Effect Of Microfinance On Livelihood Diversification For Rural Households: A Case Study Of Siaya County In Kenya
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The primary objective of this thesis is to analyze the impact of micro financing on diversifying household income through a sample survey of five divisions in Siaya County. This was done using concepts: like household income/expenditure, asset holdings and income diversity, education and various measures of vulnerability at household and enterprise level. Role of demographic and other independent variables were analyzed with the help of multinomial regression analysis. The evidence turns out to be mixed one like (i) Strong positive impact on financial performance of the households. (ii) Mixed evidence on food security, household expenditures and household assets and no impact has been observed on non food purchasing. In the analysis, we found that education attainment is directly proportional to income hence the highly educated households have higher income There was a strong correlation between the number of people engaged in various economic activities and the total income for the household (r=0.7).There is a positive relationship between food security and participation in microfinance. The study revealed that household with more than one source of income expended more on both food and non-food items compared to those with only one source of income. Similarly, the study found out that household heads who were engaged in more than one economic activity were less vulnerable and cushioned from the shocks compared to household heads who were engaged in only one economic activity. A significant positive relationship between MFI participation and acquisition of assets was observed in this study such as purchase of land using formal MFI income while livestock was mainly purchased with income from informal sources. Households preferred the formal credit source when the amount demanded is large. There is ample evidence from this study to support the positive impact of microfinance on poverty reduction and diversification of income. In particular, there is overwhelming evidence substantiating a beneficial effect on nutritional status (increased food intake for households), education of children and acquisition of land and livestock as well as enterprises. The study recommends that there should be a welfare improvement where emphasis should be on multi-dimensionality and welfare assessment in the community by the government. This means the community should be encouraged to diversify in activities so as to improve their livelihood and come out of the poverty trap. This research has made a significant contribution in unraveling some of the myths of microfinance by helping in understanding the determinants of financing sources. A new concept of great preference of borrowing for savings is an area that can be explored in other subsequent studies.