BULE HORA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMICS

DETERMINANTS OF FARMERS’ SAVING BEHAVIOR: IN CASE OF

DUGDA DEWA DISTRICT WEST GUJI ZONE OROMIA REGIONAL
STATE

A Thesis submitted to Department of Economics in The Partial Fulfillment of

Requirements for The Award of Masters of Science (MSc) in Development
Economics

BY
AYANTU GELETA

ADVISOR: Girum D. (Ph. D)

JUL, 2022

BULE HORA, ETHIOPIA

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 ACKNOWLEDGEMENT
Above all I would like to express my endless love and gratitude to my GOD.
Secondly, I would like to extend my heartfelt gratitude to my advisor Dr. Girum Dagne (PH.D)
for his guidance, suggestions and constructive comments without which this thesis would have
not been in this form. All my family, sisters, brothers, and parents also deserve a word of thanks
for their contribution and all rounded support throughout my life. Finally, I would like to say
thank you to all my friends, colleagues, and classmates for their encouragement, and moral.

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 ABSTRACT

This study was initiated with the objective of identifying determinants of farmers’ savings
behavior in case of Dugda Dewa district West Guji zone Oromia regional state. For the purpose
of the study data were collected from 142 samples of farmer’s household heads by using primary
data. For data analysis, descriptive statistics and econometric model were used. The descriptive
results of the study showed that 51 (35.92%) of the sampled households head had savers whereas
91 (64.08%) of the sampled households were non-savers. In this study binary logistic regression
model applied. In addition to that, odd ratio and marginal effect of explanatory variables showed
that among 13 explanatory variables, six, namely household family size, age, education, access
to training, non-farm income activities, and information had statistical significant effect on rural
households’ saving behavior while, the remaining seven were statistically not significant. The
main constraints to the small holder farmers’ inability to save are inadequacy of income
(43.91%), personal causes (misuse, sickness, and fear of safety of income (24.2%) and
organizational constraints (8.8 %). Based on the study results the researcher recommended that
it is better to design strategies and policies that promote saving behavior, 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: - West Guji Zone, Dugda Dawa woreda, farmers, saving behavior

IV
 Table of Contents
ACKNOWLEDGEMENT.............................................................................................................III
ABSTRACT..................................................................................................................................IV
ABBREVIATION..........................................................................................................................V
List of Figure.................................................................................................................................VI
List of Table.................................................................................................................................VII
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 The Specific Objectives...................................................................................................4
1.5. Significance of the Study......................................................................................................4
1.6. Scope and Limitation of the study.....................................................................................5
1.7 Organization of the paper.......................................................................................................5
CHAPTER TWO.............................................................................................................................5
LITERATURE REVIEW................................................................................................................5
2.1. Theoretical Literature Review..............................................................................................5
2.1.1 Concept and Definition of Saving...................................................................................5
2.1.2 Forms of Savings in Ethiopia..........................................................................................7
2.1.3 Saving and consumption theory......................................................................................8
2.2. Empirical review of Literature............................................................................................10
2.4 Determinants of Household Savings....................................................................................17
2.5 Conceptual Framework........................................................................................................19
CHAPTER THRE..........................................................................................................................19
METHODOLOGY........................................................................................................................19
3.1 Description of the Study Area..............................................................................................19
3.1.1 Physiographic................................................................................................................19

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 3.1.2. Population.....................................................................................................................20
3.2 Research Design...................................................................................................................20
3.3 Data Source and Data Collection.........................................................................................21
3.4 Sampling Techniques...........................................................................................................21
3.4.3. Sample size determination............................................................................................21
3.5 Data Analysis and interpretation..........................................................................................22
3.5.1 Descriptive statistics......................................................................................................23
3.5.2. The econometric model................................................................................................23
3.6. Definitions of Variables and Working Hypotheses............................................................25
3.6.1 Dependent Variables.....................................................................................................26
3.6.2 Definition of Independent variables..............................................................................26
CHAPTER FOUR.........................................................................................................................31
DATA ANALYISIS AND DISCUSSION....................................................................................31
4.1 Descriptive Analysis............................................................................................................31
4.1.1 Status of saving behavior of rural farmers....................................................................31
4.1.2 Socio- Demographic determinants of Households Saving behavior.............................32
4.1.3 Characteristics of respondents by institutional factors..................................................37
4.1.4. Characteristics of Households Head by Socio -Economic factors...............................40
4.2 Econometric Analysis..........................................................................................................47
4.2.1 Model Tests...................................................................................................................47
4.2.1.1 Multicollinearity.........................................................................................................47
4.2.3 Binary Logistic regression Analysis..............................................................................50
4.2.4 Interpretation of the Binary logit Regression Results.......................................................50
4.2.5 Marginal effects of explanatory Variable.........................................................................52
4.4 Challenge and Constraints Faced in saving in the study area..........................................55
CHAPTER FIVE...........................................................................................................................57
CONCLUSIONS AND RECOMMENDAATIONS.....................................................................57
5.1. Conclusions.........................................................................................................................57
5.2. Recommendations...............................................................................................................60
5.3. Future Research Direction..................................................................................................61
Reference.......................................................................................................................................62

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 APPENDIX I.........................................................................................................................68
APPENDIX II.......................................................................................................................73

ABBREVIATION

CDF Cumulative density function

CSA Central statistics Agency
GTP Growth and Transformation Plan

GDP Growth domestic product

V
LDCs Least developing countries
LPM Logit probably model
TLU Tropical Livestock Unit
VIF Variance Inflation Factor
MOFED Ministry of finance and Economic Development

List of Figure
Figure 1 Conceptual Framework...................................................................................................19
Figure 2 Map of study area............................................................................................................21
Figure 3 Farmers Saving Behavior................................................................................................32
Figure 4 Causes for not saving......................................................................................................36
Figure 5. Access to Training..........................................................................................................37
Figure 6 Access to information......................................................................................................39

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Figure 7 Source of information......................................................................................................40
Figure 8 Categorical response of respondents on distance............................................................41
Figure 9 Amount of income generated from Non-farm activities in Birr......................................43
Figure 10 The Participation of households in MFIs......................................................................46

List of Table
Table 1 Sample Size per Kebele....................................................................................................22
Table 2 expectation sign................................................................................................................29
Table 3 Demographic features of Respondents by family size and age........................................34
Table 4 Demographic features of Respondents by education and sex..........................................35
Table 5 Amount of on-farm income in Birr (Annually)................................................................41
VII
Table 6 Households’ farm size in hectare......................................................................................43
Table 7 Farmers saving behavior and Remittance Cross tabulation..............................................44
Table 8 Number of children at school...........................................................................................45
Table 9 VIF for Continuous variables...........................................................................................48
Table 10 CC for Dummy independent variables..........................................................................49
Table 11 Logistic regression model...............................................................................................51
Table 12 Marginal effects of explanatory variables......................................................................53
Table 13 Challenge and constraints faced farmers in saving in the study area.............................56

VIII
 CHAPTER ONE
1. INTRODUCTION
1.1 Background of the Study
Household’s saving is the largest component of domestic saving in developing countries like
Ethiopia. But, the ability, willingness and opportunity of household to save overtime can
therefore significantly influence the rate and sustainability of capital accumulation and economic
growth in developing countries. And there is a lack of sufficient domestic saving in most
developing countries and as a result of this; more reliance is placed on foreign savings in the
form of capital flows into the country. The issues such as high level of unemployment, low
wages, the engagement of a large proportion of the population in the informal sector and poor
performance of the economy leads to low saving (Girma T. 2013)

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.
Saving is important in improving the well-being and serves as a financial security at the time of
shocks for the households. The habit of savings plays an important role in everyday financial
decisions. To households, 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 also believe that once the habit is formed, it
tends to have an effect on an individual’s consumption and savings (Aron et al., 2013).

In economics, national saving is the summation of public and private saving. But, private saving
can be divided into household and business saving. Many Ethiopian families/households save
little for retirement and or for other purposes. Now a day’s government encourages individuals to
develop saving habit in financial institutions, this is reviled by expanding the branches of
commercial banks and government starts to pay salary to its employee through banking system
(Wogene, 2015).

However, available evidence indicates that savings constraints, coupled with credit constraints,
may hinder productive investment. Inaccessibility of microfinance institution, lack of knowledge

1
or information, mistrust and uncertainty about available returns are potential barriers for low
income households. Therefore, poor households are more likely to save money as cash held in
their homes; but it is unsecured form of saving that does not yield a return. According to Girma
et al., (2013), the poor do save even though they do not have complete access of savings
facilities in formal financial institutions. Instead, they use informal institutions for their savings.
Another finding indicated that many rural households in developing countries, particularly in
Africa, are too poor to save (Nayak, 2013)

According to Girma et al., (2013), saving and investments gap is a serious problem confronting
poor countries including Ethiopia. Because of this, these countries face difficulties to finance
investments needed for growth from domestic saving. Even though, these countries try to finance
their investment in the short run partly through borrowings and/or foreign loan and grants it does
not bring long run solution rather it significantly increase the country’s debt.

Although, rural families in the study area are predominantly pastoralist communities. Most of the
households are pastoralist who mainly focused in livestock production and small agricultural
activity. As a result, the incomes of these families are likely to be enough to meet their basic
needs. Therefore, households level saving is, 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 Dugda Dawa District. Therefore, this study were designed to
find out the determinants of farmers’ saving behavior in West Guji Zone, Dugda Dawa district
Oromia Regional State, Ethiopia.

1.2 Statement of the Problem

Saving in its traditional form is a major issue that contributes to lower economic growth in
developing countries such as Ethiopia. This is primarily due to economic fluctuations and
climate risk, which cause significant income fluctuations and expose households susceptible to
severe suffering (Azeref, A. G.et al., 2018).

Improved access, adequacy, and trustworthiness in the financial sector could lead to an increase
in financial savings through the substitution of non-financial to financial saving instruments.
Furthermore, credit and insurance markets are mostly unproductive and underdeveloped in all
poor countries, making saving the primary source of increasing a society's wealth and assets

2
(Mariam et al., 2014). It is obvious that the mobilization of savings and the development of
saving habits in a given society will have an effect on capital accumulation and thus on the
economic development of a country in general and the financial well-being of individuals in
particular. In Ethiopia, the majority of the population lives in rural areas with limited access to
financial institutions (Amu Komla, 2012).

According to (Halefom et al., 2015) saving is preferred more in the financial form which make
funds readily available to investors and others need money to expand their business operations.
It has been shown that savers in developing countries, particularly in rural areas prefer to save
their money in terms of physical or tangible assets such as land, building, and livestock. This
practice leads to scarcity of monetary saving for investment purposes. Savings are very
imperative for supporting and developing rural industries. They provide several benefits for
households. Directly, saving could be used for investment. Indirectly, saving indicates repayment
ability, and it also increases credit rating and as collateral in credit market (Tadese, 2011). The
source of own capital clearly is household savings. However, this financial source is limited in
many cases, rural entrepreneurs meet their financial need through informal credit market (Birhan,
2015).

