An Assessment of Factors Affecting Rural Households Savings

Habit: The Case of Mana District, Jimma Zone, Oromia Regional

State, Ethiopia

A Thesis Submitted To the School Graduate Studies of Jimma University in

Partial Fulfillment of the Award of the Degree of Masters of Business
Administration (MBA)

By:

KUMSA CHEMEDA GAJEA

JIMMA UNIVERSITY
COLLEGE OF BUSINESS & ECONOMICS
MBA PROGRAM

JUNE, 2017

JIMMA, ETHIOPIA

I
An Assessment of Factors Affecting Rural Households Savings
Habit: The Case of Jimma Zone Mana District

By:

KUMSA CHEMEDA

Under the Guidance of

Chalchissa Amante (Assistant prof. & PHD candidate)

And

Mr. Wendmu Abule

A Thesis Submitted To the School Graduate Studies of Jimma University in

Partial Fulfillment of the Award of the Degree of Masters of Business
Administration (MBA)

JIMMA UNIVERSITY
MBA PROGRAM

JUNE, 2017

JIMMA, ETHIOPIA

II
 CERTIFICATE
This is to certify that the thesis entities “Assessment of Factors Affecting Rural Households
Savings Habit: A Case Study of Jimma Zone Mana District ”, Submitted to Jimma University
for the award of the Degree of Master of Business Administration (MBA) and is a record of
Valuable research work carried out by Mr. Kumsa Chemeda, under our guidance and
supervision

Therefore, we hereby declare that no part of this thesis has been submitted to any other
university or institutions for the award of any degree of diploma.

Main Adviser’s Name Date Signature

Chalchissa Amante _____________ _____________

(Assistant prof. & PHD candidate)

Co-Advisor’s Name Date Signature

Mr. Wendmu Abule ______________ ________________

I
 DECLARATION

I hereby declare that this thesis entitled “Assessment of Factors Affecting Rural Households
Savings Habit: A Case Study of Jimma Zone Mana District”, has been Carried out by me
under the guidance and supervision of Mr. Chalchisa Amante and Mr. Wendmu Abule.

The thesis is original and has not been submitted for the award of the degree of diploma any
university or instructions.

Researcher’s Name Date Signature

Kumsa Chemeda 28/6/2017 G.C ______

II
 ACKNOWLEDGEMENTS

First and foremost, thanks to my almighty God for his help and care in all my ways and days.

Next, to this, I would like to extend my great appreciation to my Advisor Mr. Chalchissa Amante
(Assistant Professor and PHD candidate) who advising me to conduct my research properly and
correcting my mistakes. So, without his encouragement, insight, guidance and professional
experts, the completion of this work would not have been possible.

Generally he is the one who contributed a lot to the accomplishment of this thesis and I would
like to say thank you so much and again I say God richly bless you. Again I would wish to thank
my co-advisor Mr. Wendimu Abule, for his guidance.

My Special thanks go to for my beloved friend Mr. Dabesa Gobena for his, moral, ideal and
professional supports specially regarding on the econometric model software.

Finally, I would my thanks the branch staffs of OCSSCO and Harbu financial institution of yebu
branch and also for the staffs of Mana woreda Agricultural and Cooperative promotion office for
their valuable supports in the relevant documents and for their supportive during preliminary
discussion and data collection as well as for FGD. Likewise, those persons who are participated
on the 188 sample respondents as well as those enumerators who supported me during the data
collection period are appreciated.

In addition, I would like to thanks my parents who always encouraged me and believed in me
and who were always there when I needed them. Without their never-ending financial and
mental support, I would never have been able to make it through my studies
At the end, to those whom I did not raise their names above and contributed a lot for the
completion of my research, thank you all. GOD BLESSES YOU ALL!

III
 ACRONYMS OR ABRIVATIONS’
AEMFI Association of Ethiopian Microfinance Institutions

APC Average Propensity to Consume

ASCAS Accumulation savings and credit association

CEX Consumer Expenditure Surveys

CSA Central Statistics Agency

EEA Ethiopian Economic Association

ETB Ethiopian Birr

FFIs Formal Financial Institutions

FSC Farmers Service Cooperatives

GDP Gross Domestic product

GLSS Ghana Living Standards Survey

GSS Ghana Statistical Service

GTP Growth and Transformation Plan

HH Household

IFIs Informal Financial Institutions

LCH Life Cycle Hypothesis

MoFED Ministry of Finance and Economic Development

MFIs Micro Finance Institutions

MPC Marginal propensity to consume

NBE National Bank of Ethiopia

IV
NGOs Non Governmental Organizations

OCSSC Oromia Credit and Saving Share Company

ROSCA Rotating savings and credit association

SACCOs Savings and credit cooperative societies

SSA Sub-Saharan Africa

EPRDF Ethiopian People’s Revolutionary Democratic Front

VIF Variance Inflation Factors

V
TABLE OF CONTENTS
CONTENTS PAGE

ACKNOWLEDGEMENTS ....................................................................................................... III

ACRONYMS OR ABRIVATIONS’ ......................................................................................... IV

TABLE OF CONTENTS ........................................................................................................... VI

LIST OF TABLE ........................................................................................................................ IX

LIST OF FIGURE ....................................................................................................................... X

Abstract ......................................................................................................................................... XI

CHAPTER ONE ....................................................................................................................... - 1 -

1. INTRODUCTION ........................................................................................................................ - 1 -
1.1. Background of the Study....................................................................................................... - 1 -
1.2. Statement of the Problem ...................................................................................................... - 2 -
1.3. Research questions ................................................................................................................ - 4 -
1.4. Objectives of the study .......................................................................................................... - 4 -
1.4.1. General objective .............................................................................................................. - 4 -
1.4.2. Specific objectives ............................................................................................................ - 4 -
1.5. Significance of the Study ...................................................................................................... - 4 -
1.6. Scope of the study ................................................................................................................. - 5 -
1.7. Organization of the Thesis .................................................................................................... - 5 -
CHAPTER TWO ...................................................................................................................... - 6 -

REVIEW OF RELATED LITERATURE ............................................................................................ - 6 -

2. Theoretical review ........................................................................................................................ - 6 -
2.1. Absolute Income Hypothesis ................................................................................................ - 6 -
2.2. Relative Income Hypothesis ................................................................................................. - 6 -
2.3. Life cycle hypothesis theory ................................................................................................. - 7 -
2.4. Permanent Income Hypothesis.............................................................................................. - 7 -
2.5. Katona’s theory of savings .................................................................................................... - 7 -

VI
 2.6. Determinants of household savings .......................................................................................... - 8 -
2.7. Global Overview of Rural Household’s Savings .................................................................... - 10 -
2.8. Overview of Rural Households’ Savings in Ethiopia ............................................................. - 10 -
2.8.1. Formal financial saving ................................................................................................... - 11 -
2.8.2. Informal financial saving ................................................................................................ - 12 -
2.9. Empirical Review.................................................................................................................... - 12 -
2.9.1. Factors that influence the rural household savings habit ................................................ - 12 -
2.10. Conceptual Framework of the Study................................................................................... - 14 -
CHAPTER THREE ................................................................................................................ - 16 -

RESEARCH DESIGN AND METHODOLOGY .............................................................................. - 16 -

3. INTRODUCTION ...................................................................................................................... - 16 -
3.1. General Description of the Study Area ................................................................................... - 16 -
3.2. Research Design and Approach .............................................................................................. - 17 -
3.3. Types and Sources of Data...................................................................................................... - 17 -
3.3.1. Primary data .................................................................................................................... - 17 -
3.4. Methods of data collection ...................................................................................................... - 18 -
3.4.1. Survey Questionnaire ...................................................................................................... - 18 -
3.4.2. Focus group discussion ................................................................................................... - 18 -
3.5. Sampling Procedures and Sample Size ................................................................................... - 18 -
3.5.1. Sampling Procedures /Technique/................................................................................... - 18 -
3.5.2. Sample Size Determination ............................................................................................. - 20 -
3.6. Methods of Data Analysis ....................................................................................................... - 21 -
3.7. Pre-test .................................................................................................................................... - 24 -
3.8. Reliability Analysis ................................................................................................................. - 24 -
3.9. Ethical considerations for respondents.................................................................................... - 25 -
3.10. Definitions of variables and Hypotheses............................................................................. - 25 -
3.13.1 Dependent Variable......................................................................................................... - 25 -
3.13.2. Independent Variables..................................................................................................... - 26 -
CHAPTER FOUR ................................................................................................................... - 31 -

4. DATA ANALYSIS AND RESULT INTERPRETATION........................................... - 31 -

VII
 4.1. Descriptive Statistics Analysis ................................................................................................ - 31 -
4.1.1. Characteristics of Respondents by Socio-Demographic factors ......................................... - 31 -
4.2. Saving Habit of the Respondents ............................................................................................ - 37 -
4.3. Characteristics of Households Head by Institutional factors .................................................. - 39 -
4.4. Characteristics of Households Head by Socio -Economic factors .......................................... - 45 -
4.5. Econometric Analysis of Factors Affecting Rural households saving Habit .......................... - 50 -
4.5.2. Binary logit Regression Analysis ........................................................................................ - 52 -
4.5.3. Interpretation of the Binary logit Regression Results ......................................................... - 55 -
4.5.4. Multi- variable Regression Analysis ................................................................................... - 59 -
4.5.5. Interpretation of the Multi variable logistic Regression Results ......................................... - 59 -
CHAPTER FIVE .................................................................................................................... - 63 -

5. SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ............................................... - 63 -

5.1. Summary ................................................................................................................................. - 63 -
5.2. Conclusions ............................................................................................................................. - 64 -
5.3. Recommendations ................................................................................................................... - 66 -
5.4. Future Research Direction ...................................................................................................... - 67 -
REFERENCES ........................................................................................................................ - 68 -

APPENDIX I ........................................................................................................................... - 74 -

APPENDIX II .......................................................................................................................... - 80 -

VIII
 LIST OF TABLE

Table 1 :Distribution of sampled respondents in kebeles ......................................................... - 20 -

Table 2 :Reliability - Cronbach’s Alpha Coefficient ................................................................ - 25 -
Table 3: Definition and codes of variables in the study............................................................ - 30 -
Table 4.1 :Demographic characteristics of sampled households head ..................................... - 34 -
Table4.2 :Demographic characteristics of sampled households head by Age and Family size - 36 -
Table 4.3 :Households get Access to information about saving ............................................... - 43 -
Table 4.4 :Transaction cost affect saving habit ........................................................................ - 44 -
Table 4.5 :Respondents Response on saving interest rate ........................................................ - 45 -
Table 4.6: Distance from financial institutions ......................................................................... - 46 -
Table 4.7: Market Distance Affect on households saving habit or not ..................................... - 47 -
Table 4.8 :Variance Inflation Factor (VIF) for Continuous Variable ....................................... - 51 -
Table 4.9: Contingency coefficients (CC) for dummy/ discrete variables ............................... - 52 -
Table 4.10:Maximum likelihood estimates of the Binary logit model ..................................... - 53 -
Table 4.11: Binary logistic regression results ........................................................................... - 54 -
Table 4.12: The multi-variable logistic regression results of the factors influencing rural
households saving habit. ........................................................................................................... - 59 -

IX
 LIST OF FIGURE

Figure 1: Conceptual Framework of the Study ......................................................................... - 15 -

Figure 2 :Map of the study Area ............................................................................................... - 17 -

Figure 3: Schematic presentation of sampling design .............................................................. - 21 -

Figure 4.1: proportion of savers and non-savers ....................................................................... - 37 -

Figure 4.2: Reasons for not saving among sample households head--------------------------------38-

Figure 4.3: Respondents get credit service previously or not-----------------------------------------39-

Figure 4.4: Sources of credit service for respondents--------------------------------------------------40-

Figure 4.5: purpose of credit service......................................................................................... - 41 -

Figure 4.6: Sample households trained or not about saving ..................................................... - 42 -

Figure 4. 7: The estimated annual income of the respondents. ................................................. - 47 -

Figure 4.8 :sources of household’s annual income ................................................................... - 48 -

Figure 4.9: The estimated annual expenses of the respondents. ............................................... - 49 -

X
 Abstract
This study was initiated with the objective of identifying major factors affecting rural
households’ savings habit in Mana district, Jimma Zone of Oromia regional state, Ethiopia. It
was selected purposively due to its potential for commercial area, access to form financial
institutions, socio-economic infrastructure, access to information, and the location advantage.
For the purpose of the study data were collected from 149 samples of rural household’s heads by
using primary data. For data analysis, descriptive statistics and econometric model were used.
The descriptive results of the study showed that 46 (30.9%) of the sampled households head had
savings in formal financial institutions where as 103 (69.1%) of the sampled households had no
saving in formal financial institutions. Among 15 explanatory variables, five, namely sex, age,
family size, marital status, religion are not statistically significant while, the remaining ten were;
education level, average of annual income, average of annual expenditure, distance from market
center, distance from formal financial institutions, access to credit services, access to
information, transaction cost, saving interest rate and access to training were found to have
significantly effect on rural households’ saving habit. During a binary logistic regression
variables significant at less than p-value <0.2 was shifted to multiple variable logistic
regressions to avoid the role of cofounder and adjusted odds ratio is estimated and factors
affecting household’s saving habit was identified at the cut point of p-value less than 0.05.
However, multi-variable regression model were identified four the most risk variables influence
on households saving habit. These variables were namely: educational levels of households
Distance from market center, Access to training and annual expenditures. Based on the study
results the researcher recommended that it is better to design strategies and policies that
promote formal and informal educational opportunities, create awareness and motivation
through training in order to improve saving the culture of rural households and as well as
develop strategies to take a measure to minimize their unplanned expenditures.

