TY - JOUR

T1 - HOW SHOULD RURAL FINANCIAL COOPERATIVES BE BEST ORGANIZED?

T2 - EVIDENCE FROM ETHIOPIA

AU - Abay, Kibrom A.

AU - Koru, Bethelhem

AU - Abate, Gashaw Tadesse

AU - Berhane, Guush

PY - 2018/5/23

Y1 - 2018/5/23

N2 - 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 rural households’ access to financial services, including savings, credit and insurance services. We find that some features of RFCs have varying implications for delivering various financial services (savings, credit and insurance). We find that the size of RFCs exhibits 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. These pieces of evidence provide some 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.

AB - 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 rural households’ access to financial services, including savings, credit and insurance services. We find that some features of RFCs have varying implications for delivering various financial services (savings, credit and insurance). We find that the size of RFCs exhibits 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. These pieces of evidence provide some 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.

KW - Rural financial cooperatives

KW - size

KW - compositional heterogeneity

KW - wealth diversity

KW - social cohesion

U2 - 10.1111/apce.12212

DO - 10.1111/apce.12212

M3 - Journal article

VL - 90

SP - 187

EP - 215

JO - Annals of Public and Cooperative Economics

JF - Annals of Public and Cooperative Economics

SN - 1370-4788

IS - 1

ER -