According to Bozio.et.al (2011) reported that, available evidence shows that saving is
emphasized as a determinant of income growth and economic development by classical
economists. However, there has been no consensus on factors that actually affect the proportion
of income that is saved. According to (Tadese, 2011) several variables have been indicated as
influencing savings and these include current income, permanent income, wealth, interest rates,
the price level, demographic characteristics and a host of other variables.

In Ethiopia, a number of studies have been done regarding determinants of farmers

saving behavior. Among these studies (Bogale, et. al,2017; Tsega and Yemane, 2014; and
Zehiwot and Senapathy, 2019) were find out diffirent factors affect farmers saving behavior in
Ethiopia. As mentioned above a factors determine farmers saving behavior were demographic,
socioeconomic and institutional factors were major factors affecting farmers saving behavior in
Ethiopia. However this study focused on factors relative affect rapid expansion of financial
institution in the study area because there is knowledge gap among the studies done regarding

3
factors affect expansion. Moreover, the present limited empirical findings results in Africa as
well in our country related to rural household savings are diverse and unsatisfying.

There little well-organized and documented research result, which can expose the status of
promotion and factors that affect the farmers’ saving habit in the study area. It is obvious that
determinant factors of household saving behavior are different from place to place. The reason
behind is that in rural Ethiopia, income generated is mainly from agricultural activity which is
seasonal based. Therefore, this study tries to assess the determinants of farmer’s savings
behavior and challenges and constraints faced farmers in saving process in west Guji zone,
Dugda Dawa district Oromia Regional state, Ethiopia.

1.3 Research Questions

This study intends to answer the following questions:

1. What are the forms of household saving accumulations in the study area?
2. What are determinants of farmers saving behavior in the study area?

1.4 Objectives of the Study

1.4.1 General Objective

The general objective of the study is to analyze determinants of farmers’ saving behavior on in
study area

1.4.2 The Specific Objectives

The specific objective of this study was

 To identify the status of household saving accumulations in the study area

 To identify the determinants of saving behaviors in the study area

1.5. Significance of the Study

An in depth study of the type, determinants of farmers saving behavior in improving farmers’
attitude towards formation of capital; and improve rural sector’s performance providing
information for the farmers in the study area. Research on issues concerning determinants of

4
farmers’ saving behavior is crucial for formulating programs for the alleviation of poverty. The
finding of the study would be important stepping stone to other researchers who would want to
carry out research on some problem.

1.6. Scope and Limitation of the study

This study done in the Dugda Dawa district west Guji Zone, Oromia National Regional State
southern Ethiopia. The study based on questionnaire that includes socio-economic, technical, and
institutional factors which significantly affect the saving behavior of farmers’. The study also
tried to address important characteristics that describe the determinants of farmers’ saving
behavior. The major problem faced during the study was true information about of their saving
by numeric because they consider as secret about their saving, time and other logistic constraints.
Moreover, most of the data are cross-sectional data which collected in 2022.

1.7 Organization of the paper

This paper is composed of five chapters. Chapter one includes introduction about background of
the study, statement of the problem, research question, the general and specific objectives of the
study, significance of the study, and organization of the study. Chapter two includes many kinds
of literature reviews connected to the research. Chapter three discusses about the research
methodologies. Chapter four presents result and discussion and the fifth chapter is about
conclusion and recommendation.

5
 CHAPTER TWO
LITERATURE REVIEW
2.1. Theoretical Literature Review

2.1.1 Concept and Definition of Saving

Saving can be known as the cash or physical products set aside for future use. Peoples in rural
and other low-income communities can save when they are guided and encouraged by the
government and financial institutions. As Romer (1996) presented, the saving may be used for
conventional consumption later in life, or bequeathed to the individual’s children for their
consumption, or even used to erect monuments to the individual upon his or her death. But as
long as the individual does not value saving in itself, the decision about the division of income
between consumption and saving is driven by preferences between presents and future
consumption and information about future consumption forecast. For peoples in rural region,
saving is made through traditional way in secret place such as in wall, underground, roof, and
pot. Gradually, the traditional way of saving in rural region has been minimized; and the people
shifted their saving pattern in form of physical assets like gold, land and house (Subhashree,
2013).

Households need fund or saving in the future for various reasons; such as: to purchase durable
consumer goods, children education, acquiring a home and health care (Marie-Therese, 2007).
As Keynes(1936) study was indicated household save; in order to build a reserve against
unforeseen contingencies, for smoothing consumption at different stage in life cycle due to
income fluctuations, to enjoy interest and appreciation and to enjoy a gradually increasing
expenditure and to enjoy a sense of financial freedom and independence. Furthermore, saving
creates to have a decent standard of living when the households are retired and saving can
provide income if the households are unemployed or ill to work.

In addition according to Gregory and Joe (2010), saving can play in alleviating material hardship
for low income households. Yet in a strong economy, households across the economic range are
subjected to unanticipated changes in economic needs or resource, commonly referred to as 8
economic shocks. Events which are affecting income can take a number of forms and can be

6
described generally in three ways: first reduce earnings; for instance, loss of jobs, and exit from
the household of an income earning member through separation, divorce; second reduced public
income support such as loss of eligibility or reduction in benefits, as through termination of time-
limited benefits, unintended noncompliance with procedural requirements or a change in
program eligibility criteria; and third reduced private income support example loss of child
support, informal child care, or other financial support from extended family, friends or
charitable organization. Then when all these unexpected income change happened the
households need income which may be deposited in terms of cash or in kind. However, there are
different factors which affect the household saving particularly in rural area. So, it is important to
investigate those factors to improve the rural household saving.

Mostly, in the literature on economic development, much of the attention in saving has been
focused on the relation between saving and growth. However, saving is not only about buildup or
economic growth. It is about evenly distribute consumption in the face of volatile and
unpredictable income and helping to guarantee the living standard of poor people whose lives are
difficult and uncertain. As more recent theories emphasize, the main motive for saving in poor
income countries are likely to be for precautionary or against random decrease in income as
short-term shock absorber (Birdsall, 2000).It implies that future consumption would be
determined by current saving of the economies. In other words present saving will determines
the future consumption of households.

2.1.2 Forms of 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). 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).

7
2.1.2.1 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.

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).

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).

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).

2.1.2.2 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).

8
2.1.3 Saving and consumption theory

Several saving premises are implied by consumption theories (hypothesis), as the amount of
income not consumed is saved. The Keynesian Absolute Income Hypothesis, the Duensberry
Relative Income Hypothesis, Friedman's Permanent Income Hypothesis, and the Modigliani Life
Cycle Hypothesis are among them.

2.1.3.1 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).

2.1.3.2 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).

2.1.3.3 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
behavior of older persons. Younger people tend to have consumption needs that exceed their

9
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.

2.1.3.4 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.

2.1.3.5 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. 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”.

2.2. Empirical review of Literature

Private and government banks, as well as Micro finance Intuitions, are examples of formal
financial institutions that provide saving and credit/loan services to both rural and urban

10
communities. Such institutions are formal in the sense that they have modern accounting and
reporting systems that can be used to evaluate their performance at any time. Banks have been
identified as the primary type of formal institution involved in saving mobilization in Africa.
However, the main problems of such institutions in dealing with the poorer households' saving
needs and mobilizing issues, particularly those of the poor in developing countries' rural areas,
are constrained by limited access to rural areas, lack of trust related to awareness problems of
households and inadequacy of formal financial institutions (Birhan, 2015).

According to Nwibo and Egwu ( 2014), rural women in Sub-Saharan Africa found it difficult to
rise agricultural production and processing because of lack of guarantee to obtain funds from
financial institutions to expand production, as household property and security belong to the
man, who is invariably regarded as the household's head. Access to financial services greatly
assists the pro-poor in managing their financial resources and escaping abject poverty. However,
providing financial services necessitates the establishment of a stable and long-term financial
institution that understands the financial needs and service requirements of the poor.

The importance of deposit services to the poor is equal to that of loan services if they are given
due attention and tailored to the poor's saving patterns (Woldemichael, 2010). The majority of
Ethiopians make little or no use of formal savings and lending institutions. Some people make
use of informal institutions that exist in the economy's informal sector. We know that saving in
informal institutions does not produce interest for depositors and thus cannot assist in resource
mobilization. As a result, it is not used for investment to generate income, and most depositors
have expected to pay for saving service to meet their changing financial needs. In developing
countries, we see a variety of informal institutions that facilitate transactions that are specific to
the poor. According to (Woldemichael(2010), access to deposit services in financial institutions
enable the poor to manage their financial resources more effectively. It aids in the smoothing of
consumption during economic shocks and allows for the accumulation of large sums of money
for future investment and household expenses.

For centuries, deposit services to the poor in Ethiopia have been dominated by widely accepted
and practiced informal mechanisms such as ‘Iqub', ‘Iddir', buying livestock and jewelry, and
hiding cash at home, due to the inaccessibility of commercial bank branches, the absence of
postal saving services, and the lack of a strong cooperative movement. During the GTP period,

11
financial institutions worked to create an accessible, efficient, and competitive financial system.
During the GTP period, financial institutions worked to create an accessible, efficient, and
competitive financial system. In this regard, emphasis has been placed on strengthening modern
payment and settlement systems, expanding access to financial services, modernizing the
banking system, and expanding the information exchange system to microfinance institutions,
among other things. (MOFED, 2014).

Savings is a means by which economic agents make a conscious decision to set aside a portion of
their current income for the purpose of investing and increasing their future earning capacity.
According to theory, household total savings are determined by the rate of return on savings, the
uncertainty of future incomes, household risk aversion, lifetime or permanent income or wealth,
family characteristics, and the availability of borrowing.(Krugman, Paul; Wells, Robin, 2012).
Increases in uncertainty, particularly in the face of liquidity and borrowing constraints, will
increase the total volume of household savings and, in particular, the proportion of precautionary
savings.

The definition of savings varies across sectors. According to Suppakitjarak and Krishnamra
(2015), there are two distinct patterns of savings that must be understood in order to comprehend
what rural savings are. These are: (a) savings made from absolute surplus, which the saver can
spare above and beyond his budgetary allotments for meeting his day-to-day needs; and (b)
savings as temporarily postponed consumption, which cannot exceed a certain limit and thus are
not real surplus. Instead, they are simply shielded from an untimely alternative use. A saver
simply imposes a constricting act on him.

Household savings are a critical determinant of welfare in developing countries due to the lack of
an efficient credit and insurance market. On the one hand, without savings, households have few
other options for smoothing out unexpected variations in their income, and shocks can leave
permanent scars, such as disrupting the process of human capital accumulation at a young age.
On the other hand, because savings are the only way to accumulate assets in the absence of credit
and insurance markets, the ability to save becomes one of the most important vehicles of social
mobility and improving future income-earning opportunities. (Dean karjan et.al, 2014). Capital
accumulation is difficult because low-income people save and invest very little of their income.

12
Cash is the most liquid asset (monetary form), whereas non-financial forms of savings include
livestock, grain, land, gold, and other valuables, among other things.