Key terms: - Jimma Zone, Mana woreda, Rural households, Saving habit

XI
 CHAPTER ONE
1. INTRODUCTION

1.1. Background of the Study

Saving is important in improving the well-being and serves as a financial security at the time of
shocks for the households (Chowa, 2006). Loibl et al., (2011) noted that “the habit of savings
plays an important role in everyday financial decisions”. To them, the constant act of saving is
very important to the financial independence and stability of households. Even though habit
formation is not an easy act, once the habit of savings is formed, it affects one’s saving ability.
Habit formation improves a person’s perception and intention towards saving Loibl et al., (2011).
Allesie and Lusardi (1997) also believe that once the habit is formed, it tends to have an effect on
an individual’s consumption and savings.

Many people hold the view that, saving is a moral habit, and that person will need to save since the
future is not known to them (Olson & De Frain, 2000). There is the belief that many individuals
and families in both developed and developing countries believe that savings serve as a form of
financial security to them. For those individuals and families who hold the view that they have to
spend whatever they earn today and allow the future to provide for itself, savings is not an option
(Olson & De Frain, 2000). Several studies have revealed that several factors like socio economic,
institutional, demographic determine savings at the household level. Rehman et al., (2011)
investigated the factors affecting saving of different income groups in Pakistan. In Sub-Saharan
Africa, as stated by Devaney, (2007) many rural households have poor saving culture. As a result,
low level of household savings is said to be one of the reasons for slow and stagnant economic
growth in the developing countries. In addition as stated by Quartey and Blankson, (2008) have
done in Ghana, stated that many factors that influence the level of household savings. Some of the
factors they identified were age, income, marital status, education level, employment, expectation.

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In Ethiopia the rural households’ saving habit is found to be limited and only six million
households save money in formal financial institutions with an average of 875 Birr per year (Aron
et al., 2013).

The average gross saving rate as percentage of GDP of Ethiopia was 21% . Recognizing
this fact, the country has planned to promote the savings habit among rural households.
Money saved stands a greater chance of increasing to ensure the financial security of the family.
Knowledge about the available financial institutions, safety of the outlet, ease of accessibility,
level of return among others, are some of the factors that are likely to influence the saving
behaviour of the households (Tsega and Yemane, 2014).

Rural families in the study area are predominantly farming communities. Most of the households
are farmers who cultivate in mainly agricultural products including coffee and chat production as
well as vegetables and most of their earnings are considered permanent. As a result, the incomes of
these families are likely to be only enough to meet their basic needs. In situations where family
income is only able to meet the needs of the family, savings, is usually not a consideration.

Households saving is, therefore, one of the most important components of the national saving that
needs emphasis. This study therefore aims to assess the factors influencing rural households
saving habit in Mana District.

1.2. Statement of the Problem

Understanding the nature of household savings habit is critical in designing policies to promote the
savings habit (Attanasio and Banks, 2001). Globally, many researches were conducted regarding
on savings. However, the empirical evidence appears to suggest that the impact of demographic,
socio-economic and institutional factors on household savings habit is not uniform across
countries. For example Gedela, (2012) found that income is affected by education, land holding,
agricultural expenditures, and number of family members involved in agricultural activity and the
rate of saving are affected by age, education, health expenditure, and income.

According to (Alma and Richard, 1988) analyze that income, education; the assets of the
household and interest rate were the most important variables affecting savings behavior among
rural households in the Philippians.

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John and Grant, (1998) analyze that the effects of socio-demographic factors on savings rate to
obtain an insight into household savings behavior in New Zealand. They found that age of a
household head has a positive significant effect on household savings.

(Mark et al., 1999) researched into determinants of household savings behaviour in Australia by
fitting a probit model. The empirical results of their study showed that gender, income level, age
and household asset and size were found to have a significant effect on savings whereas interest
rate was not significant. Households decision to or not to save, how much to save, the frequency of
saving, where to save and the forms of saving they engage in are influenced by demographic and
socio economic factors (Modigliani and Brumberg, 1954 and 1980).

In most African countries there are various reasons, including low and irregular income and lack of
access to financial services, have been contributing to the low savings rate particularly in SSA. In
addition, institutional factors, and higher expenditure patterns have found to be associated with
lower levels of saving in SSA (Beck et al., 2008). As stated by (Kibet et al., 2009) in rural areas of
Kenya, the findings were indicated that education, interest rate, income, occupation and services
provided by financial institutions have a positive significant impact on savings.

In Ethiopia very few studies have been conducted to assess saving behavior among rural
households (Kidane, 2010). Even, most of these researches were done at the macro level as stated
by (Girma et al., 2014).

On the basis of review of previous studies it is found that various studies are conducted on issues
like relationship between saving and investment, determinants of rural and urban saving behavior,
factors affecting saving and investment preferences etc. There exists a study gap in this area. So,
the current research paper seeks to analyze the socio-economic, demographic and institutional
factors affecting rural household’s savings in Mana District.

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1.3. Research questions

The above discussions lead to the emergence of the following relevant research questions;-

1. What are the effects of demographic factors on rural households saving habit in study area?
2. Do a socio-economic factors influence the rural households saving habit in the study area?
3. What are the effects of institutional factor on saving habit in rural households in study area?

1.4. Objectives of the study

1.4.1. General objective

The general objective of the study was to assess factors affecting rural households’ savings habit in
Mana District, Jimma Zone, Oromia Region, Ethiopia, 2017

1.4.2. Specific objectives

The specific objectives of the study were as follows:

 To analyze the influence of demographic factors on saving habits among rural households in
the study area.
 To identify the effects of socio-economic factors on rural households saving habit in Mana.
 To investigate the effects of institutional factors on rural households saving habit in Mana.

1.5. Significance of the Study

In a country which majority of the people lives in rural areas, formal financial saving has the
highest importance for promoting rural households’ savings by investigating or assessing the
factors affecting saving habit among the rural household’s in the study area.

Moreover, conducting this survey research, the researcher believes that various stakeholders will
benefit from its findings. This can be explained as follows.

Doing research on household saving is important for policy makers and serves as an input for
concerned bodies including banks and microfinance institutions. So that those institutions can
mobilize deposits from those household’s as they will learn the saving habit of the households. In
addition, the study results will serve as a reference and gives an indication for other researchers.

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The recommendations given by the researcher are also important to formulate strategy and policy
for woreda concerning sectors and financial institutions.

1.6. Scope of the study

This study was carried out to assess the factors affecting rural household’s savings habit in rural
communities: a case study of Mana district of the Jimma Zone. It was covered four rural kebeles in
the district which have a better experience on formal savings and socio-economically better off
peasant associations in the area. The study simply defines only factors affecting rural households’
savings habit in the study area within a given period of this research.

Therefore, this paper was attempting objectively to identify major factors of the rural savings habit
of household’s level, focusing on the effects of the demographic, socio-economic and institutional
characteristics of the households saving habit. The study was conducted from October, 2016 to
June, 2017.

1.7. Organization of the Thesis

Chapter one deals with the introduction of the study. Chapter two dealt with a review of relevant
literature. Chapter three covered the methodology employed to conduct the study. Chapter four
dealt with the findings analysis and the discussions of the findings whiles the final chapter, chapter
five, covered the summary, conclusions and recommendations based on the findings of the study.

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 CHAPTER TWO

REVIEW OF RELATED LITERATURE

2. Theoretical review

The following the approaches are the basic savings theories relate income to savings, including
those of the Absolute income hypothesis by Keynes (1936), Relative Income Hypothesis by
Duesenberry (1949), the Permanent Income Hypothesis by Friedman (1957) and the Life Cycle
Hypothesis (LCH) by Ando and Modigliani (1963) and Katona’s theory otto (2009). These
theories suggest different saving concepts.

2.1. Absolute Income Hypothesis

Keynes, (1936) introduced the notion of marginal propensity to save (Keynes’ Absolute Income
Hypothesis). The theory examines the relationship between income and consumption, and asserts
that the consumption level of a household depends on its absolute level (current level) of income.
As income rises, the theory asserts, consumption will also rise but not necessarily at the same rate.
The idea is that saving is only possible, if someone has more than enough to meet the basic needs.
This means that someone can only save what is left over once essentials have been paid for (Ottoo,
2009).

2.2. Relative Income Hypothesis

It was developed by James Duesenberry and it states that individual’s attitude to consumption and
saving is dictated more by his income in relation to others than by abstract standard of living. So
an individual is less concerned with absolute level of consumption than by relative levels. The
percentage of income consumed by an individual depends on his percentile position within the
income distribution. Secondly it hypothesizes that the present consumption is not influenced
merely by present levels of absolute and relative income, but also by levels of consumption
attained in previous period. It is difficult for a family to reduce a level of consumption once
attained. The aggregate ratio of consumption to income is assumed to depend on the level of
present income relative to past peak income (Dusenberry, 1949).

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 2.3. Life cycle hypothesis theory

The life cycle hypothesis (LCH) theory posits that the main motivation for saving is to accumulate
resources for late expenditure and in particular to support consumption at habitual standard during
retirement (Modigliani and Brumberg, 1954 and 1980). The basic idea in this theory is that
individuals tend to distribute resources to smooth consumption over the life cycle.

The life cycle hypothesis has been utilized extensively to examine savings and retirement
behaviour of older persons. Younger people tend to have consumption needs that exceed their
income. Their needs tend to be mainly for housing and education, and therefore they have little
savings. In middle age, earnings generally rise, enabling debts accumulated earlier in life to be
paid off and savings to be accumulated. Finally, in retirement, incomes decline and individuals
consume out of previously accumulated savings.

2.4. Permanent Income Hypothesis

The permanent income theory states that people will spend money at a level consistent with their
expected long term average income (Friedman, 1957). A worker will only save if his or her current
income is higher than the anticipated level of permanent income in order to guard against future
declines in income. This theory is relevant to the current study because it considers a person’s
income as a determinant for their retirement planning. In Friedman's permanent income hypothesis
model, the key determinant of consumption is an individual's real wealth, not his current real
disposable income. Permanent income is determined by a consumer's assets; both physical (shares,
bonds, property) and human (education and experience). These influence the consumer's ability to
earn income.

2.5. Katona’s theory of savings

Ottoo (2009) noted that “Katona’s theory of saving is based on the assumption that
saving/consumption is dependent on the ability to save/ consume and the willingness to save/
consume. The theory stressed the importance of income but thought of the absolute income
hypothesis as being too simplistic. Simply having money left over after expenditures on necessities
does not mean that this money has been saved or will be saved. To predict saving, the willingness
to save needs to be considered as well.

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In other words, those who are able to save still need to choose to do so, that is, they have to make
a decision that requires some degree of willpower. Consumer expectations and consumer sentiment
will impact on saving decisions as well as pessimism and optimism with regard to a general and
one’s personal evaluation of the economic situation. While people save for different reasons,
Katona assumes that someone’s personal evaluation of the economic situation will influence
contractual as well as discretionary saving decisions”.

2.6. Determinants of household savings

Households’ saving is largely influenced by several variables like the perception of saving of those
who save, their ability, willingness, objectives or motivations for saving and the opportunity to
save. This deliberate decision on the part of the household to save in order to meet future needs
depends on a number of factors. The factors normally considered as the determinants of saving
include all the factors that affect the ability to save, the will to save and the opportunity to save.

2.6.1. Income

One of the basic determinants of savings which almost all the studies in the area of savings have
tried to study is income. Different studies using different methods have been conducted in different
parts of the world and all have found a positive relationship between income and savings. Based on
the findings, some scholars have propounded certain theories.

In Kenya, household income was found to be a statistically significant predictor of savings among
rural farmers, entrepreneurs, and teachers (Kibet et al., 2009). A similar result was found in
Uganda, where higher permanent and transitory incomes significantly increased the level of net
deposits among households that reported owning bank deposit accounts (Kiiza & Pederson, 2001).

2.6.2. Interest rate

Mottura (1972) believes that the sum to be gained by interest rate, even if it is high, normally has
little economic significance to savers, who deposit or invest amounts in a small average volume.
Therefore the saving behavior is not merely motivated by the interest rate and savers do not seem
to be particularly interest-sensitive. Rather the formulation and accumulation of savings at the
household level appears to be strongly motivated by the following factors: the need for insurance,

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the need for credit, the feeling of social obligation, and the planning of future expenditure
(consumption and investment).

2.6.3. Demographic Characteristics

2.6.3.1. Gender

Denizer et al., (2000) in the analysis of the household savings in the Transition using data from
Bulgaria, Hungary, and Poland noted that households headed by women exhibit significantly
higher savings rates than that of men in these three countries. Embrey and Fox, (1997) noted that
the combination of lower earnings, lower savings, longer life spans, and higher risk aversion pose
greater challenges for financial educators and policy makers.

2.6.3.2. Age

As stated by Rehman et al., (2010) he found that age has a positive relationship with household
savings. The life-cycle hypothesis suggests that there exists a relationship between age and saving
rates. When the age of the households increases their saving status going decreases.

2.6.3.3. Education

Dell’Amore, (1977) stated that individual natural factors are always in various measures
influenced by education, so far as it enlarges the technical and social knowledge which directly or
indirectly governs all human actions.

2.6.3.4. Family size

It has been argued that the higher the household size, the higher the consumption pattern and all
things being equal, the lower the excess money left for consumption.

The difference in the findings of Elfindri, (1990) and Browning and Lusardi (1996) stems from the
fact that Elfindri looked at household size in general whiles Browning and Lusardi extended their
study to include composition. Thus, by composition, a household with many of its members
working while have a positive effect on savings whiles a household with many of its members
being dependents will have a negative effect on savings. But taking the household size as a whole,
there is likely to be a negative relationship with savings.

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 2.7. Global Overview of Rural Household’s Savings
Saving service has been one of service being delivered by financial institutions. People prefer
different options to put their money. A study conducted in India indicated that
51% respondents put their money in the bank and 36% of the households still prefer to keep cash
at home. The national survey finding further has indicated that the Indian has got strong saving
habit despite the saving patterns differs in income, education level and occupation. The study has
shown that 83% and 81% of the households have made saving for the key priority areas such as
emergency and children’s education, respectively.

