it functions at the grassroots level, can be sustainable, is capable of involving large segments of the population, and builds both human and productive capacity.
This paper present findings of a microfinance program outcome study in terms of coping mechanism use, household diet, and nutritional status.
Section snippets
WISDOM microfinance institution and survey sites
WISDOM is the World Vision microfinance counterpart in Ethiopia. The institution is headquartered in Addis Ababa and operates 15 branch offices throughout the country. In the 2003 fiscal year, WISDOM had US$ 2,055,873 in disbursed loans and 12,157 active clients; 25% () of clients were women. The average outstanding loan size during the period was US$ 141. The Adama and Sodo branches of WISDOM were selected to participate in the assessment because (1) they serve regions that are among the
Methods
A survey of 819 households was conducted in May 2003 in two predominantly rural sites in Ethiopia. A severe drought affected both study areas in 2002/2003. The survey was primarily intended as an assessment of coping capacity in chronic drought conditions and microfinance program outcomes.
A three-comparison group cross-sectional design was used. Within the context of this study, multiple comparison groups were essential to address the problems of non-equivalence between borrower and
Results
No significant differences were found between established clients, incoming clients and community controls in terms of ethnicity, religion, years of formal education, literacy, or number of economically active individuals in the household. Mean educational attainment of household heads was 7 years, and 77% of respondents were literate. The average number of household members was 6 for all three comparison groups, and mean age for respondents in the three groups ranged from 33 to 35 years.
No
Discussion
This study found that measures of nutrition status, diet, household food security, and coping mechanism use were relatively similar among established clients, incoming clients, and community controls when the sample population was assessed as a whole. In the primary survey site Sodo, which was the more drought-affected and food-insecure of the two sites, significant differences were observed in terms of respondent diet, household food security, and nutritional status. Established female clients
Conclusions
In the context of Ethiopia, where recurrent drought and chronic food insecurity have left much of the population destitute and vulnerable to minor shocks, local development strategies that are sustainable, and ultimately independent of international development assistance, are a particularly important component of efforts to restore livelihoods. Such people-centered development strategies that function to build capacity and provide opportunity at community level are not a panacea for future
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