Savings represent the difference between income and consumption in households and businesses.
Income includes all earnings from all sources over the course of a year and is net of all costs
incurred in generating that income. Consumption refers to the total amount of goods and services
consumed by a rural household over the course of a year, which includes spending on food,
clothing, housing, travel, health care, and social ceremonies, etc. Savings can be made in the
form of jewelry, livestock, grain, or other goods and services, or they can be made in the form of
currency notes deposited in a bank (or most often saved) ( (Rocher and Michael, 2015).

Savings in the form of assets are subject to constraints. Grain can deteriorate in storage or be lost
to pests, and animals require care and can die; additionally, when held as insurance against crises
such as drought, they are frequently sold at a loss if the crisis occurs, due to deteriorating trade
terms or for a quick sale. Finally, having visible and accessible savings, such as grain or assets,
can make it difficult to resist demands and claims from other relatives. ( Uhuegbulem et.al,
2016). Most people in low-income neighborhoods prefer to keep their money hidden. This could
be in the roof, a pot, the walls, the ground, or under a bed. This includes the risk of theft, termite
damage, and loss in the event of a fire ( Uhuegbulem et.al, 2016).

The global experience with microfinance has debunked the myths that the poor do not save and
are not creditworthy. Despite having low-wage jobs, the poor save, and their savings rate is not
as low as one might think. Similarly, contrary to popular belief, the poor can be creditworthy; in
fact, in some countries, the poor have a higher loan repayment rate than the non-poor (Demirguc
and Klapper , 2012). The premise that capital accumulation is a prerequisite of economic growth,
and that individual and household savings are an essential part of the process of capital
accumulation, is a common feature of economic growth theories. Savings, to a large extent,
determine the rate at which productive capacity and income grow. A well-functioning financial
system will increase savings mobilization, lower transaction costs, disperse risks, and direct
resource allocation to the most productive uses (Woldemichael, 2010)

The Ethiopian economy has been characterized by low savings. The average share of gross
domestic savings and investment in GDP was 12.4 and 18.5 percent, respectively, which is very

13
low even by developing-country standards. Rural households in Ethiopia save in a variety of
ways, as individuals or as a group, despite their small size. They typically save in kind, primarily
in food grains or livestock (Amsalu et.al, 2013).

According to Woldemichael (2010), mobilizing local savings would broaden lending agencies'
resource base and, as a result, reduce their reliance on external sources. It would also lower loan
defaults because borrowers would be more cautious with their neighbors' savings rather than
government funds. Evidence suggests that rural areas have far more liquidity than is commonly
assumed. This is due in part to the seasonality of agricultural production. Furthermore, rural
residents are sensitive to changes in interest rates and the availability of appropriate financial
services. As a result, financial institutions should prioritize the mobilization of voluntary
financial savings in rural areas.

According to economic theory, savings represent the difference between income and
consumption. Earnings from all activities during a year are included in income, which is net of
the costs incurred in producing that income (imputed costs, however, constitute income of the
farm family). Income in a two-sector economy, consisting of households and businesses, is either
spent or saved. When this happens, if one knows about consumption, one can explain the savings
behavior.

Consumption refers to the total amount of goods and services consumed by a rural household
over the course of a year, which includes expenditures on food, clothing, housing, heat, lighting,
travel, education, health care, social ceremonies and recreations, litigation and charity, and so on.
Savings can be made in the form of currency notes deposited in financial institutions, or they can
be made in kind, such as jewelry, land, livestock, or other commodities. Savings are essential to
long-term economic development. The theoretical literature groups households savings motives
into four such as to provide resources for retirement and bequests; to finance large lifetime
expenditure; to finance unexpected losses of income; and to smooth the availability of financial
resources over time to maintain a more stable consumption profile.

The literature on household savings is rooted in two major hypotheses (Rocher and Michael,
2015). Following Keynes' pioneering work, which defined savings as a linear function of
income, Friedman's permanent income hypothesis was the first major breakthrough in savings

14
literature. This hypothesis distinguishes between permanent and transitory income as
determinants of savings. Permanent income is defined as the long-term income expectation over
a planning period as well as a consistent rate of consumption maintained over a lifetime given
the present value of wealth. Transitory income is the difference between actual and permanent
income, and because individuals are assumed not to consume from this income category, the
marginal propensity to save on transitory income is one.

Expectations and, as a result, the saving rate are influenced by macroeconomic and political
stability. Government services such as social security, as well as the availability and quality of
financial services, can all have an impact on saving rates. There are two sides to rural savings
mobilization. The supply side consists of the circumstances under which rural clients are most
likely to entrust their savings to financial institutions, and the demand side consists of the effort
and range of services provided by financial intermediaries to institutionalize surplus funds.
According to Dean Karjan et al. (2014), the degree of monetization in an economy is a critical
factor in deposit mobilization. Farmers' ability and willingness to interact with the market,
particularly financial institutions, increases when they produce for the market. Rural households,
on the other hand, would prefer physical assets to financial savings during times of high inflation
and economic insecurity.

Rural people are rational in their financial decisions, and they take advantage of attractive
interest rates on deposits when they are available. In effect, an increase in interest rates makes
current consumption more expensive than future consumption, promoting consumption
deferment. Access to financial institutions is an important factor in encouraging savings. Rural
people prefer to institutionalize their surpluses when financial institutions/banks open near
market centers and operate at convenient hours. When they are confident in its liquidity, they
would rather earn something on the surplus than keep it idle (Bozio et. al, 2011)

Smaller depositors would be attracted if minimum transaction and balance limits were set at a
low level. Depositors can be encouraged by the provision of financial services such as money
transfer from one center to another. Similarly, non-financial services such as crop payment, bill
payment, and so on can increase deposits. Payment for crops provides an opportunity for
intermediation because the buyer can set up an account payable in the farmer's name. When there

15
is a link between savings and lending, rural households will be encouraged to save in order to
obtain a loan when needed.

Household savings appear to be a difficult variable to quantify in rural areas (Donkor and Duah,
2013). They are not always measurable. Saving methods are practiced in response to the need to
ensure long-term security for households. As a result, one must distinguish the rural community's
savings potential in cash, kind, or livestock, among other things.

Empirical evidences of household savings in Pakistan (Browning, Crossley, and Winter, 2014)
revealed that savings methods are classified as cash savings, bond savings, agricultural savings,
and livestock savings. Saving in agricultural products is preferred due to its greater flexibility.
The most common type of saving is in livestock. It has two effects on the household economy:
first, as a source of extra income, and second, as cash that is always available at home.

There are four types of factors that influence the form and extent of saving. These are the
following: economic, psychological, sociocultural, and institutional factors. The following are
some of the findings from Browning, Crossley, and Winter's (2014) study. The amount and type
of savings are determined by income. Landholding, particularly the size of citrus orchards, has a
strong influence on the rate of total saving, because landholding affects income, and income
affects savings positively. A large family size has a negative impact on in-kind savings. Cash
savings remain neutral, but livestock keeping has been shown to be positively influenced by
household labor availability.

According to an empirical survey of gender-specific savings aptitude, women are financially

conservative and prefer to save money for the security of their families, whereas men prefer to
focus on the accumulation of social capital. (Donkor and Duah, 2013) conducted a study in the
South Pacific region in an island nation called Fiji in two ethnic groups, the native Fijians and
the Indo-Fijians, who lived side by side but had contrasting savings, investment, and business
behavior. The analysis revealed that the variables gender, ethnicity, income, and bank account
were highly significant to the annual savings amount when using the Tobit techniques.

The findings of a study conducted by Bogale, Amsalu, and M elikamu (2017) titled Savings
Habits, Needs, and Priorities in Rural Uganda revealed that the most significant impediment to
rural savings was low income level of rural households; the second most significant impediment

16
to savings was high fee charged by financial institutions; and the third most significant
impediment to savings was low. The low interest rate paid on savings was a relatively minor
impediment to saving. Even if clients believe the interest rate is too low, they continue to be
clients because the disincentive is insufficient to cause them to leave.

According to studies by Mody, Ohnsorge, and Sandri (2012), rapidly growing countries have
higher savings rates than slower-growing countries. Many factors influence these rates, including
per capita income, the rate of income growth, the age composition of the population, and
attitudes toward thrift. The findings of a study conducted by (Birhanu, 2015) revealed that
demographic variables such as age groups, birth rates, and dependency ratios, as well as financial
variables such as interest rates, inflation rates, available financial instruments, and initial wealth
levels, had a significant impact on household savings decisions. Similarly, the results of model
simulation studies revealed that income uncertainty has a positive impact on household savings
(Amu Komla, 2012).
.
2.4 Determinants of Household Savings
According to Aron et al. (2013), the composition and features of households, as well as
individual factors, demographic, economic, and social characteristics of households, influence
the arrangement and behavior of household saving in a society. Differences in these factors may
cause changes in the national saving rate over time. According to various studies, approximately
six million Ethiopian households save money in financial institutions with an average of 875 Birr
per year and a saving rate as a percentage of GDP of 9.5 percent, which is very low when
compared to China, Bangladesh, and South Africa. Aron et al. (2013).

One important factor influencing household saving is the composition and characteristics of the
family. Families with a higher proportion of active working members who participate in
economic activities save significantly more than other families. It matters whether the household
is headed by a man or a woman when it comes to saving. According to the findings, male-headed
households are more likely to save large amounts of money than female-headed households
because they are more frequently involved in various occupations (Popovici, 2012).

In many empirical studies, the dependence ratio is another important factor influencing saving.
The elderly and young are expected to consume from post-savings, whereas those of working
17
age are expected to save (Quartey and Blankson, 2008). Another study (Amu Komla, 2012) used
econometric methods to examine the demographic determinants of saving in a group of Asian
countries and discovered that the dependence ratio has a significant negative effect on saving
across countries.

Halefom's (2015) findings revealed some differences in average saving across age groups. The
average monthly savings of middle-aged, early-retirement, and elderly household heads are
approximately Birr 360.6, 206.2, and 244.6, respectively. The amount of savings is affected by
the education level of the household head. Girma et al. (2013), for example, used a variety of
models on household survey data to investigate the determinants of household saving in
Ethiopia. Their findings indicated that the level of education of the household head had a positive
effect on household saving.

Illiterate household heads save on average Birr 58.57 per month, whereas household heads with
primary, secondary, and tertiary education save on average Birr 261.8, Birr 269.93, and 546.65
per month. The findings also revealed that households primarily use informal saving institutions,
as a result of which their savings are rarely tracked in the national accounting system. In this
study's sample households, 54 percent are male and 46 percent are female. Furthermore, financial
institutions that provide easy access, low transaction costs, higher real returns on savings, and
convenient withdrawal of savings provided incentives for households with financial savings to
channel their savings into formal institutions(Nayak, 2013).

Furthermore, he stated that diversification into non-farming activities has been shown to increase the
savings rate of rural household heads. Households involved in non-farm activities were found to save
more than those who were not. The rate of interest determines an individual's saving rate in order to
encourage people to save Kibet et al. (2009) discovered that interest rates on deposits have a positive
influence on farmer saving in Kenyan smallholder farmers and entrepreneurs. An increase in interest rates
is expected to encourage farmers to save because it implies that they will receive higher returns on their
savings. When interest rates are high, people prefer to save rather than invest; conversely, when interest
rates are low, people prefer to invest (Nayak, 2013).