Rural household saving in Africa and research from Ghana showed that only 10 percent of
the wealthiest households increase their savings along with income (Aryeetey, 2004 cited in
United Nation, 2007). The pattern of rural household saving has been irregular in connection to
the frequent swing between saving and no saving and this irregularity of saving could result
in changing the preference of saving instruments towards the most liquid and accessible
(Deaton, 1990 cited in United Nation, 2007). Besides, it is indicated that the rural
household saving instruments have been categorized into non- formal saving, informal saving,
and formal saving. These savings have been the determinant of financial sources for
investment and as the result they have been considered as course of any country’s
development. However, in Africa, rural household savings consist mainly of physical assets
and some financial savings held in the informal financial sector. Thus, only a small part is
available for productive investment to exemplify the maximum and the minimum savings deposit
rate was 6 percent and 3 percent respectively from a 1998/99 to 2003/04 and of course the
maximum and minimum was unfortunately registered at the beginning and ending of mentioned
time interval EEA (2004/2005).

2.8. Overview of Rural Households’ Savings in Ethiopia

The financial sector in Ethiopia consists of formal, semiformal and informal institutions. The
formal financial system is a regulated sector which comprises of financial institutions such as
banks, insurance companies and microfinance institutions. The saving and credit cooperative are
considered as semi-formal financial institutions, which are not regulated and supervised by
National Bank of Ethiopia (NBE).

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The informal financial sector in the country consists of unregistered traditional institutions such as
Iqub (Rotating Savings and Credit Associations) Idir (Death Benefit Association) and money
lenders (Mengistu, 2013.

2.8.1. Formal financial saving

These are institutions that have been engaged in saving and credit/loan service delivery for
both rural and urban community and having modern accounting and reporting systems e.g.
Private and government Banks and MFI.

I. Banks
Banks are the key financial institutions that provide financial services, thereby highly
contributing to the economy of a given country. According to Flamini (2009), the banks in most
sub-Saharan African countries have shown an increase to their return as compared to other banks
in other developing countries. Banks in Ethiopia have also shown a great improvement in their
return on asset (NBE, 2010), (Mengistu, 2013).

II. Microfinance Institutions

Microfinance service has become one of the most prominent instruments in the
development programs and strategies of the country (Mengistu, 2013). Microfinance can be
defined as the provision of a broad range of client-responsive financial services to poor people
through a wide variety of institutions. Microcredit activities in rural Ethiopia were initiated
by local and international NGOs (Wolday, 2004).

III. Saving and Credit Cooperatives

According to Wolday (2004), the cooperative movement in Ethiopia took birth in 1950s.
Actually the first saving and credit cooperative in Ethiopia was established by the employees of the
Ethiopian Road Authority in 1957.

SACCOs develop people's minds by providing motivation, creating initiative, promoting self-
development and self-reliance and providing leadership. They also develop material wellbeing
by raising the living standards of members, making possible regular savings and wise use
of money, providing loans at low interest rate and by making possible economic
emancipation of members (Wolff, et al., 2011).

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 2.8.2. Informal financial saving

In both rural and urban areas in Ethiopia, it is common that neighboring family households
organize themselves and develop their own institutions, popularly known as Community-Based
Organizations. In most communities, membership in traditional community associations such as
iddirs, iqqubs and mehabers are very common. More importantly, these traditional institutions also
play a crucial role in savings and beneficiary mobilization in the informal financial sector Micro
Ned (2007).
2.9. Empirical Review

2.9.1. Factors that influence the rural household savings habit

Many researchers have analyzed the major determinants of household savings and have reached
different conclusions. Some of these studies are discussed below.

Mark, et al (1999), researched into determinants of household savings in Australia. They used the
probit model to analyze the effects of various factors that influence household savings behaviour.
The empirical results they arrived at were that, gender has significant impact on household
savings. They stated specifically that the male has significant positive impact on savings thus
males save more than women and the vice versa. They also found out that interest rate has no
significant effect on household savings. However, income level, age and household asset were
found to have significant positive effects on savings. Household size was also found to have
significant and negative effects on savings.

Alma and Richard (1988) in their attempt to analyze savings behavior among rural household in
the Philippians regressed income on savings. They found out that, income is the most important
economic variable affecting rural savings. Their further result shows that educational, household
size and transaction cost negatively influence household savings. However, Schulz (2005) who
researched into demographic determinants of savings in Asia found no significant impact of age
composition on savings.

A household study of determinants of saving asserts that three factors were influencing
household saving behavior in Africa. One of these was the ability to save which in turn
depends on a household’s disposable income and expenditure.

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The second was the propensity or willingness to save as influenced by socio-cultural and
Economic factors like the family obligation to educate children. The third one was the
opportunity to save and returns on savings (Newman et al., 2008; Orebiy`s et al., 2005).

Haruna (2011) employed multiple linear regression analysis in determining the influence of
various factors on savings behavior. He found out that income level, educational status, assets of
household heads, age and occupation have a positive significant impact on household savings
behavior. However, household size turns to have significant negative impact on household savings.
On the other hand, Qiuxia (2004), researched into the impact of rural enterprise on household
savings in China. He used logit regression analysis and found no significant impact of age on
household savings.

Lawrence, et al., (2009), employs multiple linear regressions in analyzing the determinants of
household savings in rural areas of Kenya. The findings were that education, interest rate, income,
occupation and services provided by financial institutions have significant positive impacts on
savings, whereas transport cost and household size were found to have a negative impact on
savings. Also, further results show that gender has significant impact on savings. They concluded
male turns to save more than women.

A study conducted by Girma et al., (2014) identified determinants of rural households’ savings in
East Hararghe Zone, Oromia Regional State, Ethiopia. Nine significant determinant
explanatory variables of rural households saving were identified which includes household
head’s education level, livestock holdings, access to credit service, income, investment,
training participation, contact with extension, forms of savings and saving motives.

Besides, as reviewed the previous studies, there is little attention given on a micro economic
level on the factors affecting rural households’ savings habit in Jimma Zone specifically in
Mana District. Therefore, this paper attempted objectively to identify major factors of the rural
savings habit among household level, focusing on the effects of the demographic, socio-economic,
institutional, and variables related to saving institution’s characteristics of the households. The
study is also intended to contribute to the existing research gap through a better
exploration of its factors.

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 2.10. Conceptual Framework of the Study
The conceptual framework shows the relationship between the independent variables (the interest
rate, income level and access to financial institutions) and the dependent variable the households
saving status.

According to Gedela (2012) reviewed that the determinants of rural households’ savings and the
result revealed that the age of the head of the household, sex, income and expenditure are
significantly influencing the rural household saving.

Depend on the research results, the researcher developed the following conceptual framework
by reviewing different empirical studies. The most important variables expected to affect rural
households’ savings in the study area includes; demographic (age, marital status, educational
status, sex , religion and family size), socio-economic (income level of households,
expenditure pattern, and distance from market), institutional (physical distance from
financial institutions, credit access and access to training, access of information), and
variables related to saving institutions (interest rate and transactional costs). Therefore, the
framework was adapted and taken as the guide to discuss, conclude and recommend with regard to
household savings status as they are part of the frame work and interdependent.

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 Independent

Dependent Variable
Variables

Socio-Demographic Factors
 Age
 Sex
 Marital status
 Educational level
 Family size
 Religion

Institutional Factors Rural

 Access to credit services Households
 Access to training
 Transactional costs saving habit
 Interest rate
 Access to information J
V
V
Socio-economic factors
V
 Distance to the nearest of
J
financial institutions
 Market distance J
 Annual income V
 Annual expenditure
V
J

Source: Own formulation

Figure 1: Conceptual Framework of the Study

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 CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

3. INTRODUCTION

This section presents the research methodology and methods employed to conduct the study. The
section includes: the study area, target population, source of data, and method of data collection,
sampling technique and sample size, and method of data analysis.

3.1. General Description of the Study Area

The study was conducted in Mana woreda, Jimma Zone of Oromia Regional State, Ethiopia. It is
located at 355 km to southwest from Addis Ababa and 20km far from Jimma town. The woreda is
bordered on the south by Seka Chokorsa, on the west by Gomma, on the north by Limmu Kosa,
and on the east by Kersa. The administrative center of this woreda is Yebu.

The total population of this woreda about 100,065 of whom 96,437 were men and 96,438 were
womens. Among the total population, 189,620 live in rural areas, while 6,883 live in urban areas.

In addition to this, there have 22,501 rural households heads, among these 21,341 are male and
1,160 are female headed households.

The district has about 26 Kebeles among these, 24 of them are rural and 2 of them are under the
town kebeles. (Agriculture Office of Mana District, 2017)

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 The study area

Source: Agriculture Office of Mana District (2017)

Figure 2 :Map of the study Area

3.2. Research Design and Approach

The major focus of the study was description of information related to saving of rural households
by collecting cross sectional data from the study area. So, the research method used for the study
was descriptive research design to answer research questions. Moreover, Binary logistic regression
model was applied for independent variables which show a significant effect on the saving habit of
rural households. This design was preferred because it was an enable the researcher to collect
enough information necessary for generalization and summarizes the essential features of data
gathered from the study area.
Consequently, the quantitative research approach was employed by supplementing with the
qualitative research approach in order to answer all the basic research questions.

3.3. Types and Sources of Data

The study was conducted from primary data to address the objectives of the study.
3.3.1. Primary data

The primary data was derived from the answers that respondents are given in the self-administered
questionnaires. The study was design open and closed ended questions to allow deep investigation
of households saving habit in the study area.

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3.4. Methods of data collection

To address the objectives of the study, survey questionnaires and FGD was used. Primarily, the
questions were prepared in English language and then translated to local languages (Afan Oromo
and Amharic) then the data collectors from household heads respondents who speak the three
languages were trained.

3.4.1. Survey Questionnaire

To address the objectives of the study, closed and open -ended questions were used. For the
purpose of data collection, four local enumerators (Diploma holders) who fluently speak and
read the study area language, (Afan Oromo and Amharic) was carefully recruited and training
was given for data collectors before deployment to the field for one day in each kebeles, Because it
enables respondents to give relevant figures related to geographic, socio-economic, and
institutional factors on households savings habit.

3.4.2. Focus group discussion

A focus group discussion was a data collection procedure in the form of a carefully planned among
selected respondents usually between 4 and 10 (Gatrel and Elliot (2009:80). This discussion was
used to obtain additional information on factors affecting rural household’s savings. The researcher
administered the focus group discussion by telling the objectives of the study and asking
permission from financial institutions. After the researcher got permission, three focus group
discussions were organized with staff members of OCSSCO and HARBU MFIs. While conducting
the focus group discussion, the researcher took note for data analysis.

Information related to reasons for no saving and awareness creation and motivation for savings
were collected through the help of focus group discussions.

3.5. Sampling Procedures and Sample Size

3.5.1. Sampling Procedures /Technique/

Multi-stage sampling procedure was employed to select sample households head.

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In the first stage, the district was selected purposively due to its potential for commercial business,
access to forma financial institutions, socio-economic infrastructure, access to information, and the
location advantage. Moreover, as obtained information saving has remained as problem and, of
course, such target specific study has not been carried out in selected area. Basically, rural saving
issues are expected to be linked to better off households.

In the second stage Stratified random sampling were used to sample rural household heads to
participate in the study. Stratified sampling technique is a method in which the researcher divides
the entire target population into different sub-groups and then randomly selects the final subject
proportionally from different sub-groups according to Kothari, (2006).

The researcher were divided the rural kebeles as near and far using stratified sampling method.
The bases of stratification of the kebeles were distance and rural kebeles located 13km far from the
financial institutions were considered as near where as rural kebeles located above 13km were
taken as far. Then, four representative kebeles selected based on their relative distance from the
district town, taking a 13km as a cutoff point.

Thus, based on the above assumption, two far kebeles (Bebela kera and Gube bosoka) and the
other two near kebeles (Dewa and LemiLelisa) were randomly selected through drawing lottery
vote from both distance categories.

The final stage were random sampling technique was used to select samples from each stratum to
take in to considerations.

The sample from four kebeles was determined through applying probability Proportional to Size
sampling procedures. Then the actual sample respondents of household’s heads were selected
using a simple random sampling technique.

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 Table 1 : Distribution of sampled respondents in kebeles

No Name of Kebeles Total Household Sample households

heads
1 Dewa 656 29
2 Lemi Lelisa 915 41
3 Babela kera 730 32
4 Gube bosoka 1063 47
Total N=3364 n=149

Source: Secondary data obtained from MFIS, woreda cooperative and Agri.office 2017

3.5.2. Sample Size Determination

Hence, a sample which is representative of the population was considered in the study. Sampling,
according to (Cooper and Schindler, 2001) involves selecting some of the elements in a population
and drawing conclusions about the entire population. The compelling reasons behind the decision
to sample includes the lower cost, greater accuracy of results and greater ease of data collection
associated with sampling. Thus, the sample size for collecting data through household survey was
determined by using the sample size determination formula proposed by Yemane, (1967).

The study used the following formula to calculate sample size.

𝑵
𝒏= ………………………………………………… (1)
𝟏+𝑵(𝒆)𝟐
Where:
n= Actual sample size;
N= Total number of households head selected from four rural kebeles
e = maximum variability or Margin of error at 8% (modified by researcher).
Therefore, the sample size was determined from the total household’s head (3,364) of the four
rural kebeles of Mana woreda is computed as follows;

Therefore,
𝟑𝟑𝟔𝟒
𝒏= 𝟐 = 149 Household Heads
𝟏+𝟑𝟑𝟔𝟒(𝟎.𝟎𝟖)

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 Therefore; total sample size was 149 households’ head, out of which 70 respondents from near
kebeles and the remaining 79 respondents from far kebeles were selected using simple random
sampling technique at each sample kebeles. So, Selection was made proportionally from total
household head living in far and near both areas.

