Microcredit to women and its contribution to production and household food security

<p>The contents of this dissertation are based on a quantitative and qualitative survey that was conducted to assess the contribution of microcredit access of women to production and household food security status, and the factors associated with enterprise performance and food security outcomes. In order to do so four main issues were addressed: (a) assessment of the borrowing context and the match or mismatch between lender and borrower goals and objectives; (b) the extent to which taking microcredit affected business input expenditures and performance of non-farm MEs; (c) the extent to which taking microcredit affected production input expenditures and outputs from farming activities; (d) the changes in household food security associated with microcredit.</p> <p>The study was conducted among female microcredit clients of BRAC, one of the largest micro lenders in Uganda. The overall study design was a panel approach, involving two waves of data collection. In one analytical approach, baseline data for a group of existing borrowers (Old borrowers=OB) and incoming borrowers (New borrowers=NB) before they received their first loan, was used in a quasi-experimental cross-sectional design to assess the effect of borrowing as the difference between the two groups using propensity score matching (PSM).</p> <p>In an alternative approach, two waves of data for the NB and a control group (CG) of women who never borrowed from BRAC or other MFI, was subjected to difference-in-difference analysis (DID), with Kernel matching, to assess differences between borrowers and non-borrowers.</p> <p>We found that BRAC reaches poor, less educated subsistence farmers who also run diverse non-farm microenterprises (MEs). The group-lending model BRAC uses is effective in ensuring loan repayment. However, much as BRAC gives out production loans, many women borrow to meet lump-sum monetary needs, in addition to investment in non-farm MEs. High costs of borrowing, limited loan amounts, the stress caused by weekly loan repayment and resolution of lump-sum cash needs were identified as reasons for women to stop borrowing. The diversion of loans to non-production activities, the size and types of businesses, and loan terms and processes were identified and factors that could diminish the contribution of microcredit to ME expansion and income increase.</p> <p>Assessment of the effect of borrowing on non-farm ME performance revealed that much as borrowers invested reasonable fractions of received loans into non-farm MEs leading to improvement in monetary worth, the borrowing context, loan repayment terms, type and size of microenterprises did favour higher profits.</p> <p>In regard to farm production, borrowing did not lead to extra recurrent crop and animal production expenditures. The prevailing subsistence nature of crop and animal production did not seem to favour extra investment. As such, borrowing did not improve household food availability, through own production.</p> <p>Assessment of the effect of borrowing on household food security revealed a decline in food security following the uptake of microcredit. The analysis reveals robustly lower dietary diversity among long-time borrowers than among new borrowers, and larger reductions in dietary diversity scores among new borrowers, after one year, compared to controls. The reduction in dietary diversity was traced to a reduction in animal-source food, fruit and sugar intake. This was partly explained by observation of an apparent shift from own production to reliance on food purchase by households, which is not accompanied by substantial increase in income.</p> <p>Overall, we found that taking microcredit did not lead to improved farm and non-farm production or food security among the rural women borrowers studied. This was mainly attributed to nature of activities the women engage in, the loan terms and processes, and the local context the women operate under.