Even if poor people have some saving capacity, they will deposit their savings in a financial institution if
an appropriate institutional structure and appropriate savings products are available to meet the depositor's
savings needs (Donkor and Duah, 2013). Michae (2013) discovered that household savings habits are

18
versatile and are influenced by demographic and economic factors based largely on income in a study
using multivariate regression analysis (binary logistic and Ordinary regression least method). The
findings revealed that the main predictors of an individual's likelihood of having a savings account were
income, locality, and national health insurance registration, place of residence, gender, age, and
education. On the other hand, the main determinants of savings level were income, location, and industry
of employment, national health insurance registration, age, education, household size, and marital status.
(Donkor and Duah, 2013)

2.5 Conceptual Framework

Figure 1 Conceptual Framework

Independent Variables

Dependent variable
Institutional factors

(Kumsa, 2017)
Access to credit
Access to training Farmers saving
behavior
Transactional cost
Interest rate
Access to information??????

Socio-Economic factors
Distance from the nearest financial institution
Market distance
Annual Income
Annual expenditure

19
 CHAPTER THRE
METHODOLOGY
3.1 Description of the Study Area

3.1.1 Physiographic

Dugda Dawa district is found in West Guji zone oromia region. It is one of the 9 districts in the
West Guji zone with area coverage of 2180 km 2 hectare. Fincawa is the capital town of the
district which is situated at about 500 km from Addis Ababa. The geomorphology of the distinct
is characterized by ragged terrain. The highest elevation of the district is 1750 meter. Whereas
it’s minimum elevation is projected to be 1100 mater. (Source: pastoralist development office of
the distinct 2009) The West Guji zone covers a total area of 48,743 km2 (CSA, 2008). It lies at
an altitude of less than 1500 m above sea level. It is an arid and semi-arid area, with pockets of
sub-humid zones.

3.1.2. Population

The total number of inhabitants within the district are 94270, among the total population 48106
of them are males and 46164 are females the urban populations are 6348 (3261 male and 3088
female) (CSA, 2009). On the other hand, the rural populations are 87922 (44846 male and 43076
female). This indicates that greatest of the populations of the district are rural populations.

20
Figure 2 Map of study area

3.2 Research Design

This study designed to answer specific objective of the study employ both quantitative and
qualitative research design. The focus of the study was cross sectional research design based on
data from the respondents in related to saving habits of rural households in the study area. So,
specifically the research design for this 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 Data Source and Data Collection

In this study researcher used primary to explore the factors that affect households saving
behavior in the study area. The researcher collect primary data both in terms of quantitative and

21
qualitative approach through a well-structured questionnaire and focus group discussion (FGD)
from the study area. 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 Afaan
Oromo languages.

3.4 Sampling Techniques

Dugda Dawa district was selected purposively due to its potential for commercial business,
access to formal financial institutions, socio-economic infrastructure, access to information, and
the location advantage. To get households, actually unit of analysis, the researcher was used both
Probability and Non-probability sampling designs. Among the Probability sampling designs
simple random sampling was employed while selecting the study kebeles and final sample
respondents were withdrawn proportionally. Non-probability sampling designs particularly
convenience, interview, purposive sampling designs were used. Hence, the study focused on
farmers households live in 3 kebeles of rural areas systematically based on agro ecological
condition that mostly farming area occurred in the wereda.

3.4.3. Sample size determination

The sample size of this study is determined by using Yemane (1967) formula,

N
n= ………………………… …………………………………… ………… (1)
1+ N (e)2

Where: n is sample size, N is population size and e is the level of precision (5%).five present
(5%) degree of precision used; the target population of the study is heterogeneous population.
Therefore, using (Yemane, 1967) formulas at 95% confidence interval sample size determined

N
n= 2
1+ N (e)

220 220 220

n= =n= =n= =142
1+220 (0.05)
2
1+ 220(0.0025) 1.55

22
But in order to get how much sample we need from each selected kebeles, proportional sampling
techniques has been employed, which can be computed with the following formula:

n
ni = ∗N i
N

Table 1 Sample Size per Kebele

No Kebele Number of household head Sample size

1 Burkitu Magada 76 49

2 Mokonisa Magada 54 35

3 Burqa Arbicho 90 58

Total 220 142

3.5 Data Analysis and interpretation

Based on the objectives of the study, both descriptive statistics and econometric models
employed to analyze both qualitative and quantitative data and SPSS 20 and stata 15 software
package employed to analysis data.

3.5.1 Descriptive statistics

Descriptive statistics employed in the research to have clear picture and to draw some important
conclusions on farmers’ behavior of saving. In this study, descriptive statistics such as the mean,
standard deviation, percentage and frequency of occurrence used to analyze data. The
determinants of saving behavior of the sample respondents compare and contrast with respect to
the desire characteristics using independent sample tests drawn to some conclusions. The
statistical significance of the variables tested for both dummy and continuous variables using
chi-square (χ2) and t-tests respectively.

23
3.5.2. The econometric model

3.5.2.1 The Binary logit model

Binary logistic regressions are very similar to their linear counterparts in terms of use and
interpretation, and the only real difference here is in the type of dependent variable they use. In a
binary logistic regression, the dependent variable is binary, meaning that the variable can only
have two possible values. Because of this, when interpreting the binary logistic regression, we
are no longer talking about how our independent variables predict a score, but how they predict
which of the two groups of the binary dependent variable people end up falling into. To do this,
we look at the odds ratio.

To interpret this result, we have to know what a 0 and a 1 correspond to, and in the present study
the dependent variable was coded as 0 = not saving, and 1 = saving. Each odds ratio shows the
effects of marginal change in the corresponding dependent variable specifically, on the level of
rural farmers saving behavior 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. Therefore, in the present study,
from fourteen independent variables only six of them were found to be statistically significant to
influence rural farmers saving behavior in the study.

logp ( )
0
1− pi
=f ( β 0+ βi x i+ u )=¿ Unsaved ¿ 0………………………………………….1

While the second regression equation is for farmers able to save (save¿ 1 ¿:

logp ( 1−1 p )=f ( β + β x + u)=Save> 0…………………………………………………….2

0 i i

or  pi=E ¿ )¿ 1+e−( β1 + β 2 X i) ………………………………………………….............3

ln ( 1−pp )=β + β x ...…+ β x + e …………………………………………………….…..4

0 1 1 n n

24
Two alternative interpretations to this specification of interest are: first, the logit model is often
motivated as a latent (dummy) variables specification. Let there be an unobserved latent variable

y ¿i That is linearly related to x where y ¿i =βx ii+u i

Where,ui is a random disturbance, and then the observed dependent variable is determined by

¿
Whether y ia threshold value exceeds: {1 if y i is ≥ 0

¿
{0 if y i ≤ 1

In this case, the threshold is set to zero, but the choice of a threshold value is irrelevant so long as
a constant term is included in X i . Then,

Pr ¿ , β ¿ pr ( y ¿i ≥ 0 ) =pr ( x ii β+u i> 0 ) =1−F ¿ xii β)…………………………….5

Coding the variable in this fashion implies that, the Expected value of the dependent variable (y)
is simply the probability that

y=1 : E ( )
yi
xi
, β =1

Pr ( y i=
1
xi ( 0
)
, β ¿+ pr y i = , β =pr ¿ ) ………………………………………..6
xi

The second interpretation of the model specification is as a conditional mean specification. It

follows that, the logit model can be written as a regression model:

y i=1−F( x , β) ……………………………………………………………………….7

Where ui is a residual representing deviation of the model ‘ y i’ from its conditional mean. Then,

E ( )
ui
xi
, β =0……………………………………………………………………………………8

25
Var( )ui
xi
, β =F ¿xii , β ¿¿ xii , β ¿¿ …………………………………………………....9

Estimation of the model is done using the maximum likelihood method. Since the density
function of the maximum likelihood method is non- negative, the direction of the effect of a
change in independent ( x i) variables depend only on the sign of the β icoefficients. For dummy
variables contingent coefficient was employed to check existence of multicollinerity between
dummy variables. For continues variables the Variance Inflation Factor (VIF) used to test for the
existence of multi-collinearity between continuous explanatory variables. VIF shows how the
variance of an estimator is inflated by the presence of multicollinearity (Gujarati, 2004). VIF is
computed as follows:

1
VIF( x i)¿ 2
1−r ij

If there is no collinearity between regresses, the value VIF would be 10. As a Rule of Thumb,
values of VIF greater than10, is often taken as a signal for the existence of multi-collinearity
problem in the model (Gujarati, 2004).
3.6. Definitions of Variables and Working Hypotheses
It is necessary to identify the potential explanatory variables that would influence households’
cash saving behavior and its implication on capital accumulation. Based on review of literatures,
past research findings, experts and author’s knowledge of rural households’ cash saving behavior
of the study areas, the following variables will be used to identify potential determinants of
households’ saving behavior. To analyze the implication of farmer household’s cash saving
behavior for capital formation we can use cross-tabular analysis. Therefore, the following
variables are selected to analyze whether they determine farmer households’ cash
saving behavior.

3.6.1 Dependent Variables

Farmers Saving behaviors: The dependent variable is households saving status, which is
measured as a binary variable where 1 shows having saving account, and 0 shows have no saving

26
account. This is dummy variable in the model, which takes a value 1 if the farmers’ had savers in
financial institution and 0, otherwise.

3.6.2 Definition of Independent variables

Households’ family size (H_SIZE): This is the size of the household family measured in terms
of total number of members spouse and children. It is a continuous explanatory variable
represented by positive integer values. As the household size increases, food requirements, food
and non- food expenditure increases, which share available income to consume and this could
reduce the saving of the household. The expected effect of family size on saving is negative. On
the other hand, if the majority of the household members are productive, the level of income at
household level will be increased. Birhanu(2015) found that family size to be related negatively
to annual savings magnitude. Hence, it can be hypothesized that the household’s family size is
directly or inversely related to the farmers’ decision to save in cash.

Age of household head (H_AGE): It is a continuous variable and defined as the number of
completed years from the time of birth till the time during the survey. In this study it is assumed
that as age increases, farmers would acquire knowledge and experience through continuous
learning and the level of responsibility to manage the family and the need to accumulate assets
for tomorrow becomes high. Therefore, they prefer to save cash. Kibet et al, (2009) found that
age of the household heads to be related negatively to savings magnitude. In light of this, it is
hypothesized that the age of the household is negatively or positively related to the decision to
save in cash.

Sex of the household head (H_SEX): This is a discrete variable that takes a value of “1” if the
household head is male and “0”, otherwise. In this study, in one hand, it is assumed that male
household heads have more exposure and access to information and new interventions than
female household heads, which might enable them to participate in the FIs movement as early as
possible. On the other hand, once female headed households have got information about savings
programs and related financial products/services they are strong participants in all aspects of the
financial system. Based on this assumption it is hypothesized that sex of the household affects
both the decision to save in cash in FIs (Nwibo and Egwu , 2014).