Mana Woreda
Purposively selected

Four kebeles

2 near kebeles 2 far kebeles

Dewa LemiLelisa Gube Bosoka Babela Kera

70 Respondents 79 Respondents

149 Sample households

Figure 3: Schematic presentation of sampling design

3.6. Methods of Data Analysis

In order to analyze, summarize and present the data to be collected from primary and secondary
data descriptive, regression model and inferential statistical tools were used.

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3.6.1. Descriptive statistics

To address the objectives of the study, quantitative data collected was analyzed through simple
descriptive statistics such as, frequencies, percentages, mean, and standard deviation. Moreover, an
appropriate statistical technique was employed to compare households saving status with
independent variables. Qualitative data will also be analyzed through narration and explanation of
words. Moreover, SPSS (Version 20) was use d as analytical tool.

3.6.2. Econometric model specification

The Binary logistic regression model was applied for independent which show or identifying a
significant factor affecting rural households saving habit. This is due to it provides results which
can easily be interpreted and simply to analyzing the data.

Again, it was a proper model when the dependent variable is a dummy one consisting of two, 0
and 1, or more levels (Tathdil, 2002).

Dummy variables are a way of adding the values of a nominal or ordinal variable in a regression
equation. The standard approach to modeling categorical variables is to include the categorical
variables in the regression equation by converting each level of each categorical variable into a
variable of its own, usually coded 0 or 1.

Thus, logistic regression model that is employed in this study was a binary logistic regression
model, where the dependent variable is Y and independent one is X. In order to make clear the
model, the following logistic distribution function will be used (Maddala, 1986; Greene, 1993; and
Gujarati, 1995).

𝑃𝑖=∈(𝑌=1/𝑋𝑖)= _ 1________
1+𝑒−(𝛽1+𝛽2𝑋𝑖) ………………………………………………………………………………….………………. (1)
In the logistic distribution equation, Pi is the independent variable; Xi is the data that is the
possibility of a preference of an individual (option of having 1 and 0 values). When β 1+β2Xi in
Equation 1 is replaced by Zi, Equation 2 is obtained:

𝑃𝑖= ____1________

1+𝑒−𝑍𝑖 ……………………………………………………………………. (2)

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Z i is between - ∞ and + ∞, and P i is between 1 and 0. When P i show the possibility of savers,
the possibility of non-savers of rural households is 1- P i. Then, the possibility of non-saver can be
explained as in Equation 3 as follows:

1−𝑃𝑖 = _ 1______

1+𝑒𝑍𝑖 ……………………………………………………………. (3)

Equation 4 is obtained by dividing the savers by non-savers:

___𝑃𝑖___ = 1+𝑒𝑍𝑖 = 𝑒𝑍𝑖 ……………………………………. (4)

1−𝑃𝑖 1+𝑒−𝑍𝑖

When the natural logarithm of both sides of the equation is written, Equation 1 is obtained:

𝐿𝑖=ln 𝑃𝑖 =𝛽1+𝛽2 …………………………………………………………. (5

1−𝑃𝑖

Thus, the non-linear logistic regression model is liberalized based on both its parameters and
variables. “L” is called “logit” and models such as this called “logit models” (Gujarati, 1995,
2003). In these situations, Equation 1 is used for proper transformations:

𝑃𝑖=∈(𝑌=1_____ = 1 ______________ ………………………….. (6)

𝑋𝑖 1+𝑒−(𝛽1+𝛽2𝑋1+𝛽3𝑋2+⋯+𝛽𝑘𝑋𝑘)

Odds and odds ratio are significant terms in the logit model. Odds are defined as the ratio of the
number of events that occurred to the number of events that did not occur. “Odds ratio” on the
other hand, is the ratio of two odds, in other words, the ratio of likelihood to another. In Equation
4, two probabilities, savers and non-savers probability of an event is proportioned and this is the
odds of proportion. It is important to understand that possibility, odds, and logit concepts, are three
different ways of explaining the same thing (Menard, 2002).

𝑍𝑖=𝛽𝑜+𝜀𝛽𝑖𝑋+𝑈𝑖 …………………………………………………… (7)

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Therefore, the above Binary logit econometric model was used for the study to identify major
factors affecting rural household savings.

3.7. Pre-test
Pre-testing was conducted to test the reliability and validity of the questionnaire. After designing
the questionnaire, a pre- testing of this instrument was carried out on rural households of the
sample units. The researcher did a pre test with 10 % of respondents before distributing the
questionnaire. The researcher was used 15 respondents in the pilot process. The purpose is to
ensure that those items in the questionnaire were clearly stated and had the same meaning for all
respondents. At the same time helped determine how much time was require to administer the
questionnaire. Respondents for pre-testing did not a part of the sample.

3.8. Reliability Analysis

Testing goodness of data is testing the reliability and validity of the measures According to
(Mugenda, 2008) reliability is the extent to which research findings would be the same if the
research were to be repeated at a later date, or with a different sample of subjects. The reliability of
a measure indicates the extent to which the measure is without bias (error free) and hence offers
consistent measurement across time and across the various items in the instrument. The rule of
thumb which is commonly used for describing internal consistency by using SPSS statistical tool
of version (20), it is acceptable if the nearer coefficient result of Cronbach’s alpha is greater than
0.7. As indicated in the table below, the cronbach’s Alpha result shows that all the dimensions
were reliable as their reliability values exceeded the prescribed threshold of 0.7.

Therefore, the SPSS result of cronbach alpha result indicated that all measures are internally
consistent.

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 Table 2: Reliability - Cronbach’s Alpha Coefficient

Independent variables (dimensions) Cronbach’s Alpha Number of Items

Demographic factors on Households saving .740 6
habit
Socio-Economic factors on Households .812 4
saving status
Institutional factors on Households saving .985 5
status
Source; SPSS Computation, 2017

3.9. Ethical considerations for respondents

The researcher has made every effort to avoid unnecessary biases and ensures the objective
analysis and interpretation of the collected data. Therefore, the researcher had given due respected
to the rights, religion, needs, values and desires of the respondents in the course of conducting this
study. Moreover, the researcher assured that the information obtained from the respondents was
used for research purpose only. Finally, anonymity and confidentiality of the respondents were
respected.

3.10. Definitions of variables and Hypotheses

After the analytical procedures were a clearly defined, it is necessary to identify the potential
explanatory variables that would influence household savings habit in the study area.

3.13.1 Dependent Variable

The dependent variable is households saving status, which is measured as a binary variable where
1 indicates having positive saving, and 0 indicates no saving.

Households saving habit: This is dummy variable in the model, which takes a value 1 if the
households had saving habit and 0, otherwise. It expected that this dummy variable to have
positive impact on rural households saving habit.

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3.13.2. Independent Variables

Based on theories of savings and previous studies, various explanatory variables were identified
and included in the model. The variables include; demographic (education level, sex, age, marital
status, family size, religion), socio-economic (annual income, annual expenditure, distance to the
nearest market), institutional (distance from financial institutions, access to information, access to
credit and training) and variables related to saving institutions (transactional costs and interest
rate).
1. Age (AGE): it is the number of years from the birth of the head of the household. It is a
continuous variable. According to Rehmanet al. (2010) found that age has a positive
relationship with household savings. The life-cycle hypothesis suggests that there exists a
relationship between age and saving rates. When the age of the households increases their
saving status going decreases. Therefore, the expected effect of age on rural households
saving was negative.
2. Education level (EDUL): Education is considered as a main determinant of earnings and
savings as well. It is a dummy variable that took a value of 1 if the education level of head of
household was secondary and above and 0 otherwise. Kulikovet al. (2007) found that
education as a human wealth promotes rural household saving. Households with heads who
had completed secondary education and above were expected to have higher levels of
savings.. It can have a positive influence on household savings. Kulikovet al. (2007) found
that education as a human wealth promotes rural household saving. It was expected, therefore,
households who are literate, have a higher probability of saving it had a positive effect for
literate households.
3. Family Size of the household (FAMSIZE): this is a continuous variable which, measured by
the number of people in the household. Rehmanet al. (2010) found that family size
significantly and inversely affecting household saving. The expected effect of family size on
rural household saving was negative for households who have large family size. If a
household had a higher number of people or family, it was expected to save less and vice
versa.
4. Marital status of the household head (MRS): This refers to the marital status of the
household head.

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 It is a dummy variable, which takes the value 1 if the household head is married and 0
otherwise. Most of the time, unmarried (which includes the never married at all, widowed and
widower) households are exposed to unplanned outlays when compared to married household
heads. The financial plan of unmarried household heads could be narrow and designed around
their self-interest. However, married household heads are more responsible and think about
the collective interest of the entire family members (Aronet al., 2013). Hence, the financial
plan of married people is likely to be broader. As a result, married household heads are
expected to save greater than unmarried household heads. The expected effect of rural
household saving on single households was negative.
5. Sex (SEX): This is a dummy and took the value of 1 if head of household was male and zero
otherwise. Several studies have shown that sex has an effect on asset accumulation. Gedela
(2012) found that male headed households save more than female headed households. The
expected effect of sex on female headed households was negative.
In sub Sahara Africa, women own fewer assets than men (LeBeauet al., 2004). In rural SSA,
women’s ability to accumulate assets is governed by family and community norms, which
historically have favored men to the disadvantage of women.
6. Distance to the nearest market (DNM): This refers to the physical distance in km between
the residence of the household head and the nearest market. It can also be calculated in terms
of time it takes for the households to go to the nearest market and back to their home. If the
farm household has access to market very close to his/her residence, then he/she can easily
sell his/her farm output at a relatively higher price and earn more income as oppose to those
who are far from the market. Better access to roads expands output markets in addition, from
the fact that as farmers locate far from the market, there is limited access to input and output
markets and market information. Moreover, distance to market leads to higher transaction cost
which reduces the benefits increase to the households. More importantly, the longer distance
from the market likely to discourage the households from participating in market oriented
production that increase their income and possible, encourage to save in financial institutions
(Essaet al., 2012). The expected effect on saving was negative.
7. Religion (RELG): this variable is a dummy variable which takes a value of 1 for Islam, 0 for
Christian. Although the relationship between religion and economic development on the
macro-level has been explored, it is less clear how the background of religiosity influences

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 economic attitudes and financial decision-making at the level of the individual or household in
the micro-level. Fentahun (2014) identifies religion as determinant factors in the west Amhara
regional state has had its share towards the impact of saving on households. The result of this
study shows religious affiliation effects on saving behavior and decision to save money or not
and compares religiosity in the form of Christian to Islam believers the results show
Christians save more than Islam. Therefore, the expected effect of religion on rural household
saving was negative for Islam religion followers.
8. Annual Income (ANINC): it is a continuous variable which refers to the value of the annual
output of the household in terms of the current market price. Saving is generally assumed to
come from what is left from consumption. Household income is expected to have a positive
relationship with household saving. Abdelkhalek et al. (2009) and (Bersales and Mapa, 2006)
indicated that income strongly affects the saving level of the household. The expected effect
of this variable on rural household saving was positive.
9. Annual expenditure (ANEXP): it is a continues variables which it refers to outlays (in the
ETB) on social celebrations such as annual holidays like New Year, Meskel ,Christ Mass,
Easter, Mauled, Eid–ul-Adah, wedding and the like. Therefore, the more the households
spend, they’re saving reduces. Rehman et al. (2010) indicated that expenditure significantly
and inversely affecting household saving. The expected effect of expenditure on rural
household saving was negative.
10. Distance to the nearest financial institutions (DISTFIN) /DNFI/: it refers to the physical
distance in km between the residence of the household head and the nearest formal financial
institution. Households near to financial institutions have a location advantage and can
contact easily and have more access to information than those who live more distant locations.
As this distances increase, the household head is expected to get discouraged, especially when
the amount to save is small. Chemonics International (2007) identified distance remains a
major barrier to formal financial saving and other markets in rural areas. As rural households
far from formal financial institutions, the expected effect on saving was negative.
11. Access to credit service (ACCRT): Access to credit services is a dummy variable measured
as 1 if the household has access to credit services and 0 otherwise. If the household has access
to credit services for input purchase, investment, consumption and other activities, then the
household is not expected to save for the activities. Some financial institutions like Harbu

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 MFIs, Oromia saving and Credit Share Company and saving and Credit Cooperatives put
saving as the primary principle for credit access from their institution.
Therefore, this principle helps the rural households to improve their saving status. Households
with better access to credit have higher tendency to save more than that of households who do
not access to credit service. Empirical studies revealed that savings of rural household
increases with the amount of credit received (Desta, 2004). Therefore, the amount of credit
received was expected to have a positive relationship with household saving.
12. Access to Training or Awareness and motivation creation (LTAMC): This is dummy
variable in the model, which takes a value 1 if the households took training/ get awareness
about savings/ and 0, if the households do not get any training. This refers to any extension
services provided by government and non-government organizations in the area. Hence,
extension participation will hypothesize to positively influence households saving habit.
13. Access to information (ACI): It is a dummy variable that takes the value 1 if the farm
household has access to information and 0 otherwise. This refers to data, statistics, facts and
figures that the farm households obtain through education and promotions, television, radio,
newspapers and other media for increasing saving. Currently, the government of Ethiopia is
using media like radio, television and newspapers to promote saving the country and for the
development of saving culture. Those farm households who have access to such information
are expected to save more as compared to those farm households who are less accessible.
Hence, accessibility to information is expected to positively affect household saving. Girmaet
al. (2014) found that access to information positively and significantly affects the decision of
households to use financial savings.
14. Interest rate (IR): It is the perception about the rates of interest paid on savings by financial
institutions. It was a dummy that took the value of 1 if the rate was perceived as being high
and zero otherwise. Households who perceived the interest rate on savings to be higher were
expected to save more compared to those who perceived it as being low. Mahlo (2011)
estimated the relationship between household savings and interest rate in South Africa and his
result showed that there was a positive relationship but Simleit et al. (2011) found a negative
effect on rural household savings. In most cases the interest rate obtained from saving
discourages savers and it was expected interest rate had a negative effect on rural households’
savings.

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15. Transactional costs (TC): Transactional costs are costs that cover a wide range of
informational cost, transportation costs, and consumption costs. It is a continuous variable
which is measured in Birr that the savers spent money during they deposit money in formal
financial institutions at a time. When the transaction cost is high, rural households saving will
be reduced. (Sebhatu, 2012) indicated that as financial institutions are far to the households'
house, they would have been spent more resources (time, labour, money) to access financial
products and services. The other one is an increase in transport cost was expected to decrease
the probability of saving in financial institutions and increase the probability of households
saving .Therefore, the expected effect of this variable on rural household saving was negative.
Table 3 : Definition and codes of variables in the study
Variables code Variable Expected Variable
Type sign(+/-) Definition

MARSTT Dummy +ve Married 1, other 0

RELGN Dummy -ve
SEX Dummy -ve Male 1,female 0
EDUCTN Dummy +ve Literate 1
illiterate 0
FAMSZE Continues -ve
AGE Continues -ve

DSTMRKT Continues -ve Near 1, far 0

ANUINC Continues +ve
AEXPNSE Continues -ve

DSTNFFIS Continues -ve Near 1, far 0

ACCTCRDT Dummy -ve Have access 1,
have no access 0
ACCSTRNG Dummy +ve Have access 1
ACCSINFN Dummy +ve Have access 1

TC Continues -ve Cost incurred 1, o

otherwise
IR Dummy -ve

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 CHAPTER FOUR

4. DATA ANALYSIS AND RESULT INTERPRETATION

This chapter presents the main findings of the study. The first section discusses the descriptive
statistics, results by using percentages, frequency distribution, mean and standard deviation and the
second section deliberates the results of the econometric models of Binary logit was applied using
SPSS version 20 to identify major factors affecting rural households’ savings habit and to see the
association between the dependent and independent variables.

4.1. Descriptive Statistics Analysis

This section was mainly concerned with the descriptive analysis results of the survey data and
interpretations of the analytical findings. Descriptive statistics were used to summarize the data by
using frequency distribution, percentages, and for continues variables (mean and standard
deviation) as well as inferential statistical tests like chi-square and t-tests were employed to see
association between the dependent and independent variables. Thus, chi-square test was employed
for dummy independent variables whereas t-test was employed for continue independent variables.

4.1.1. Characteristics of Respondents by Socio-Demographic factors

Table 4.1, below was presented sample household heads in the study area classified by sex, age,
education, marital status, family size and religion of the households head.

Sex of households head

As presented in table 4.1 below, out of the sampled household heads 113 (75.8%) were male
headed households and the remaining 36 (24.20%) were female headed households.

Cross tabulation of surveyed sample indicate that 76.7% and 73.9% were non-saver and savers of
male headed household’s whereas 23.3% and 26.1% were non-saver and savers of female headed
respondents, respectively. The result revealed that male households headed of both saver and non-
saver had greater percentage than headed households of female savers.

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The chi- square value (x2 =0.135; P=0.714) showed that there was no statistically significant
association between saving status and sex of households head.

This study result was in line with expected hypothesis and Gedela (2012) his finding no positive
association among sex and households saving status.

From this result, it can possible to conclude that being male or female headed household had no
statistically significant effect on saving decision of the households.

Education of household's head

Of the total sampled household heads, 102 (68.5% of the respondents were illiterate (have 0 level
of education), 47(31.5%) respondents were literate (table 4.1 below).

Cross tabulation of surveyed sample indicate that from those savers 33 (71.7%) were literate and
the remaining 13(28.2%) were illiterate households headed respondents. The results showed that
majority of the saver respondents were literate households head.

According the chi-square value (x2=49.789; p= 0.000) of the sampled households indicated that
there was statistically significant association between the education levels of households and
saving habit. It implies that rural households who are literate have a higher probability of saving
their money due to they have the ability to access information and skills.

This study result was in line with the expected hypothesis and the finding of Girma et al. (2014)
that showed positive and statistically significant effect on rural households’ savings. But it is
contrary to (Lusardi, 2008:1)”, Hussien et al. (2007) they found that with increased education of
household heads, household saving was reduced.

Hence, it can possible to conclude that education can help to improve the effectiveness of saving
among rural households headed and more educated rural households were more likely to save their
money in formal financial institutions.

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Marital status of households head

Table below indicates that, from the total sampled households head, 116 (77.9%), 16 (10.7%), 17
(11.4%) respondents were married, divorced and widowed respectively. Among the sampled
households headed 80, 12 and 11 were married, divorced and widowed respondents were non-
savers respectively. But for the purpose of analysis, it was re-coded as married and unmarried
(single, divorced and widowed).

Out of savers households head, the proportion of married and non-married respondents were
78.3% and 21.7% respectively. The table result implies that most of the time, unmarried (which
includes the never married at all, widowed and widower) households are exposed to unplanned
expenses when compared to married household heads. But as the chi-square test result indicated
that there had no statistically significant association between marital status and saving status of the
households (x2 =0 .416; P =0 .812). Therefore, the result showed that being married or unmarried
had no significant effect on rural households’ savings. This finding was contrary with the finding
of (Aron et al., 2013) and with the expected hypothesis.

Based on this it can possible to conclude that married and unmarried household heads would have
similar socio - cultural background regarding to rural households’ savings.

Religion of households head

Surveyed result demonstrated that, 136(91.3%) of the sampled households headed belongs to Islam
and the remaining 13(8.7 %) were belongs to Christians (table 4.1 below).

About non-savers (103) of Islam and Christian follower’s respondents were 91.3% and 8.7%
respectively. It implies that the percentage of Islam follower of non-savers was greater than
Christian followers. The chi-square value result of the sampled households indicated that there was
statistically significant association between religion and saving status of households(x2 =6.801; p=
0.009). This result was agreed with the prior findings by Fentahun (2014) but it is contrary with
the expected hypothesis.

Hence, it can possible to conclude that religious association effects on saving behavior and
decision to save money or not in study area.

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Table 4.1: Demographic characteristics of sampled households head

Variables Category Frequency Percentage chi-square p-value

(X2 )
Male 113 75.8
0.135 0.714
Sex of Female 36 24.2
households Total 149 100.0
Christen 13 8.7
Religion Islam 136 91.3 6.801 0.009
Total 149 100.0

Illiterate 102 68.5

Education Illiterate 47 31.5 49.789 0.000
Total 149 100.0
Un married 33 22.1
Marital status married 116 77.9 0.416 0.812
Total 149 100.0

Source: Own field survey data, 2017 P-value=significant at 1%

Family size of households head

As indicated in table below, among the total sampled households respondents 55(36.9%) of them
have 1 to 5, 74 (49.7%) have 6 to 10 and 20(13.4%) of them have above 10 family size. It
indicated that the majority of households’ respondents have the family size of 6 to 10 were
(49.7%). On the other hand among savers households head 54.3% of respondents have a dependent
or family size were 6 to10 in numbers. The t- value indicated that there was no statistically
significant mean difference between the mean family size of households and saving status (t-
value=0.226; p=0.635). This result was in line with the hypotheses and with the previous finding
by Rehmanet al. (2010) he found that family size inversely affecting households saving.

Based on the result, it can possible to conclude that the variation of family size of the households
had not showed a larger difference and the result indicated that there had no significant effect on
rural households saving.

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Age of households head

According to table below, it indicated that the age of sampled households headed, 35 (23.5%) were
between the age category of 20 to 30 years, 46.3% were between 31-40 years, 22.1% were
between 41to 50 and the remaining above 50 years were 8.1% with a mean score of 2.67 and a
standard deviation of 1.205.

Cross tabulation of surveyed sample indicate that from savers, those found within the age category
of 20-30 were 13, between 31-40 were 20, between 41-50 were 8 and above the age of 50 (5) were
savers respectively. The table result showed that household's head found in the age category of
31-40 were more savers than other aging groups. The t-value (t=.133; P=0.553) showed that there
was no statistically significant difference between the mean age of savers and non-savers
households with respect to their age. The result in this study showed that it had no a significant
effect on rural households’ savings. This study results consistent with the hypothesized and the
finding of Chakrabarty.et al (2008) but it contrary with the previous finding of Rehman et al.
(2010) he found that age has a positive relationship with household savings.

The possible explanation here was as the mean age of households were relatively the same and
these households would have relatively similar life experience regarding to saving.

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Table 4.2: Demographic characteristics of sampled households head by Age and Family
size

Variables Category N Percent t-value p-value

20-30 35 23.5
Age of 31-40 69 46.3
households 41-50 33 22.1 0.133 0.553
Above 51 12 8.1
Total 149 100.0
1 to 5 55 36.9
Family size of 6 to10 74 49.7
0.226 0.635
households Above 10 20 13.4
Total 149 100.0

Source: Own field survey data, 2017

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4.2. Saving Habit of the Respondents

80
70
60 69.1%
50
40 No
30 Yes
20
10
0
Savers Non-savers

Figure 4.1: proportion of savers and non-savers

Source: Own field survey data, 2017

The figure above demonstrates that, among the sample respondents 46 (30.9%) were saving money
while the remaining 103 (69.1%) were not save their money in formal financial institutions. This
result indicates that the number of households save at formal institutions were too small.

The result of the focus group discussion held with staff members of HARBU and OCSSCO MFIs
showed that the institution has started awareness creation through provide informal training and
started rewarding for saver households. This encouraged and improved the willingness of rural
households to save their money in formal financial institutions. During the focus group discussion
period from the members Harbu MFI, he said that my friend had got a tool used for digging
(farming materials) like pickaxe as a reward since he has saved his money and old customer with
Harbu MFI.

Therefore, it can possible to conclude that there is low level of awareness towards saving in rural
households in the study area.

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 14.1%
lack of awareness
31.5%
saving institutions far

23.5% low income

Figure 4.2: Reasons for not saving among sample households head
Source: Own field survey data, 2017

Figure 4.2 above showed that, the reasons of no -saving among sampled households in study area.
Out of the sampled households headed the cross tabulation revealed that, 103(69.10%) had no
saving habit due to different reasons. They gave the following reasons for no saving; 47 (31.5%) of
the respondents were not aware about saving, 21 (14.1%) were did not save due to low income,
and the remaining 35(23.5%) did not save due to the saving institutions were far. The result
indicated that the long traveled distance of financial institutions and lack of awareness at rural
areas discourage households to save their money.

The result of focus group discussion regarding on the reason of households was not saving. The
result indicated that rural households did not want to save in formal institutions. This was because
they perceived as once the deposited money cannot be withdrawn any time rather than a year. It
was also the result indicated that, rural households are unaware that savings can be effected with
even small amount of money. Some of them also believed that saving are for the rich people and
they assumed that money is saved if there is only access income.

Hence, it can conclude that lack of financial institutions at a reasonable distance from the villages
of rural households and lack of awareness were the reasons for no saving in the study area.

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4.3. Characteristics of Households Head by Institutional factors
Access to Credit service for households head

48%

52% from this

YES
78.3%
savers NO

Figure 4.3: Respondents get credit service previously or not

Source: o Own field survey data, 2017

As presented at figure 4.3 above, out of sampled households head 72 (48.3%) of them have get
access to credit service whereas the remaining 77 (51.7%) had not get credit service previously. On
other hand, the cross tabulation of surveyed sample indicate that from savers, 78.3% were sampled
households those who get credit service previously and 21.7% were not. It implies that, the
majority of sampled households who had credit access were saving higher. Based on the Chi-
square value (x2 =9.14; p= 0.002) result indicated that there was statistically significant
association between credit access and saving status of sampled households. The implication was
that households who had more access to credit had higher probability to save their money in
formal financial institutions as well as credit users would have more information and awareness
regarding to saving in financial institutions than non- credit users. This output was in line with the
hypothesized and with (Desta, 2004) finding. He found that savings of rural household increases
with access to credit service or obtained.

Hence, it can possible to conclude that households with better access to credit have higher
tendency to save their money more than that of households who do not access to credit service.
Because, households who had credit services were enabling household to expand their income
earning option.

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 35
32.2%
30

25

20
From Harbu MFI
15 13.4%
From OCSSCO
10 From Local
5 2.7%
0
From Harbu MFI From OCSSCO From Local

Figure 4.4: Sources of credit service for respondents

Source: Own field survey data, 2017

The above figure revealed that, the sources of credit for those respondents who have get credit
service were from HMFI, OCSSCO and from local or informal one were, 48 (32.2%), 20 (13.4%)
and 4 (2.7%) respectively. It indicated that more percentage of the credit source for credit servers
was obtained from HMFI.

This requires more effort from the appropriate regulatory and guarantee provisions that would
encourage the formation of such institutions and ensure confidence in them in the long term.

From this result it can possible to conclude that in the study area even if the micro-finance
institutions were access in number but still now rural households were not obtained access of
financial or credit services. So, concerned sectors need to facilitate appropriate strategies of credit
access in place.

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 13.4%
To run business
29.5% To build house
5.4%
To purchase farm inputs

Figure 4.5: purpose of credit service

Source: Own field survey data, 2017

According to showed at figure above, the primary purpose of respondents who have taken the
credit service 27.8% ,11.11% ,61.11% were to run business, to build house and to purchase farm
inputs (Ox, fertilizer & improved seeds) respectively. The results revealed that, the majority of the
sampled households taken credit to purchase agricultural inputs.

Hence, it concluded that credit service providers were helping farmers to be more liquid as it is
serving them as a source of capital as well as enable to generate their income and improve their
saving habit.

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 Access to Training for households head

60

50

40

30

20

10

Figure 4.6: Sample households trained or not about saving

Source: Own field survey data, 2017

This figure showed the respondents were trained regarding on saving or not. As presented at figure
above, from total of 149 sampled households 50 (33.6%) have an access to training about saving,
where as 99 (66.4%) have no access or not received training about households saving culture. The
cross tabulation of sampled revealed that, out of saver households head 93.5% were those who
had access training about saving and the remaining 6.5% were not received training. The results
indicated that more trained households were save more their money than untrained households.
The chi-square value of the sampled households indicated that there was statistically significant
association between access to training and saving status of households in study area (x2 =28.546;
p= 0.000). It implies that access to training enhances households to motivate and improve their
saving awareness in study area. This result was similar with expected hypothesized and with the
finding of Girma et al. (2013), he found that participating household heads on trainings were
positively affects their saving.