27
Farm size (FASZ): This is a continuous variable which reveals the total crop area cultivated by
each respondent given in hectare. Farm households that have large farm size require additional
working capital for the procurement of inputs like fertilizers, pesticides, herbicides, improved
seed varieties and others. Moreover, if augmented with other factors of production like
economically active labor force and literate household members, large farm size gives higher
production that enables the farm households to increase their savings. So, it is hypothesized that
size of farm influences positively the households’ cash saving behavior ( Uhuegbulem et.al,
2016).

The amount of on-farm income in Birr (ONFA): It represents the amount of farm household
annual income generated from on-farming activities. It is a continuous variable. The higher the
amount of annual income might reflect households’ strategy of improving its agricultural
production and productivity to secure the household basic needs and gradually to change the
household members’ life style. Birhan(2015) found income of the households positively related
to the magnitude of savings. Hence, it is hypothesized that on-farm income is positively related
to save cash and the magnitude of annual savings.

Education level of the household head (EDUC): This represents the level of formal schooling
completed by the household head. It is a continuous variable in terms of the household head
grade level. On one hand, educated farmers are expected to have more exposure to the external
environment and accumulated knowledge through formal learning which might enable them to
pursue livelihood strategy that leads to better income through the benefit of saving in FIs, and on
the other hand, due to an exposure effect educated farmers prefer ‘modern’ lifestyles which lead
to increased household consumption level (Tsega and Yemane, 2014). Also found that education
level of the household heads to be related negatively to the magnitude of savings. Therefore, it is
hypothesized that education level of the household head is positively or negatively influence
cash saving (Bogale, Amsalu and M elikamu , 2017).

Number of Children at School (NCS): It is a continuous variable and measured in a total

number of children at school. Expenditures on Children’s education are another important
determinant of household savings. These expenditures mainly include monthly fees of institutes,
monthly pocket money, dues for tuition, and stationary charges as well. These expenditures are
supposed to have negative contribution in household savings (Birhanu, 2015).

28
Distance to Market Center (DMC): It is a continuous variable and distance is measured in
terms of Kilo meters or in (walking) hour from the farm household’s residence to the nearest
local market center. Proximity to the markets enables farmers to sell the necessary inputs, sell
outputs at fair prices, and minimize marketing cost. Therefore, it is hypothesized that distance to
FIs is negatively related to the household’s decision to save cash (Mariam and Maiwand, 2014).

Access to Saving Related Training (ASRT): It is a discrete variable, which takes a value of “1”
if yes and “0”, otherwise. Training would increase the awareness level of farmers and exposure
to new ideas, information, activities, opportunities, working environment, and different sources
of income, prudent handling of cash, etc. Usually the trainings programs focus on organization,
management, objectives, operation system, savings mobilization, etc.. Therefore, access to
training would have positive impact on the decision of farmers to join institutions to save cash
(Girma et.al, 2013).

The amount of income generated from non-farming activities in Birr (NOFA): It represents
the amount of annual income generated from different non-farming activities of the household. It
is a discrete variable which takes a value of “1” if yes and “0”, otherwise. The higher the amount
of non-farm income might reflect household’s strategy of diversifying its income sources with
the view to decrease the household income risk. Hence, it is hypothesized that the amount of
annual non-farm income is positively related to cash savings in financial institutions (Halefom,
2015).

Remittances (Income transfer from others): It is a discrete variable which takes a value of “1”
if yes and “0”, otherwise. The model is also interested in looking at the contribution of
remittances to the saving of the households. There is a positive and significant relationship
between households that receive support from children or other relatives and the proportion of
formal saving. This is a particularly interesting result and could be explained by two
mechanisms: i) remittances provide additional income for households which allows them to save
more; or ii) households that receive financial support from children are more likely to receive
this money through formal bank transfers meaning that they are more likely to have a bank
account and save formally (Kibet et al, 2009).

29
 The Participation of households in MFIs (PMFIs): It is a discrete variable, which takes a
value of “1” if yes and “0”, otherwise. The households who participate in MFIs have high
awareness about its activities and able them to save their cash in. Therefore, participation of
households to save their cash in MFIs is positively affecting cash saving ( Uhuegbulem et.al,
2016).

Information (Info): It is a discrete variable which takes a value of “1” if yes and “0”, otherwise.
Access to information refers to ownership of radio, tape, mobile phone, etc that the farmers have
the advantage of getting information about saving. The farm households that own the access is
expected to have high probability to save in cash. Access to information on saving is crucial in
creating awareness and attitude towards saving. Therefore, it affects saving positively.
Conversely, lack of information can affect the ability to save (Bogale, Amsalu and M elikamu ,
2017).

Table 2 expectation sign

Variables Types of Y Description of variables
variables
Depende Dummy Y1=Saved(amount of cash saved by farm household
nt Variable Y1 Y0= Unsaved(cash unsaved by farm household)
1 H-SIZE Continuous -/+ Household size in number
1 H-AGE Continuous -/+ Age of household head in years
3 H-SEX Dummy -/+ Sex of the household head (“1” for male, and “0” for
female)
4 ONFA Continuous + the amount of annual farm household income generated
from on-farming activities in birr0
5 NOFA Dummy + Engage in non-farming activities in birr(Yes=1,No=0)
6 PMFI’s Dummy -/+ Participation in MFI’s (Yes=1 No=0).
7 FASZ Continuous -/+ The size of farm owned by the HHs in Ha.
8 EDUC Continuous -/+ Education level of the household head (Years of schooling)
9 ASRT Dummy + Access to training (Yes “1”, and No “0”)
10 Remitt Dummy -/+ Amount of Remittances in birr
11 NCS Continuous - Number of Children at school in number

30
12 DFMC Continuous -/+ Distance of HHs From Market Center in km

CHAPTER FOUR
DATA ANALYISIS AND DISCUSSION

In this chapter the major findings are presented. This chapter broadly contains two sections. The
first deals with descriptive statistics like percentages, frequency distribution, measures of central
tendency and the second section explains the findings of econometric models of binary logit by
using SPSS version 20 and STATA 15 software package.

4.1 Descriptive Analysis

The descriptive analysis highly emphasis on the analysis and interpretation of the data used in
the study and look at the basic relations of the variables using percentage, frequency distribution,
measures of central tendency, bar chart as well as statistical tests like chi-square and t-test.
Particularly chi-square test was employed for categorical independent variables, while t-test was
employed continues independent variables.

4.1.1 Status of saving behavior of rural farmers

As given below figure, out of the total sampled household head 91 (64.08%) were non-savers
whereas 51 (35.92%) were savers their money in financial institutions. This result investigates
that the number of savers household head were too small. As they discuss in the FGD with
respondents indicated that as the some of the savers were using formal financial institution, while
most of the respondents save through informal saving institution like Iqub and edir because of
lack of awareness about saving in formal financial institution, saving institutions are far, and
household income is low major reason. But, when formal financial institutions were started to
provide training and begun encouraging saver households the rural farmers were become
understand the advantage of financial institutions. This motivated and created awareness of
saving for the rural household farmers to save their money in formal financial institutions.

31
Thus, it can be summarized as there is low level of understanding towards saving among rural
farmers in the study area.

Figure 3 Farmers Saving Behavior

Source: Own computation by using SPSS, 2022

4.1.2 Socio- Demographic determinants of Households Saving behavior

As presented in below table 4.1 the sampled household heads are categorized by family size, age,
sex, farm size, amount of on-farm income, livestock resource, education, number of children at
school, distance to market center, access to training, amount of income from non-farm,
remittance, participation in MFIs and information.

Households’ Family Size

As indicated in table 4.1, from the total sampled household 55 (38.73%) have 0 to 5, 79
(55.63%) have 6 to 10, and 8 (5.64%) have above 10 family size. As it’s clearly stated the most

32
of the households have the family size of 6 to 10 family size which accounts 55.63%. Out of
saver sampled farmers 18 (35.3%) are farmers with below five household size; 28 (54.9%) of
savers are households with family size of 6 to 10. In the same manner 5 (9.8%) of savers are
households who have above 10 family size. The t-value shows that there was statistically
significant in difference between the mean households family size and saving behavior (t-value =
0.605, P-value = 0.046). This result was in line with the hypothesis and finding by Birhanu
(2015), he found that family size has significant impact on saving behavior of the farmers and
they are negatively related. Thus it can be concluded that a difference of family size of the
households has indicated variation and the result depicted that there was significant impact on
farmers’ behavior.

Age of Households

As shown table 4.1 given below, the age of sampled households head are given as consequently;
21 (14.8%) were exist between 25 to 35 years, 26 (18.31%) were between 36 to 45 years, 15
(10.56%) were between 46 to 55 years, 34 (23.94%) were between 56 to 65 years, 33 (23.24%)
were between 66 to 75 years, and 13 (9.15%) were between above 75 years.

As we can observe from cross tabulation, among the respondents aged between 25 and 35 aged
farmers 7 farmers were savers, between the age of 36 to 45 six households were savers, between
the age of 46 to 55 three households were savers, between the age of 56 to 65 nineteen
households were savers, between the age of 66 to 75 nine households were savers, and above the
age of 75 years seven households were savers. As the result indicates the households’ heads
found in the age interval of 56 to 65 more savers than others aging groups. The t-value (t =
1.910, P-value = 0.058) indicated that there was statistically significant difference between the
mean age of savers and non-savers households with respect to their age. The findings of this
study depicted that age of households had significant impact on farmers saving behavior at 10%
level of significance.

33
Table 3 Demographic features of Respondents by family size and age

Variables Interval Number Percentage t-value P-value

0-5 55 40.3

Household family 6-10 79 53.8 0.605 0.046

size
>10 8 5.9

Total 142 100

25-35 21 14.8

36-45 26 18.31

Age of Households 46-55 15 10.56 1.910 0.058

56-65 34 23.94

66-75 33 23.24

Above 75 13 9.15

Total 142 100

Source: Own computation by using SPSS, 2022

Number of children at school

As it is clearly depicted in the table 4.6 below, the number of children at school of 77(54.22%),
58(40.85%) and 7(4.93%) households were had number of children at school below 5, between 5

34
and 10, and above 10 respectively. The surveyed result indicated that households with number of
children at school below 5 were high in number among other categories and the mean and
standard deviation of number of children at school were 4.470 and 2.870 respectively.

The cross tabulation revealed that from the total of 51 household savers 30 (58.82%) were
households who had number of children at school below five. Furthermore, the t-test shows that
there was statistically insignificant relationship between the farmers saving behaviour and
number of children at school of households (t = 0.239, P = 0.811). This implies that as there was
insignificant effect of number of children at school on saving behaviour. This result was
inconsistent with study of Musset P. (2012) that indicated there is significant impact of number
of children at school on saving.

Therefore, it is possible to conclude that, households the number of children at school had no
significant impact on saving behavior of farmers.