Therefore it can possible to conclude that awareness creation through training is one way of
improving the skill deficit of households , so providing informal education and short term training
to the rural households enhanced them well to improve their savings culture.

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Access to information for households head

Surveyed result of the table below shows that, among sampled households head 105 (70.5%) were
obtained access information regarding saving whereas 44 (29.5%) were had not get enough
information about saving. On the other hand, among savers households’ 76.10% respondents were
obtained enough information from formal institution (MFIs, banks and cooperative unions) and
from informal (mass media and friends) whereas 23.9% respondents were not have access
information about households savings habit. The chi-square value of the sampled households
indicated that there was no statistically significant association between information and saving
status of the households (x2 =1.009; p= 0.315). The result is contrary with hypothesized and with
the finding of Girma et al. (2014) found that access to information positively and significantly
affects the decision of households to use financial savings. It implies that sampled households who
had got information regarding saving from different agents were not as such significant.

Based on the result it can possible to conclude that households who had equal access to
information had no effect to make rural households saving decisions and it failed to incorporate
and address saving issues.

Table 4. 3: Households get Access to information about saving

Variable Frequency Percent X2 p-value

YES 105 70.5

1.009 0.315
NO 44 29.5
Total 149 100.0

Source: Own field survey data, 2017

Transactional costs

Table 4.4 below demonstrated that, out of sampled households head 16.8% said that the additional
costs were incurred for transportation and consumption cost when they went to save their money in
formal institutions, whereas 19.5% were said the transaction cost was not problem. The table result

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implies that saver households incurred high transactional costs when they want to deposit their
money in financial institutions and this probably discourages their willingness to save as well.

But the t- value result indicated that there was no statistically significant association between
households saving status and the transactions costs (t=0.366; P=0.546).

This result was in line with expected hypothesized but it contrary with the finding by (Sebhatu,
2012) he found that there is statistically significant association among transaction costs and
households saving.

From this it can possible to conclude that, when additional costs (transaction costs) was incurred, it
lead to the probability the saving interest of households were decrease or discouraged.
Table 4.4: Transaction cost affect saving habit

Variable Frequency Percent t-value p-value

NO 25 16.8
YES 124 83.2 0.366 0.546
Total 149 100.0

Source: Own field survey data, 2017

Saving Interest rate

As presented in table 4.5 below, Out of sampled household’s head 80 (53.7%) respondents said
that the saving interest rate paid were a discouraged them to save in saving institutions whereas 69
(46.3%) were said had no problem. The chi- value result indicated that there was statistically
significant association between households saving status and interest rate paid (x2=11.896;
P=0.001). This result was in line with the finding of Mahlo (2011) he found that the relationship
between household savings and interest rate was a positive. But it contrary with the finding of
Simleit et al. (2011) found a negative effect on rural household savings with the hypothesized.

According to the focus group discussion result, rural households were not ready to use saving in
formal financial institutions, because they not want saving interest rate to be paid on money
deposited, so, rely on this basis at current time financial institutions have been changed the system

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towards formal saving. Since 2015 there have been institutional reforms by formal financial
institutions to enact interest free saving in the financial institutions.

Table 4.5: Respondents Response on saving interest rate

Variable Frequency Percent X2 p-value

No 69 46.3 11.89 0.001

Yes 80 53.7
Total 149 100.0
Source: Own field survey data, 2017

4.4. Characteristics of Households Head by Socio -Economic factors

Distance to the nearest financial institutions from households head

Table 4.6 below shows that, out of sampled households headed, 103(69.1%) said that the distance
from formal financial institutions were discourage to save their money whereas 46(30.9%) said
that the distance had not problem to save money. The average distances (in kilometers) that the
rural households traveled to access the nearest formal financial institutions were 15.34km of mean
and standard deviation of 6.357 km. The t-value result indicated that the mean distance between
households to their nearest formal financial institution was statistically significant (t=27.24;
P=0.000). It implies that, households near to financial institutions have a location advantage and
can contact easily financial institutions. And also it implies that as distances increases, the
household head is expected to get discouraged especial when the amount to save is small. The
result was agreed with empirical study of Chemonics International (2007) identified distance
remains a major barrier to formal financial saving in rural areas and but inconsistent with the
hypothesized of the study.

Hence, it can conclude that household heads residing far away from the financial institution have
to incur transportation cost and are actually discouraged to save since there are no savings
opportunity closer to them. This reduces their willingness to save.

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 Table 4.6: Distance from financial institutions

Variable Frequency Percent mean t-value p-value

(std)
No 46 30.9 15.34
27.244 0.000
Yes 103 69.1 6.357
Total 149 100.0

Source: Own field survey data, 2017 P-value=significant at 1%

Distance to the nearest market from households head

Surveyed result shows that at table below, of the total sampled households head, 111(74.5%) said
that the longer market distance from households home affects their saving habit where as the
remaining 38 (25.5%) were reported as there was no problem of market distance. And the average
distances (in km) traveled by households to access market center were 7.59 km of mean and 5.243
km of standard deviation.

The result indicated that in study area households were traveled relatively longer distance to access
market center. The t- value revealed that there is statistically significant association between
households saving status and the nearest to market center (t=51.374; P=0.000). It implies that the
longer distance from the market center more likely to discourage the households from participating
in market oriented production that increase their income and the possible encourage to save in
financial institutions. This result was agreed with the e finding of (Essa et al., 2012) but it contrary
with the expected hypothesized.

Hence, it can possible to conclude that rural households has access to market very close to their
residence can easily sell their farm output at a relatively higher prices and earn more income as
well as improve their saving capability.

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 Table 4.7: Market Distance Affect on households saving habit or not

Variable Frequency Percent mean t-value p-value

(std)

No 38 25.5 7.59
Yes 111 74.5 5.243 51.374 0.000
Total 149 100.0

Source: Own field survey data, 2017, P-value=significant at 1%

Annual income of sampled households

80
70
60
50
40
30
20
10
0
Below Br.10,000
Br.10,000-20,000
Br.20,001-30,000

Figure 4. 7: The estimated annual income of the respondents.

Source: Own field survey data, 2017

The figure above showed that, the estimated annual income of both savers and non savers of the
sampled household heads, 23 (15.4%) were less than birr 10, 000 birr whereas 111 (74.5 %) and 15
(10.1%) of the respondents were earning their income annually between the category of birr
10,000-20,000 and 20,001-30,000 respectively. The survey result showed that the respondents with
annual household gross income categorized within 10,000-20,000 score was the highest among the
others and the mean annual income of the household’s gross income was 14,261.7450 Birr.

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The t-value also showed that, there was statistically significant association between the annual
income of households with respect to their saving levels (t=4.811; P=0.030). It implies that higher
income leads to higher probability of households to save. This result was consistent with
hypothesized and the study by (Aron et al., 2013) and Abdelkhalek et al. (2009) indicated that
income strongly affects the saving level of the households

Hence, it possible concludes that, when the income level of households increased, the saving rate
will also increase by some present.

Figure 4.8 :sources of household’s annual income

From Farm

From Off-Farms

Source: Own field survey data, 2017

Of total sampled households, 140(94.0%) of respondents were earning their annual income from
farm activities, whereas the remaining 9(6.0%) were earning from non-farm activities and among
others, (94%) respondents were engaged in farm activities. The above result indicates that the
primary occupation of the household is agriculture. On the other hand, among savers respondents
68.3% were farms engaged both in farm and non-farm activities whereas 31.7% respondents were
those who engaged only farm activities (see figure above 4.8).

Hence it concludes that, households who have engaged in both farm and non-farm activities have
become better income as compared to households who have engaged only in farm activities.

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 Annual expenditures of sampled households

Figure 4.9: The estimated annual expenses of the respondents.

56.4%

22.1%
15.4%

6%

Source: Own field survey data, 2017

Figure above result tried to find out, the sampled households spent their incomes on and the
expenditure of the money of the sampled households. The result indicated that a significant
number of sampled households spent their income on the housing purposes, school expense and
unexpected medical expenses, purchase farm inputs (improved seed & fertilizer).

Out of the total respondents 15.4%, 56.4%, 22.1%, 6% were spent their income annually between
birr 2,500-5,000, 5,001-10,000, 10,001-15,000 and 15,001-20,000 respectively. The result revealed
that majority of the sampled respondents were spent their income between 10,001-15,000 birr
annually. On the other hand, the average and standard deviation of sampled household’s annual
expenditure were 9,318.7919 and 3,931.51 birr respectively. The t- value showed that there was
statistically significant association between the annual expenditure of households and saving status
(t=25.006; P=0.000).
The result is similar with the finding of Rehman et al. (2010) indicated that expenditure
significantly association with households saving but it was inconsistent with the study
hypothesized.

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4.5. Econometric Analysis of Factors Affecting Rural households saving
Habit
This section discusses multi-collinearity diagnostics and econometric analysis of significant factors
filtered for econometric analysis.

4.5.1. Multi-Collinearity Diagnostics

To study determinants of saving habit among rural households in the study area, data gathered
from 149 sampled respondents were subjected to Binary regression analysis. The statistical
software used for analyzing the data was SPSS version 20. Before running the Binary logit model,
both the continuous and categorical explanatory variables were checked for the existence of multi
collinearity problem. The existence of multi-collinearity might cause the estimated regression
output to have the wrong signs and smaller odds ratios which lead to wrong conclusion.

To test the presence or existence of multi-collinearity, the technique of variance inflation factor
(VIF) for association among the continuous explanatory variables and Contingency Coefficient for
dummy variables was employed to detect the problem of multi-collinearity (Gujirati, 2003).

VIF (xi) = __1____

1-Ri2
Where, Ri2 is square of multiple correlation coefficients that results when one explanatory variable
(xi) is regressed against all other explanatory variables. The larger value of VIF (xi) the more
difficult or multi-collinear the variable xi is. As a rule of thumb, if the VIF of a variable exceeds
10, there is a multi-co linearity problem.

In table below 4.8, the VIF values displayed have shown that all the continuous explanatory
variables have no multi-collinearity problem.

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 Table 4.8: Variance Inflation Factor (VIF) for Continuous Variable

S.No Variables Ri2 VIF

1 AGE 0.949 1.054

2 FMSZE 0.968 1.033

3 DISTFIN 0.734 1.362
4 DISTMKT 0.715 1.399

5 ANICME 0.845 1.183

6 ANEXP 0.837 1.195

7 TC 0.806 1.240

Source: Own field survey data, 2017

Similarly, contingency coefficients were computed to check the existence of multi-collinearity

problem among the discrete explanatory variables. The contingency coefficient is computed as:

Where,
CC = Contingency Coefficient, χ2 = Chi-square random variable and N= total sample size.

The decision rule for contingency coefficient is that when its value approaches 1 (Gujirati, 2003),
there is a problem of association between the discrete variables. The contingency coefficients
result implied that there was no multi-collinearity problem among the explanatory dummy
variables (Table 4.9).

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 Table 4.9: Contingency coefficients (CC) for dummy/ discrete variables

Variables Sex RLGN EDUCTN MARTSTS TRNING ACCRDT ACCINFN IR

Sex 1
RLGN 0.560 1
EDUCTN .666 1.04 1
MARTSTS .000 .012 .653 1
TRNING .079 .587 .107 .506 1
ACCRDT .078 .456 .246 .452 .000 1
ACCINFN .001 .618 .734 .675 .001 .001 1
IR .600 .791 .003 .545 .247 .382 .559 1

Source: Own field survey data, 2017

4.5.2. Binary logit Regression Analysis

In the preceding section, variables characterizing rural households saving habit in the study area
and their difference among yes or no of perception were identified.

However, in binary analysis, emphasis is on analyzing these variables together, not one at a time.
By considering variables simultaneously, it’s possible to incorporate important information about
their relationship. The results are reported using odd ratios. Each odds ratio shows the effects of
marginal change in the corresponding dependent variable specifically, on the level of households
saving in the study area. An odds ration greater than one (>1) indicate a positive relationship
between the independent variable and the dependent variable; higher saving of households, it
associated with an increase in the values of independent variable or it would mean that for a unit
change in the independent variable there would be a corresponding change in the Odds ratio and
negative odds ratios suggest the converse.

Accordingly, the estimation of parameters of the independent variables expected to influence rural
households saving are displayed in table 4.10. Out of fifteen explanatory variables, only six of
them were found to be significantly influencing rural households saving habit in the study area.