Table 4 Number of children at school

Variables Frequency Percentage Savers t-value p-value

<5 77 54.22 30

5-10 58 40.85 17 0.239 0.811

>10 7 4.93 4

Total 142 100 51

Source: Own computation by using SPSS, 2022

Farmers Saving Behavior and Households Education Cross Tabulation

From the surveyed total sampled households, 104 (73.2%) were illiterate whereas, 38 (26.8%)
were literate (refer table 4.2 below). As indicated in surveyed cross tabulation of farmers saving
behavior and households’ education out of savers 26 (51%) were illiterate while 25 (49%) were
literate. This depicted that from the total 104 (73.2%) illiterate households head respondents 26
(51%) are savers and from 38 (26.8%) literate sampled respondents 25 (49%) are savers. From
the chi-square test (X2=20.118, p-value=0.000) shows that there was statistically significant
association between the sampled households education and their saving behavior. This indicates

35
that the farmers who have educated are more saver than those who have not educated. This is
consistent with the hypothesized and the study of Kumsa (2017) that found there is a positive
relationship between education and household. Thus, it is conceivable to conclude that household
head who had got education access were more saver than who did not in the study area.

Table 5 Demographic features of Respondents by education and sex

Variables Category Frequency Percentage Chi-square P-value

Education of Literate 38 26.8

Respondents
Illiterate 104 73.2 20.118 0.000

Total 142 100

Sex of Male 126 88.7

Respondents
Female 16 11.3 2.308 0.129

Total 142 100

Source: Own computation by using SPSS, 2022

Farmers Saving Behavior and Households Sex Cross Tabulation

Out of the surveyed total sampled households, 126 (88.7%) were males whereas, 16 (11.3%)
were females (refer table 4.2 below). As it can be observed from surveyed cross tabulation of
farmers saving behaviour and households’ sex, out of savers 48 (94.1%) were males while
3(5.9%) were female. This depicted that from the total 126 (88.7%) male households head
respondents 48 (94.1%) were savers and from 16 (11.3%) females sampled respondents only 3
(5.9%) was saver. From this we can conclude that the male headed households were more saver
than female headed households.

36
The chi-square test (X2=2.308, p-value=0.129) depicted that there was no statistically significant
relationship among the sampled households sex and their saving behavior. This is inconsistent
with the finding of Nwibo and Egwu (2014) that stated sex of the household affects both the
decision to save. Thus, it is conceivable to conclude that sex of the household head had no
significant impact on saving behavior of the farmers.

Figure 4 Causes for not saving

Source: Own computation by using SPSS, 2022
As we can observe from the above figure 4.2, there are four factors for not to save among
farmers in rural area. As it is mentioned above from the total sampled household 119 (83.80%)
are non-savers. Accordingly, 29 (24.37%) of household heads were not save due to distance from
the financial institutions, 23 (19.33%) were not saving because of lack of trust on financial
institutions, 24 (20.17%) were not saving because of low level of income and the remaining and
the highest number which accounts 43 (36.13%) were not saving due to lack of understanding.
This result depicted that, lack of understanding and distance from the financial institutions at
rural areas are the main factors that hinder the rural farmers to save.

FGD result showed that, the farmers in rural area were reluctant to save their money in financial
institutions. This was due to the fact that the farmers in rural areas believe giving cash items to
other is accepted as losing of asset. The result was also indicated that, rural households have lack

37
of understanding about saving. Thus, it can conclude that distance from the financial institutions
of rural households and lacks of understanding were the reasons for no saving in the study area.

4.1.3 Characteristics of respondents by institutional factors

Access to Training for Respondents

Figure 5. Access to Training

Source: Own computation by using SPSS, 2022

Figure 4.3 above depicted the accessibility of training for respondents. As it is shown at figure
above out of 142 sampled households’ head 105 (73.94%) have not an access to training about
saving while 37 (26.06%) have got training access. The cross tabulation of farmers saving
behaviour and access to training presented that out of 37trained household heads 25 (67.6%)
were savers whereas from 105 untrained household heads only 26 (24.8%) were savers . This
show that the more the house holds got training the more they save their money. The chi-square
value of the sampled respondents depicted that there was statistically significant relationship
between access to training and saving status of households in study area (x2 =21.781; p= 0.000).

38
It implies that access to training promote households to motivate and improve their saving
awareness in study area. This result was consistent with expected hypothesized and with the
finding of Kumsa (2017), he found that participating household heads on trainings were
positively affects their saving. Hence, it is possible to conclude that wakefulness creation
through training is one way of promoting the skill shortage of households, so providing informal
education and short term training to the rural farmers boosted them well to improve their savings
culture.

Access to information for respondents

The figure below 4.4 shows that out of sampled households head 83(58.45%) were got
information about saving while 59 (41.55%) were not obtained information about saving. The
cross tabulation of farmers saving behavior and access to information shows that out 51 of the
savers households head 50 (98%) were those who got access information while 1 (2%) was those
who had not got information access. This means, 50 (98%) of savers were received information
about saving habit. The chi-square test of sampled respondents depicted that there was
statistically significant relationship among farmers saving behavior and information (X2=51.357,
P value= 0.000). This result is in line with the hypothesized and finding of Girma et al (2014)
that revealed information positively and significantly affects the decision of households to save.
This result implies that households who had received information about saving were more saver
than who had not got information. Therefore, it can be possible to conclude households who had
access to information had significant effect on households saving decisions.

39
 Figure 6 Access to information

Source: Own computation by using SPSS, 2022

Sources of Information
As it can be observed from the below figure 4.5, 83 (58.45%) of sampled households were got
information about saving from different sources. Out of 83 households who got information 7
(8.43%), 16 (19.28%), 22 (26.5%), 27 (32.53%) and 11 (13.25%) were got information from
Bank, MFIs, Union, Media and other source respectively.

Figure 7 Source of information

Source: Own computation by using SPSS, 2022

40
4.1.4. Characteristics of Households Head by Socio -Economic factors

Distance from market center

As it’s shown in below figure below 4.6, from the total sampled household heads, 75 (52.8%)
responded that the distance from the households’ home influences their behaviour while 67
(47.2%) were said market distance has no impact on saving behavior. The average distance in
kilometer from the households home to the market center were 7.80 km of mean and 5.161 km of
standard deviation.

The finding depicted that in study area households were travelling long distance to get the
market center. The t-test depicted that there is statistically insignificant relationship among
households saving behavior and distance from market center (t= 0.288; P=0.774. It implies that the
distance from the market center has no impact on farmers saving behavior. This result was contrary
with the finding of Kumsa (2017) and expected hypothesized. Thus, it can be possible to conclude
that households who live nearest the market center are near to the town and they are victim for
more expenditure than those households who live far from the market center.

Figure 8 Categorical response of respondents on distance

Source: Own computation by using SPSS, 2022

The amount of on-farm income in Birr (Annually)

41
As it is depicted in the table 4.3 below the estimated income of savers and non-savers of the
respondents, 39(27.46%), 70(49.30%) and 33(23.24%) were earned below 5000, between 5000
and 10000, and above 10000 respectively. The surveyed result indicated that households with
annual income between 5000 and 10000 were large in number among other categories and the
mean and standard deviation of annual income were 7898.30 and 4308.914 respectively.

The cross tabulation revealed that from the total of 51 household savers 10, 26, and 15 are those
who found in the income categories of below 5000, between 5000 and 10000, and above 10000
respectively. Furthermore, the t-test shows that there was statistically significant relationship
between the farmers saving behavior and annual amount of on-farm income (t = 2.319, P =
0.022). This implies that as there was significant effect of on-farm income on saving behavior.
This result was consistent with the hypothesized and the finding of Daniel A. (2018) that
indicated income highly affects saving habits of farmers.

Hence, it can be conclude that, saving behavior of the farmer’s household heads was depend on
the annual on-farm income of the farmers.

Table 6 Amount of on-farm income in Birr (Annually)

Variable Frequency Percentage Savers t-value p-value

<5000 39 27.46 10

5000-10000 70 49.30 26 2.319 0.022

>10000 33 23.24 15

Total 142 100 51

Source: Own computation by using SPSS, 2022

Amount of income generated from Non-farm activities in Birr (Annually)

As it is depicted in the figure 4.7 below, out of the total sampled household heads 73 (51.41%)
had obtained income from non-farm but the remaining 69 (48.59%) had not. The cross tabulation
revealed that from the total of 51 household savers 45 (88.2%) are those who had income from
non-farm activities while 6 (11.8%) are those who had not.

42
The chi-square test of sampled respondents depicted that there was statistically significant
relationship among farmers saving behavior and income from non-farm activities (X 2=43.207, P
value= 0.000). This result is in line with the hypothesized and finding of Kumsa (2017) that
revealed income from non-farm activities positively and significantly affects the decision of
households to save. This result implies that households who had income from non-farm were
more savers than those who had not received income from non-farm.

Hence, it is possible to conclude that, households who had engaged in non-farm activities are
more savers than those who had not.

Figure 9 Amount of income generated from Non-farm activities in Birr

Source: Own computation by using SPSS, 2022

43
Farm size of households (In Hectare)
As it is indicated in the table 4.4 below, the farm size of 42(29.58%), 76(53.52%) and
24(16.90%) households were had land size of below 5hc, between 5hc and 10hc, and above 10hc
respectively. The surveyed result indicated that households with farm size between 5hc and 10hc
were high in number among other categories and the mean and standard deviation of farm size
were 6.70 and 3.462 respectively. The cross tabulation revealed that from the total of 51
household savers 14, 27, and 10 are those who had farm size of below 5hc, between 5hc and
10hc, and above 10hc respectively.

Furthermore, the t-test shows that there was statistically insignificant relationship between the
farmers saving behavior and farm size of households (t = 1.357, P = 0.177). This implies that as
there was no significant effect of farm size on saving behavior. This result was in line with the
hypothesized and the finding of Wogene (2015) that indicated there is inverse relationship
between farm size and saving due to the households those who have more farm size can spent
more throughout the year.

Table 7 Households’ farm size in hectare

Variables Frequency Percentage Savers t-value p-value

<5 42 29.58 14

5-10 76 53.52 27 1.357 0.177

>10 24 16.90 10

Total 142 100 23

Source: Own computation by using SPSS, 2022

Remittance to household (in birr)

As it can be observed from the table 4.5 below, out of total sampled households 114 (80.3%)
were had no remittance whereas 28 (19.7%) households were got remittance. The cross-
tabulation of farmers saving behaviour and remittance revealed that from the total savers of 51
household heads 19 (37.3%) savers those who had no remittance while 32 (62.7%) were savers
those who had got remittance.

44
The chi-square test of sampled respondents depicted that there was statistically significant
relationship among farmers saving behaviour and remittance (X 2=15.460, P value= 0.000). This
result is in line with the hypothesized and finding of Andrej et al (2021) that revealed remittance
has positive and significant effects on the decision of households to save. This result implies that
households who had remittance were more savers than those who had not remittance. Hence, it is
possible to conclude that, the remittance had improved the saving behaviour of rural farmers in
the study area.