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 Table 4.10: Maximum likelihood estimates of the Binary logit model

Variables B S.E. Wald Sig. COR 95% C.I.for EXP(B)

(P-value) Lower Upper
DISTFIN 3.499 1.001 12.218 .000** 5.395 2.522 11.540
ACCRDT 3.146 1.626 3.742 .053** 6.700 2.983 15.050

TRNING 1.058 1.640 .416 .019** 7.987 3.534 18.054

.327 1.034 .100 .752 1.387 .183 10.533
ACCINFN
3.498 1.071 1.366 .002** 11.885 5.042 28.019
DISTMKT
1.252 1.386 9.092 .243 3.498 .428 28.560
TC
1.654 .911 3.292 .700 5.226 .876 31.191
IR
ANICME -.860 .891 .930 .335 .423 .074 2.429
ANEXP 1.878 .818 5.275 .022** 5.553 2.617 11.781
EDUCTN 4.413 .970 20.702 .000** 16.137 6.869 37.910
FAMSZE .139 .269 .267 .605 1.149 .679 1.945
MRSTS .018 .308 .003 .953 1.018 .556 1.864
-.073 .211 .120 .729 .930 .615 1.405
AGE
.175 .468 .140 .709 1.191 .476 2.981
SEX
RLGN .219 .644 .500 .995 .996 .282 3.522
Constant -.004 1.189 12.971 000 .014

Source: own field survey data, 2017

Note: ***=significant at p<5%

Chi-square value χ2 133.868 P = 0.000

-2Log likelihood 50.319 N = 149
Nagelkerke R2 0.836 (83.6%)

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 Table 4.11; Binary logistic regression results

Characteristics Categories Saving Habit P- Crude Odds 95% C.I.for EXP (B)
value Ratio(COR)
Yes No Lower Upper
N (%) N (%)

Education level Illiterate 13(28%) 89(86%) 0.000 16.137 6.869 37.910

Literate 33(72%) 14(14%)

The distance of
FFIs discourage No 26(57%) 20(19%)
you to save
money?
Yes 20(43%) 83(81%) 0.000 5.395 2.522 11.540
Do you get /have/
Yes 36(78%) 36(35%)
Access to credit
service?
No 10(22%) 67(65%) 0.053 6.700 2.983 15.050
Did you have
Yes 43(93 %) 7(7%)
access to training
about saving?
No 3(7%) 96(93%) 0.019 7.987 3.534 18.054
The longest
market distance
discourages you No 27(59%) 11(11%)
to save money in
Yes
FFIs? 19(41%) 92(89%) 0.002 11.885 5.042 28.019

Do you think
No 11(24%) 71(69%)
annual expense
affects your
Yes 35(76%) 32(31%) 0.022 5.553 2.617 11.781
saving habit?

Source: Own field survey data, 2017

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4.5.3. Interpretation of the Binary logit Regression Results

Distance from formal financial institutions: the model result of the study confirmed that
distance among institution and households affects positive and significant at 5% probability level.
The model result revealed that those households who are residing near to formal financial
institutions had more access to save whereas those who are residing at far distance from formal
financial institutions had less access to save in formal financial institutions due to distance factor.
Other things constant being, the crude odds ratio result indicated that households who live in far
from formal financial institutions not save 5.4 times likely than households residing near to the
formal institutions(p-value=0.000; COR=5.395). The possible explanation for this is that as the
sampled households’ are near to the financial institutions; they would have more access to use the
service than the one in far places.

The result is inconsistent with the hypothesis, but it was similar to the previous finding of
Chemonics International (2007), he identified distance remains a major barrier to formal financial
saving and other markets in rural areas in SSA especially in rural Uganda, only 10% of the
population has access to basic financial services. Sebhatu (2012) also indicated that as financial
institutions are far to the households' house, they would have been spent more resources (time,
labor) to access financial products and services.

Hence, it can be concluded that respondents who are in near of the formal institutions have
location advantage and are more likely to save their money than those living in distant places.
Thus, distance to formal financial institutions, probably hinder regularity of the households saving
as well (see table 4:11).

Access to credit for households head: The model result indicated that access to credit service
has positive and significantly affects rural households saving habits at 5% probability level and it
is in line with the hypothesis. The crude odds ratio result revealed that if the rural households have
access to credit services, the probability of households saving into formal institutions increases by
6.7 times than households did not have access to credit service (p-value=.053;OR=6.7). This
implies that rural households with more access to credit would higher tend to save more in formal
financial institutions. This would have possibly meant that in study area those households’ who
have access to credit services like micro finances are usually involved in pre-loan saving.

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The purposes of credit were for productive activities like purchase of agricultural inputs (improved
seeds, fertilizers) and income generating activities can improve households saving status. This
finding was similar to Obayelu (2012) that show positive and significant effect between credit
access and rural households saving status and contrary to Adeyeno and Baire (2005) that shows
negative and no significant effect between credit access and rural households saving status.

Hence, it can be concluded that households who had credit services (access to credit services) were
enabling households to expand their income earning option and it can enable to save their money
more likely than those had not gotten credit service (see table 4:11).

Annual expenditure of households head: According to the study results, annual expenditure of
sampled households has positively and significantly influenced households saving status at the 5 %
probability level in the study area but the result was inconsistent with the hypothesized the odds
ratio result revealed that saving increased by a factor of 1 when their annual expenditure is
increased by 1 unit, other factors being constant (p-value=0.022; OR=5.553). This implies that as
income of the sampled households’ increases, their expenditures increases in some amount
similarly their saving also increases. The possible explanation is as savings increase with increase
in the level of expenditure there is a possibility that the expenditure is utilized on productive
agricultural activities. This can lead to the creation of additional asset and can increase savings and
subsequently expand investment. The finding was similar to the work of Rehman et al. (2010) that
shows a positive relationship between expenditure and rural household saving. The odds ratio of
the model indicated that being households saving decreased 5.6 times when their annual
expenditure is increased other variables are held constant.

From the model results it can conclude that the more the households spend, it reduces their saving
ability (see table 4:11).

Education level of households head: model results showed that the education level of households
has positively and significantly influenced rural household savings habit and it is in line with the
hypothesis. According to the odds ratio result revealed that getting educated households, they are
more likely to save in formal financial institutions. Based on the model result, literate household
heads had 16.137 times more odds-ratio of saving than illiterate household heads or the probability
of saving is increased by this much (COR 16.137, P-value 0 .000).

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The most probable reasons for this are education increases the ability of farm households to access
information, make rational decisions about saving, and increases farm management skills of
farmers that have a positive impact on their farm output and income. This in turn will increase
rural household saving. Moreover, it increases the ability and skill of farmers to engage in non-
farm activities.

The finding of the researcher agrees with the findings of previous researchers who found that there
is a direct relationship between education and household savings (Bersales and Mapa, 2006; Girma
et al., 2013; and Aron et al., 2013). However, it is inconsistent with the findings of others like
Hussien et al. (2007), Rehman et al. (2010) and Kifle (2012) who found that education and
household saving are inversely related.

Hence, it can possible to conclude that education helps the household head’s to save in financial
institutions and because the capacity created would help them to analyze, interpret and make use of
it than illiterate household head’s as well as enhance information seeking behavior as well (see
table 4:11).

Access to Training for households head: It is quite clear that training is one of a key factor
deserving attention to raise the level of farmers` awareness about savings. According to the model
results of the study, access of training regarding on saving culture has positively and significantly
influenced households saving status at the 5 % probability level and the result was in line with the
hypothesis. The odds ratio result indicated that other factors constant, households who did not train
on saving was 7.987 times more likely not saving their money in formal institutions than trained
households (COR 7.987, P-value .019). Or it revealed that the probability of households saving is
increased 7.987 times as a household gets access to training or awareness regarding on saving. It
showed that there is substantial variation in the saving behavior of rural households who obtained
access trainings related to saving and those who did not get trainings.

The positive relationship between training and households saving habit indicated that households
get awareness and motivation from the training was enhances their saving improvements because
they get more information on the benefits of savings.

Finally, short-term awareness raising trainings focus on improving the skills of farmers on specific
topics, saving in this case, which enhances income and saving.

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The finding agrees with the finding of Girma et al. (2013). Other studies either in Ethiopia or
outside Ethiopia have not included this variable as one of the determinants of saving.

Based on the results it can possible to conclude that understanding about the benefits of
households saving through training might encourage them to save higher and higher.

Distance of Market center from households head: The model result of the study confirmed that
the market distance to input and output (market) center positively and significantly associated with
household's savings habit at 5% significance level.

The crude odds ratio result revealed that, other things being constant, being households who
residing far to market center not save 12 times more likely than households living near to the
market center (p-value=0002;OR=11.885). On the other hand, households residing far saving
habit decrease as the market distance increases by one kilometer.

This result implies that households who are residing near to market center had more access to save
than households living far market center, because they can easily sell their farm output at a
relatively higher price, get easy transportation facility and earn more income as oppose to those
who are far from the market distance.

Thus, based on the model results distance to market center were positive and significantly
associated with the savings habit of households. The result is contradicted with expected
hypothesized of this study and with the finding of Ebrahim, 2006 in his study distance has
negative influence on households saving habit and significant at 1% probability level. But in line
with the finding of lanjouw et al. studied in tanzania and smith et al. studied in Uganda show
that a better access to market center increases households earnings.

Hence, it can possible to conclude that distance to market leads to higher transaction cost which
reduces the saving habits of households as well as it probably hinder regularity of their saving as
well. (see table 4:11).

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4.5.4. Multi- variable Regression Analysis

Binary logit regression was calculated first and basic odds ratio were estimated. Then, to determine
the best subset of explanatory variables that are good predictors of the dependent variable,
significant variable during binary logistic regression which at less than the p-value <0.2 was
shifted to multiple variable logistic regressions to avoid the role of cofounder and adjusted odds
ratio are estimated and factors affecting household’s saving habit was identified at the cut point of
p-value less than .05. So, among ten variables, four were the most significant factor with
respect to households saving with less than 0.05 were includes;-annual expenditure (ANEXP),
education (EDUC), Access to training (ACCTRNG) and distance to market center
(DISTMKTC).

The effects of the above significant explanatory variables on saving among rural households in
the study area were discussed below.

Table 4.12; The multi-variable logistic regression results of the factors influencing rural
households saving habit.

Multi variable Regression P-value AOR(sig.) 95% C.I.for EXP (B)

Results Lower Upper

Access to Training 0.000* 14.017 3.487 56.342

Market Distance 0.000* 10.984 3.085 39.111
Annual Expenditure 0.007* 2.786 .905 8.576
Educational level 0.000* 38.481 9.100 162.721
Constant 0.000 .009

a. Dependent Variable: Measurement of households Savings status

Source: Own field survey data, 2017.

4.5.5. Interpretation of the Multi variable logistic Regression Results

Access to Training for household’s head: According to the model result providing accessibility
training for households were statistically significant at the 5 % significance level and positively

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influences the dependent variable, saving status. This implies that in addition to the formal and
informal education, giving short-term trainings on saving is enhancing the households saving
motivation.

The adjusted odds ratio result indicated that other factors constant, households who did not train on
saving was 14 times more likely not saving their money in formal institutions than trained
households (AOR 14.017, P-value .000).

This showed as households were getting training, they are more likely to save their money in
formal financial institutions. Based on the model result, trained household heads had 14 times
more odds-ratio of saving than untrained household’s head. The possible explanation for this is
that obtaining access training regarding on saving helps the household head’s to save in financial
institutions and because the awareness created would help them to improve the saving culture than
untrained household head’s. Therefore, awareness gained through training might give a chance to
encourage them to save, because there was a great awareness gap founded among rural households
regarding on saving.

The research finding is in line with the hypothesized training was a positive and significant effect
on savings habit. And it is in line with the finding of Girma et al. (2014) and with the hypothesis
expected. Other studies either in Ethiopia or outside Ethiopia have not included this variable as
one of the determinants of saving. However, it should be treated separately from education level
because it is found to be a significant variable. Moreover, it is different from a number of years of
schooling (education level) which is long term and formal, but the training on saving is usually
short term and very much specific.

Hence, it can possible to conclude that the emphasis on short-term trainings and awareness
creation on saving has to continue to improve the performance of saving in the study area (See
table 4.12).

Distance to Market center: market center is one of crucial social infrastructures for rural
community to purchase inputs and sells of agricultural outputs. The model result of the study
confirmed that distance to market center (input and output) center was positive and significantly
associated with the probability of household's savings habit at 5% significance level (p-
value=0.000 and AOR=10.984).

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The Adjusted odds ratio result revealed that, other things being constant, households who residing
far to market center decrease their saving habit by 11 times than households living near to the
market center. On the other hand, households residing far saving habit decrease as the market
distance increases by one kilometer.

It assumed those respondents closer to the market center will get a better opportunity to buy and
sell marketable commodities in a relatively short time. On the other hand, households who dwelled
far away from the main market center expected to travel long distances, which compete their time
to participate in common/social activities and run income generation activities effectively.

Thus, based on the model results distance to market center influences the savings habit of
households positively and significantly. This is in line with the finding of lanjouw et al in Tanzania
and smith et al in Uganda show that a better physical access to markets increases non-farm
earnings, but it is contrary to the expected hypothesized of this study and the previous finding of
Ebrahim, 2006 in his study distance has negative influence on households saving habit.

Hence, it can possible to conclude that distance to market leads to higher transaction cost which
reduces the saving habits of households and it probably hinders regularity of their saving as well.
But inversely better access to market center encourages the saving ability of households.

Annual Expenditure of household’s head; - according to the model results indicated that the
annual expenditure had statistically significant and positive effect on rural households’ savings
status in the study area but this result is inconsistent with the hypothesized expected. The adjusted
odds ratio (AOR) results revealed that, Other factors being constant, households saving increased
by a factor of 1, when their annual expenditure is increased by 1 unit. This implies that as income
of the sampled households’ increases, their expenditure increases in some amount similarly their
saving also increases.

The possible explanation is as savings increase with an increase in the level of expenditure there is
a possibility that the expenditure is utilized for productive agricultural activities. This can lead to
the creation of additional asset and can increase savings and subsequently expand investment. The
finding was similar to the work of SSA (Beck et al., 2008). But contrary with Rehman et al. (2010)
that shows a negative relationship between expenditure and rural household saving.

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From the model results it can conclude that the informal saving has contributed for unnecessary
expenditure due to saving may be, at home or relative that could be easily withdrawn at any time
for unproductive activities. So, more the households spend, it reduces their saving ability.

The education level of household’s head: As the model result indicates, the variable of
household’s educational level is statistically significant at less than 5% significance level and
positively influenced the households' saving habit, dependent variable P-value =0.000 and
AOR=38.481). The result is contrary to the hypothesis.

This finding indicates that those households with a high educational level are more likely to save
into formal financial institutions than those who less educated. This is due to most probably
educated person gain better awareness, experience, knowledge regarding on savings and this again
help them to engage in improving their saving cultures. Literate households are very motivated to
get information and use it. The odd ratio result reveals that, holding other variables constant, being
illiterate household’s head was 38 times more likely not save their money than literate household’s
head.

Thus, education is an essential tool in improving the household’s head with the necessary
awareness and skills which enables them to save their income than uneducated ones.

This research finding is agreed with the hypothesized effect of households, education on savings
status and the finding of (Alma and Richard, 1988), Lawrence, et al (2009), Girmaet al. (2014) in
their research found education as an essential instrument in increasing awareness among rural
households savings culture from their income obtained.

Hence, it can conclude that education can help to improve the effectiveness of saving among rural
households headed and more educated rural households were more likely to save their money in
formal financial institutions (See table 4.12).

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 CHAPTER FIVE

5. SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.1. Summary

With regards to the investigation into the savings habit of rural household heads in Mana, this
research has provided some insight into how some of those factors interact and affect the savings
habit of households in Mana.

This study hypothesized a total of 15 explanatory variables to have an influence on the dependent
variable, households saving habit. These variables were; socio-demographic characteristics (sex,
age, education level, marital status, family size and religion), socio-economic (annual income,
annual expenditure, market distance), institutional factors (distance from financial institutions,
access to credit, access training and access to information) and variables related to saving
institutions (transaction cost and interest rate).

The methods of data analyzed were like frequency distribution, percentage, mean and standard
deviation were used. And also associations and differences in characteristics between independent
and dependent variables were checked through inferential statistics (chi-square and t-test).
Moreover, the Binary logistic regression was calculated first and basic odds ratio were estimated.
Significant variable during binary logistic regression which (p-value <0.2) was shifted to multiple
variable logistic regressions to avoid the role of cofounder and adjusted odds ratio are estimated
and factors affecting household’s saving habit was identified at the cut point of p-value less than
.05.

In the demographic factors (variable) characteristics, such as sex, marital status, age, religion and
family size of the households were hypothesized to have a negative relationship with rural
households saving status. And also the descriptive statistics revealed that all except religion had no
statistically significant association with rural households saving status. The educational level of the
household’s head was hypothesized positive relation with saving status. And also the descriptive
statistics revealed it had statistically significant association with rural households saving status.

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But the model result revealed the only educational level of the household’s head had a positive and
significant association with households saving status.

In the socio –economic factors (variables) like distance from formal financial institutions, annual
expenditure of household’s head and distance to market center from household’s resident were
hypothesized to have a negative relationship whereas annual income were hypothesized to have a
positive relationship with rural households saving status. But the result of the descriptive statistics
showed that all have a statistically significant association with rural households’ savings status.
But the binary model results indicated that annual income had no significant association.

In the institutional factors like transaction cost and saving interest rate were hypothesized to have a
negative relationship with rural households saving status. The result of the descriptive statistics
also showed that distance from formal financial institutions and interest rate had statistically
significant association with rural households’ savings status. Also transaction cost had no
statistically significant association with rural households’ savings status. Access to credit service,
access to information and Access to training was hypothesized to have positive associations with
rural households saving status. The result of the descriptive statistics showed that both credit
access and access to training had significant effect on rural households’ savings status. But access
to information had statistically insignificant association with rural households’ savings status.

The results of the multi variables logistic regression model indicated that the education level of the
household heads, distance to market center, access to training and annual expenditure had positive
and statistically significant effect on rural households saving status.

5.2. Conclusions
The study was conducted in Mana woreda, Jimma Zone, Oromiya regional states, Ethiopia. With
regards to the investigation into the savings habits of household heads in Mana, this research has
provided some insight into how some of those factors interact and affect the savings habit of
households in Mana.

The specific objectives of the study were to assess the influence of socio-demographic factors on
households saving habit, to identify the effects of socio-economic factors on rural households
saving habit and to investigate the effects of institutional factors on rural households saving habits
in the study area.

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The descriptive analysis showed that some rural households practiced saving in formal financial
institutions and the common reasons for rural households no saving in formal financial institutions
in the study area were; they had low income, they were not aware about saving habit and since the
formal financial institutions are far.

Moreover, the multi–variable logistic regression analysis was conducted. The model results
suggest that the saving habit of rural households was influenced by four the most essential variable
factors. Those were education level of household heads’, access to training, market distance and
annual expenditures were influenced positively and significantly associated with saving habit
among rural households.

Providing access to training for households were statistically significant and positive associations
with households saving status. It revealed that trained households were more likely to save their
money in formal financial institutions than untrained one. Annual expenditure had statistically
significant and positive effect on rural households’ saved status in the study area.

The possible explanation is as savings increase with an increase in the level of expenditure there is
a possibility that the expenditure is utilized for productive agricultural activities. Household heads’
education level enhances households’ awareness to decide to save money in formal financial
institutions. Distance to market center was statistically significant and positive associations with
households saving status. Households who dwelled far away from the main market center expected
to travel long distances, which compete their time to participate in common/social activities and
run income generation activities effectively.

Over all these four independent variables were positive and significantly influences dependent
variable, rural households’ saving habit in the study area.

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5.3. Recommendations

The study was conducted on factors affecting rural households’ savings habit in Mana district,
Jimma zone in Oromia regional state of Ethiopia. The findings of the study identified major factors
regarding households saving habits in the study area; the following recommendations are
forwarded for better future improvement of the saving habit among rural households in the study
area.

According to the study result education level of the household’s head has a significant and positive
association with a savings habit of households. Thus, recommended that appropriate strategies like
strengthening and expanding both formal and informal types of education in rural study area in
order to improve and make illiterate rural households have a better understanding towards savings
in the study area.

According to the study result, access to training had a positive and significant influence on
household saving habit. Therefore, it’s recommended that concerned bodies need to be designed
policies and appropriate strategies to create awareness of rural households in the study area though
providing necessary training to promote households saving culture. In addition to awareness
creation, financial institutions will better recognize (awarding) good savers of households in order
to motivate non-saver households.

According to the study result, market distance has a positive and significant impact on rural
households saving habit. The possible explanation for this is that households residing far to market
center lead to incurred higher transaction cost which reduces the benefits of the households.

Therefore, it’s recommended that policy intervention (concerned bodies) better to emphasis on the
easy access of main market centers (expand marketable areas) in rural areas for those households
residing to far from the market center.

According to the study result the annual expenditure of households has a significant and positive
impact on rural households saving habit. It implies that obviously informal saving has contributed
for unnecessary expenditure due to saving may be, at home or relative that could be easily
withdrawn at any time for unproductive activities.

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But based on the study results, the majority of the rural households was spending their incomes on
unexpected medical expenses and to purchase agricultural inputs like fertilizer and improved
seeds. Therefore, it recommended that in order to protect rural households from unnecessary
expenses or over costs, concerned bodies (both government and non-governmental organizations)
is better to design policies and strategies to minimize the expenditures of the rural households
through facilitating the program of National Health Insurance Scheme for unplanned medical
expenses as well strengthening rural cooperative unions those who distributes or prepare
agricultural inputs (fertilizer and seed improve) for farmers nearly without incurring additional
costs.

Generally, the model analysis showed that household heads’ education level enhances households’
awareness to decide to save money in formal financial institutions. Households with accesses to
training enhance rural households’ savings. Households with low annual expenses would like to
save more in formal financial institutions. Distance from market centers significantly affects rural
households’ savings in the study area. Developing strategies that promote rural household savings
in rural areas is an integral part to achieve economic growth in the study area.

5.4. Future Research Direction

The findings of this study have verified that households have the potential to save, and even
increase their savings when their awareness towards saving and educational level among as well as
access to market center and other factors improve.

In order to improve the saving culture of rural households, the government, financial and non-
financial institutions and other corporate bodies have a role to play to take advantage of these
potentials and opportunities. And also, the government can pursue policies that will increase the
income base of the people and help them cut down their expenses to induce savings.

The ability of future studies to value assets and capture it in the savings will give a detail
understanding of household savings behavior for rural households. It will be interesting to add
additional factors to gain more in-depth understanding of household savings habit factors.

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 APPENDIX I

JIMMA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT

MASTER OF BUSINESS ADMINISTRATION

Questionnaire

Dear respondent

This questionnaire is designed to collect relevant information from selected respondents to aid in
the assessment of the ’Factors Affecting Rural households Savings Habit’’ A case study of Jimma
Zone Mana District.The information required is strictly for academic purpose and there are no
right and wrong answers. The findings will be helpful to policy makers who are concerned with
rural household’s development and also help financial institutions to device policies to improve
performance. Any information provided would be treated with the utmost confidentiality and shall
be used only for the intended purpose. Your candid opinion is highly solicited.

I want to take this opportunity to thank you for availing yourself and thereby contributing towards
making my thesis success.

Thank you for your co-operation!!!!

Name of the Kebele_____________________ Signature of Participants _____________

SECTION A: SOCIO-DEMOGRAPHIC FACTORS

1. What is your age? _______________

2.
3. Educational Level: 1. Illiterates 4. Secondary (Grade 9-12)
2. Primary (Grade 1-8) 5. Territory

4. Marital status: 1. Single 2 3. Divorced 4.

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 5.
6. How many household members do you have? (Family size) _________________

SECTION B: INSTITUTIONAL FACTORS

1. Saving
1. Did you save money in formal financial institutions?
1. Yes 0. No
4. If your answer for question “1” is No, why?
S.no Reasons Yes No
2 . 1 Lack of awareness about saving
2 . 2 Saving institutions are far
2 . 3 since the household income is low
2 . 4 Other (specify)…….

2. Distance from Financial Institutions

1. Do you think that distance is a problem to save money in formal financial institutions?
1. Yes 0. No

2. How far is your home from formal financial institutions? _______km

3. Is accessibility of road discourages you to save money in formal financial institutions?

1. Yes 0. No

3. Access to Credit Services

1. Do you have access to credit service? 1. Yes 0.No

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 2. Where do you get credit service? Please tick in the below table

S.no Credit sources Yes No

2 . 1 Commercial Bank
2 . 2 Awash International Bank
2 . 3 Harbu MFI
2 . 4 WALQO
2 . 5 Credit & saving Cooperatives
2 . 6 Idir
2 . 7 Local money lenders
2 . 8 From Other (specify)………

3. What was the purpose you want to get credit service? Please fill below table (tick)

s.no Purpose of Credit Service Yes No

3 . 1 Repayment of other loan
3 . 2 To run business
3 . 3 To construct /build/house
3 . 4 For consumption/Basic needs
3 . 5 To purchase OX, fertilizers &
improved seed
3 . 6 Others (specify) ……

4. Do you think the loan interest charged per year is fair? 1. Yes 0. No
5. Did the credit service you get bring significant change on your saving habit? 1. Yes 0. No
1. Access to Training/ motivation and awareness
1. Have you taken any training on saving? 1. Yes 0. No
2. Have you observed Banks involved in creation of motivation and awareness through training
among rural households with regard to saving? 1. Yes 0. No

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3. Have you observed Harbu microfinance institution involved in creation of motivation and
awareness through training among rural households with regard to saving? 1.Yes 0.No
4. Have you observed OCSSCO involved in creation of motivation and awareness through
training among rural households with regard to saving? 1. Yes 0.No
5. Have you observed rural credit and saving cooperatives involved in creation of motivation
and awareness through training among rural households with regard to saving? 1.Yes 0.No

5. Access to Information
1. Have you heard any information regarding on saving? 1. Yes 0. No
2. Where did you get information about saving…..?

s.no Source of information Yes No

2 . 1 Banks
2 . 2 MFIs
2 . 2 Cooperative union (society)
2 . 4 mass media
2 . 5 Others (specify)-------

3. Do you think accessibility to information bring significant change in your saving habit?
1. Yes 0. No
6. Market Distance
1. Is there market in your locality? 1. Yes 0. No
2. Does market distance affect your marketing activity and savings? 1. Yes 0. No
3. Do you think access to market place encourage you to save money in formal financial
institutions? 1.Yes 0.No

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 SECTION C: SAVING INSTITUTION FACTORS

7. Transaction Cost
1. Do you think the transportation cost affects on your saving habit? 1. Yes 0.No
2. Do you think the time is a problem to save money in formal financial institutions?
1. Yes 0. No
3. Do you think that consumption cost is a problem to save money in formal financial
institutions? 1. Yes 0. No
7. Interest Rate
1. Do you know the interest rate of formal financial institutions given to savers?
1. Yes 0. No
2. Do interest rate discourages you to save money in formal financial institutions?
1. Yes 0. No

SECTION D: SOCIO -ECONOMIC FACTORS

9. Annual Income
1. What are major sources of your annual incomes?

s.no Sources of Income Yes No

2.1 From off/non/-farm
2.2 From farm (including coffee, chat)
2.3 Others (specify)… … …
2. The estimated income you get annually from both is--------------------------birr

3. Do you deliberately save part of what you earn? 1. Yes 0. No

10. Annual Expense

1. The estimated annual expenses from your income-----------birr
2. Do you have annual spending plan? 1. Yes 0. No
3. What are major purposes of your expenses?

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 Purpose of the Spent Yes No
3.1 Housing purpose
3.2 To cover school expenses
3.3 To purchase fertilizers & improved seed
3.4 Other specify………………..

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 APPENDIX II
CHECKLIST FOR FGD
JIMMA UNIVERSITY
COLLEGE OF BUSINESS & ECONOMICS
DEPARTMENT OF MANAGEMENT
MBA PROGRAM
The purpose of this focus group discussion is to explore the factors influencing the rural
households saving habit in the study area. To draw some conclusions and forwarding possible
recommendations, this might be helpful for making some practical interventions by the concerned
bodies. So, your kind cooperation with honest responses active participation to focus group
discussion will be vital for the overall success of the study. The study is purely for academic
purpose and the information you will provide is to be treated as confidential and cannot be traced
to the person who provided them.

1. What are the main factors affecting saving in formal financial institutions?
2. What is your view on formal financial institution’s in saving mobilization?
3. What are the challenges that discourage people to save in the formal financial institutions?
4. What are the methods used to encourage and inform people to save their money in the formal
financial institutions?
5. How do you express the changes in saving among rural households?

THANK YOU!

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