Table 8 Farmers saving behavior and Remittance Cross tabulation

Remittance Total
No yes
Count 82 9 91
% within farmers
90.1% 9.9% 100.0%
Non saver saving behaviour
% within Remittance 71.9% 32.1% 64.1%
farmers saving % of Total 57.7% 6.3% 64.1%
behaviour Count 32 19 51
% within farmers
62.7% 37.3% 100.0%
saver saving behaviour
% within Remittance 28.1% 67.9% 35.9%
% of Total 22.5% 13.4% 35.9%
Count 114 28 142
% within farmers
80.3% 19.7% 100.0%
Total saving behaviour
% within Remittance 100.0% 100.0% 100.0%
% of Total 80.3% 19.7% 100.0%

Source: Own computation by using SPSS, 2022

45
 The Participation of households in MFIs (PMFIs)

Figure 10 The Participation of households in MFIs

Source: Own computation by using SPSS, 2022

The figure above 4.8 shows that out of sampled households head 25(17.61%) were participated
in MFIs while 117 (82.39%) were not. The cross tabulation of farmers saving behaviour and
participation in MFIs shows that from the total 25 households who participate in MFIs 15 (60%)
were savers while from the total 117 households who did not participate in MFIs only 36
(30.8%) were savers.

The chi-square test of sampled respondents depicted that there was statistically significant
relationship among farmers saving behaviour and participation in MFIs (X 2=7.647, P value=
0.006). This result is in line with the hypothesized and finding of ( Uhuegbulem et.al, 2016) that
revealed participation in MFIs positively and significantly affects the decision of households to
save. This result implies that households who had participated in MFIs were more saver than
who had not participated in MFIs. This implies that, household head who participated in MFIs
were more saver than those who did not. It can be possible to conclude households’ participation
in MFIs had significant effect on households saving decisions.

46
 4.2 Econometric Analysis
In this section various tests, method of model estimation and estimation results will be presented.

4.2.1 Model Tests

For the econometric estimation to bring about best, unbiased/reliable and consistent result, it has
to fulfill the basic linear classical assumptions. The basic assumptions include: linearity in
parameters of the regression model, for given explanatory variables the mean value and the
variance of the disturbance term (Ui) is zero and constant (homoscedastic) respectively, there is
no correlation in the disturbances, no correlation between the regressors and the disturbance
term, no exact linear relationship (multicollinearity) in the regressors and the stochastic
(disturbance) term Ui is normally distributed (Gujarati, 1995). In this paper since the data
employed is cross sectional type, the most important tests such as normality, Heteroscedasticity
and multicollinearity are conducted and the appropriate remedies were taken.

4.2.1.1 Multicollinearity

Multicollinearity test: -broadly interpreted, multicollinearity refers to the situation where there is
either an exact or approximately exact linear relationship among the explanatory variables. If
multicollinearity is perfect, the regression coefficients of the explanatory variables indeterminate
and their standard errors are infinite. So in the presence of perfect multicollinearity one cannot
get a unique solution for the individual regression coefficients. There are several indicators of co
linearity for example, when R2 is very high but none of the regression coefficients is statistically
significant on the basis of the conventional t test. A multicollinearity can be accessed through
variance inflation factor (VIF) having the following decision rule. If VIF of a model exceeds 10,
which makes R2j to exceed 0.90 or the closer is TOLj is to zero the greater the degree of co-
linearity of that variable with the other regressors.

If the VIF of a variable less than 10, or the closer TOLj is to 1, the greater the evidence that Xj is
not collinear with the other regresses.

47
Table 9 VIF for Continuous variables

S/No Variables Tolerance VIF

1 H-size 0.208 4.797
2 H-age 0.284 3.521
3 FASZ 0.403 2.483
4 ONFA 0.528 1.895
5 NSC 0.354 2.828
6 DMC 0.981 1.020

Source: Own computation by using SPSS, 2022

From above table 4.8 it is possible to conclude that as there is no problem of multicollinearity
since the value of VIF for all variables is less than ten. To see the existence of multicollinearity
for dummy independent variables we employ contingency coefficients. It is computed as:

Where CC= contingency coefficient, X2=chi-square random variable and N= total sample size.

Always the value of CC is between 0 and 1. Zero indicates absolutely no association between
variables (total independence) and one indicates total dependence of one variable on the other. In
another word, the closer the coefficient is to 0, the weaker the association; and the closer the
coefficient is to 1, the stronger the association. In the present study since the value of CC for all
dummy explanatory variables is closer to zero there is weaker association among variables.

Table 10 CC for Dummy independent variables

48
 Variable H-sex EDUC AT NOFA Remit PMFIs INFO
s

H-sex 1

EDUC 0.086 1

AT 0.159 0.076 1

NOFA 0.034 0.343 0.305 1

Remit 0.120 0.177 0.297 0.292 1

PMFIs 0.106 0.055 0.264 0.116 0.388 1

INFO 0.016 0.244 0.292 0.521 0.327 0.198 1

Source: Own computation by using SPSS, 2022

49
4.2.3 Binary Logistic regression Analysis

Binary logistic regressions are very similar to their linear counterparts in terms of use and
interpretation, and the only real difference here is in the type of dependent variable they use. In
a linear regression, the dependent variable (or what you are trying to predict) is continuous. In a
binary logistic regression, the dependent variable is binary, meaning that the variable can only
have two possible values. Because of this, when interpreting the binary logistic regression, we
are no longer talking about how our independent variables predict a score, but how they predict
which of the two groups of the binary dependent variable people end up falling into. To do this,
we look at the odds ratio.

To interpret this result, we have to know what a 0 and a 1 correspond to, and in the present study
the dependent variable was coded as 0 = not saving, and 1 = saving. Each odds ratio shows the
effects of marginal change in the corresponding dependent variable specifically, on the level of
rural farmers saving behavior 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. Therefore, in the present study,
from fourteen independent variables only six of them were found to be statistically significant to
influence rural farmers saving behavior in the study area (Refer table 11)

50
Table 11 Logistic regression model
Variables Odds Ratio Std. Err. z P>│z│ [95% Conf. Interval]

Lower Upper
H-SIZE .5620978 .1389746 -2.33 0.020** .346225 .9125683

H-AGE 1.079235 .0404655 2.03 0.042** 1.002768 1.161533

H-SEX 4.159624 4.027762 1.47 0.141 .6234993 27.75059

FASZ .090655 .1461032 0.65 0.517 .838805 1.418122

ONFA .9999924 .0000856 -0.09 0.929 .9998247 1.00016

EDUC 5.817877 3.895514 2.63 0.009*** 1.566102 21.6127

NSC .872111 .1365546 -0.87 0.382 .6416396 1.185366

DMC .945053 .0624817 -0.85 0.393 .8301937 1.075803

AT 4.081284 2.819612 2.04 0.042** 1.053737 15.80743

NOFA 4.40998 3.264253 2.00 0.045** 1.033666 18.81453

REM .8909694 .6813489 -0.15 0.880 .1990332 3.988413

PMFIS .9857707 .8445768 -0.02 0.987 .1838627 5.285161

INFO 39.23657 45.70065 3.15 0.002*** 4.001817 384.7023
CONS .0008246 .0013744 -4.26 0.000 .0000314 .021626

Number of obs = 142 Log likelihood = -39.152939

LR chi2(13) = 107.13 Pseudo R2 = 0.5777

Prob > chi2 = 0.0000

Source: Own computation by using STATA 14, 2022

Note: ***, ** and * show the significance of the variables at one percent, five percent and ten
percent respectively.

51
52
 4.2.4 Interpretation of the Binary logit Regression Results
Households’ family size (H_SIZE): The household head family size is measured in
numbers of children found in the family members. So, as the regression result indicates the
coefficient of household family size has negative sign (below 1 odd ratio). Thus, as the family
size increase the household head saving has been decreased per year on average. It means that
the household expenditure on education, health care, and food expenditures are increase over the
time. In general, as the household family size increases by one child the household head saving is
decreases by 0.562 birr per year on average and it is statistically significant at 1%.

This result was in line with the hypothesized and the finding of Birhanu (2015) that indicated
there is inverse relationship between family size and saving due to the farmers those who have
more family size can spent more throughout the year. Therefore, it can be concluded that
respondents who have more family size were less likely to save their money than those have
small family size. Thus, family size probably constrains regularity of the saving as well (refer
table 4:9).

Age of household head (H_AGE): as it can be seen from the above table 4.9 Age of
farmer has positive and significant impact on rural farmers saving behavior. The odds ratio result
revealed that when the age of household head increases, the probability of households saving
increases by 1.079 times (p-value=0.042; OR=1.079). This implies that rural households with
older age tend to save more in formal financial institutions. This would have possibly meant that
in study area those older household heads were more future oriented than youngers one. This
result was in line with the hypothesized, but it is inconsistent with finding of Kibet et al, (2009)
who found that age of the household heads to be related negatively to savings magnitude. Hence,
from the model results it can conclude that the older the farmer the more they save (see table
4:9).

Education level of households head: The estimation results depicted that the education
level of households has positive and significant impact on rural farmers’ savings behavior at 1%
level of significance and it is consistent with the hypothesis. According to the odds ratio result
revealed the farmers who got education access save more than those who had not got. Based on

50
the model result, literate household heads had 5.817 times more odds-ratio of saving than
illiterate household heads or the probability of saving is increased by this much (OR =5.817, P-
value =0 .009).

The most probable reasons for this are education create awareness, increase 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 this study is in line with the hypothesized and the study of Kumsa (2017) that
found there is a positive relationship between education and household. 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
4:9).

Access to Training for households head: training is the most important factor that
determines the saving behavior of rural farmers`. From the estimation results of the study, access
of training regard to saving culture has positive and significant influence on rural farmers’
savings behavior at the 5 % level of significance and the result was in line with the hypothesis.
The odds ratio result showed that ceteris paribus, households who did train on saving was 4.081
times more likely to save their money in formal institutions than not trained farmers (OR =4.081,
P-value= 0.042). 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 behavior 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. The finding in line
with the hypothesis and the finding of Girma et al. (2013) that found the more the farmers

51
trained the more they save. Therefore, it can be concluded that understanding about the benefits
of households saving through training might encourage them to save higher and higher (see table
4:9).
The amount of income generated from non-farming activities in Birr (NOFA):
According to the study results, NOFA has influenced households saving status positively and
significantly at the 5 % significance level in the study area but the result was consistent with the
hypothesized. The odds ratio result showed that other things being constant, farmers who
engaged in NOFA save 4.409 times more likely than those who did not engaged in NOFA (OR
=4.409, P-value= 0.045). The finding was similar to the work of Halefom (2015) that shows a
positive relationship between NOFA and rural farmers’ saving. From the model results it can
conclude that the more the households engaged in NOFA, it increases their saving ability (see
table 4:9).

Information (Info): Access to information on saving is crucial in creating awareness and

attitude towards saving. From the estimation results of the study, access of information regard to
saving culture has positive and significant influence on rural farmers’ savings behavior at the 1
% level of significance and the result was in line with the hypothesis. The odds ratio result
showed that ceteris paribus, farmers who got information regard to save was 39.236 times more
likely to save their money in formal institutions than those who had not information (OR
=39.236, P-value= 0.002). This implies farmers who have information access were save more.
The positive relationship between information and farmers saving behavior indicated that
farmers get awareness and motivation from the information was enhances their saving
improvements. The finding in line with the hypothesis and the finding of Bogale et al. (2017)
that found the more the farmers informed about saving the more they save. Therefore, it can be
concluded that understanding about the benefits of households saving through information might
motivate them to save more and more (see table 4:9).

4.2.5 Marginal effects of explanatory Variable

Marginal effects are a useful way to describe the average effect of changes in explanatory
variables on the change in the probability of outcomes in logistic regression and other nonlinear
models. Marginal effects provide a direct and easily interpreted answer to the research question
52
of interest. Marginal effects are computed differently for discrete (i.e. categorical) and continuous
variables. With binary independent variables, marginal effects measure discrete change, i.e. how do
predicted probabilities change as the binary independent variable changes from 0 to 1?

The marginal effect at the means is calculated when all explanatory variables in the model take their
mean value. The predicted probability is obtained from multiplying each logistic regression
coefficient times the mean of corresponding independent variable, summing the products and the
intercept, and transforming the predicted logit into a predicted probability. Then, this predicted
probability can be used with the formula for the partial derivative to calculate marginal effects for
each independent variable. Table 4.11 displays the marginal effects of each independent variable.

Table 12 Marginal effects of explanatory variables

Variables dy/dx Std. Err. z P >│z│ [95% Conf. Interval]
Lower Upper

HSIZE -.0488168 .0191825 -2.54 0.011** -.0864138 -.0112199

HAGE .0064616 .0029336 2.20 0.028** .0007119 .0122113
HSEX .1207902 .0788953 1.53 0.126 -.0338418 .2754221
FASZ .0073536 .0112922 0.65 0.515 -.0147787 .0294858
ONFA -6.44e-07 7.25e-06 -0.09 0.929 -.0000149 .0000136
EDUC .1492212 .0505049 2.95 0.003*** .0502335 .248209
NSC -.0115957 .0130867 -0.89 0.376 -.0372452 .0140538
DMC -.004789 .0055479 -0.86 0.388 -.0156628 .0060848
AT .119179 .0551426 2.16 0.031** .0111014 .2272566
NOFA .1257428 .0589698 2.13 0.033** .0101641 .2413215
REM -.0097828 .064776 -0.15 0.880 -.1367413 .1171757
PMFIS -.0012144 .0726063 -0.02 0.987 -.1435202 .1410913
INFO .3109618 .0885727 3.51 0.000*** .1373625 .4845611

Source: Own computation by using STATA 14, 2022

Note: ***, ** and * show the significance of the variables at one percent, five percent and ten
percent respectively.
The marginal effects make for a more intuitive interpretation than odds ratio. As we can see from
the above table 4.10 the coefficients of all independent variables represent changes on
probability scale ranging from 0 to 1.

53
The marginal effect of household family size: The Marginal effect shows that when

family size increase by one the rural household saving behavior decrease by 4.88 per cent. This
implies that, with a marginal change in family size the expected probability of saving
decreases by 0.0488. This is consistent with the finding of Tanvi K. and Shivam Dh. (2015) that
revealed having large number of family size dwindled the saving. Hence, it can be concluded
that rural farmers who had large number of family size were save their money less than those
who had small number family size since they had more expenditure in the study area.

The marginal effect of household age: as it is shown on table 4.11 above the marginal
effect of household age is 0.0064. This indicates that the expected probability of saving increases
by 0.0064 with marginal change household age. This finding is contrary with the finding of
Kibet et al, (2009) who found that age of the household heads to be related negatively to savings
magnitude. Thus, it can be summarized that the household who have older age would save than
those who had relatively younger one in study area.

The marginal effect of Education: education plays a lion share in the saving behavior of
the households. With literate household saving will be higher. From the model result marginal
effect of education is 0.149. This implies, with a marginal change in education the expected
probability of saving increases by 0.149. This finding is similar with the study of Cesar R. and
Jacques M. (1999) that discovered education has positive and significant impact on farmers
saving behavior. Therefore, it is possible to conclude literate household heads were more
economically saver than illiterate household heads in the study area.

The marginal effect of Access to Training: providing training access for the rural
farmers give awareness regard to save. In this study the marginal effect of access to training is
0.119. This reveals that the expected probability of saving increases by 0.119 with marginal
change access to training. This result is in line with study of Zekariyas T. (2021) that revealed
the strong and positive relationship between access to training and rural farmers saving habit. To
conclude that households who got training access are more likely savers than those who had not
received training in the study area.

The marginal effect of NOFA: farmers who engaged in non-farm activities will get
additional income and their saving will raise. For the present study the marginal effect of NOFA
54
is 0.125. This depicts, with a marginal change in NOFA the expected probability of saving
increases by 0.125. This result consistent with the finding of Meaza T. (2014) that stated non-
farm income sustains the rural farmers living by increasing their income consequently saving. It
can be summarized that farmers who engaged in non-farm activities were save their income than
others in the study area.

The marginal effect of Information: providing symmetric information for rural farmers
is an important activity to aware the farmers regard to save. The estimation result shows the
marginal effect of information is 0.310. This shows that the expected probability of saving
increases by 0.310 with marginal change in information access. This finding is similar with result
of Bogale et al. (2017) that investigated farmers who had got information were more likely to
save than others since they were more aware about saving. To conclude that in the study area a
farmers who got information about saving were have a positive attitude about the concept of
saving.

55
 CHAPTER FIVE
CONCLUSIONS AND RECOMMENDAATIONS
5.1. Conclusions
The study was conducted in Dugda Dewa district, West Guji Zone, Oromia regional state,
Ethiopia. With regards to the investigation into the savings habits of household heads in the
study area, this research has provided some insight into how some of those factors interact and
affect the savings habit of households.

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.

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 logistic regression analysis was conducted. The model results suggest that the
saving habit of rural households was influenced by six the most essential variable factors. Those
were households’ family size, age of household head, education level of household head, access
to training for household head, the amount of income generated from non-farming activities and
access to information.

The estimation output investigated that those farmers who have more family size had less access
to save. This means household that have more family size were less likely to save their money
than those have small family size. Thus, family size probably constrains regularity of the saving
as well.

The odds ratio result revealed that when the age of household head increases, the probability of
households saving increases by 1.079 times (p-value=0.042; OR=1.079). This implies that rural
households with older age tend to save more in formal financial institutions. This would have

56
possibly meant that in study area those older household heads were more future oriented than
youngers one. Hence, from the model results it can conclude that the older the farmer the more
they save

The estimation results depicted that the education level of households has positive and
significant impact on rural farmers’ savings behavior at 1% level of significance and it is
consistent with the hypothesis. According to the odds ratio result revealed the farmers who got
education access save more than those who had not got. Based on the model result, literate
household heads had 5.817 times more odds-ratio of saving than illiterate household heads or the
probability of saving is increased by this much. The most probable reasons for this are education
create awareness, increase 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 this study is in line with the hypothesized and the study of Kumsa (2017) that
found there is a positive relationship between education and household. 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.

Training is the most important factor that determines the saving behavior of rural farmers`. From
the estimation results of the study, access of training regard to saving culture has positive and
significant influence on rural farmers’ savings behavior at the 5 % level of significance and the
result was in line with the hypothesis. The odds ratio result showed that ceteris paribus,
households who did train on saving was 4.081 times more likely to save their money in formal
institutions than not trained farmers (OR =4.081, P-value= 0.042). 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.

57
The positive relationship between training and households saving behavior 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. The finding in line
with the hypothesis and the finding of Girma et al. (2013) that found the more the farmers
trained the more they save. Therefore, it can be concluded that understanding about the benefits
of households saving through training might encourage them to save higher and higher.

According to the study results, NOFA has influenced households saving status positively and
significantly at the 5 % significance level in the study area but the result was consistent with the
hypothesized. The odds ratio result showed that other things being constant, farmers who
engaged in NOFA save 4.409 times more likely than those who did not engaged in NOFA (OR
=4.409, P-value= 0.045). The finding was similar to the work of Halefom (2015) that shows a
positive relationship between NOFA and rural farmers’ saving. From the model results it can
conclude that the more the households engaged in NOFA, it increases their saving ability.

Access to information on saving is crucial in creating awareness and attitude towards saving.
From the estimation results of the study, access of information regard to saving culture has
positive and significant influence on rural farmers’ savings behavior at the 1 % level of
significance and the result was in line with the hypothesis. The odds ratio result showed that
ceteris paribus, farmers who got information regard to save was 39.236 times more likely to
save their money in formal institutions than those who had not information (OR =39.236, P-
value= 0.002). This implies farmers who have information access were save more. The positive
relationship between information and farmers saving behavior indicated that farmers get
awareness and motivation from the information was enhances their saving improvements. The
finding in line with the hypothesis and the finding of Bogale et al. (2017) that found the more the
farmers informed about saving the more they save.

58
 5.2. Recommendations
The study was conducted on factors affecting rural households’ savings behavior in Dugda Dawa
district, Guji zone in Oromia regional state of Ethiopia. The findings of the study identified
major factors regarding households saving behavior in the study area; the following
recommendations are forwarded for better future improvement of the saving behavior among
rural households in the study area.

The finding of the study presented that household’s family size is statistically significant and
negatively influenced the farmers saving behavior. Hence, it is recommended that to have small
family size is good for the farmers to save more. As the finding shows age of the household head
is found to be significant and positively influencing the saving habit of farmers.

According to the study result educational 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 behavior. 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.

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. The researcher finally would like

59
to recommend that developing strategies that promote rural household savings in rural areas is an
integral part to achieve economic growth in the study area.
5.3. 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

BULE HORA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

66
 DEPARTMENT OF ECONOMICS

MASTER OF SCIENCE IN DEVELOPMENT ECONOMICS

Questionnaire
Dear respondent

This questionnaire is designed to collect relevant information from selected respondents to aid in
the assessment of the determinants of farmers’ saving behavior: in case of Dugda Dewa
district west guji zone oromia regional state. 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 _____________________ ID of Respondent _____________

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.

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

SECTION B: INSTITUTIONAL FACTORS

67
1. Saving
1. Did you save money in formal financial institutions?
1. Yes 0. No

2. 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)…….
3. Did you save your money in informal way like edir and equb?
1. Yes 0. No

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

S.no Credit sources Yes No

2. 1 Bank
2. 2 OSACCOs
2. 3 Credit & saving Cooperatives
2. 4 Idir
2. 5 Local money lenders
2. 6 From Other (specify)………

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 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
3.Have you observed 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

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 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

SECTION C: SAVING INSTITUTION FACTORS

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

8. 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

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

9. 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?

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………………..
10. What are challenges faced as you cannot saving financial institution?

________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
_____________________________________

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 APPENDIX II

BULE HORA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMICS

MASTER OF SCIENCE IN DEVELOPMENT ECONOMICS

Focus Group Discussion

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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 APPROVAL SHEET

SCHOOL OF GRADUATE STUDIES BULE HORA UNIVERSITY

This is to certify that, this thesis proposal entitled determinants of farmers’ saving behavior in
case of Dugda Dawa district west guji zone oromia regional state
. “Submitted in a partial fulfillment of the requirement for the Award of a Master’s Degree in
Development Economics prepared by Ayantu Geleta ID.No.WPG143/12 can be submitted to the
department of economics for further progress of thesis.

Name Sign. Date

Principal advisor ---------------------------------- ----------- --------------

co-advisor -------------------------------------- ------------ ----------------

Examiner ------------------------------------------ ----------- --------------

Department head ------------------------------------- ------------ ----------------

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