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«September 2015 Authored by Kristin Lindell With contributions from Julie Carandang Kim Do Veronica Olazabal (external advisor) Executive Summary The ...»

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2014 and 2015 Nuru Ethiopia

Financial Inclusion Baseline Report

Findings of the

Baseline Assessment and Analysis

September 2015

Authored by

Kristin Lindell

With contributions from

Julie Carandang

Kim Do

Veronica Olazabal (external advisor)

Executive Summary

The Nuru Ethiopia Financial Inclusion Program (NE FI) aims to improve the community’s ability to

cope with economic shocks by increasing access to and use of community-based financial services,

improving management practices in financial literacy and numeracy skills and increasing and diversifying income. The Nuru Monitoring and Evaluation (M&E) team supports this work by annually evaluating the program to address: What is the impact of the Nuru Ethiopia Financial Inclusion Program?

The following report presents the inaugural NE FI baseline, with the purpose of establishing comparability for future impact assessments. Specifically, the report compares baseline savings and loans behaviors, income generating activities (IGAs), access to financial institutions and the ability to cope with shocks across a sample of Nuru farmer households and a Non-Nuru comparison group.

Prior to NE FI launch in October 2014, NE M&E administered a baseline survey (Baseline 1) to 980 farmer households, which included 492 Non-Nuru households (Non-Nuru Baseline 1, or Non-Nuru B1) and 488 Nuru households (Nuru Baseline 1, or Nuru B1). In preparation to enroll new FI members in 2016, NE M&E also administered a baseline survey (Baseline 2) to 383 Nuru households (Nuru Baseline 2, or Nuru B2).

The initial findings from the two baseline surveys show that a majority of farmer households (more than 90 percent) in all three cohorts rely on non-financial savings mechanisms in the form of livestock (Table 1: Initial Findings). In regards to financial savings assets, most households do not save in cash. In order to cope with shocks, households either turn to family and friends or local moneylenders for a loan or sell or rent their assets. These data suggest that households employ less sustainable coping mechanisms in the event of an economic shock. In comparison with cash savings rates, households are more likely to have a loan and/or be involved in an off-farm IGA. While there are a few exceptions, a majority of households favor loans and IGAs over financial savings.

Table 1: Initial Findings Initial findings Indicator Non-Nuru B1 Nuru B1 Nuru B2 Most farmer households do not % of households who 4% 12% 8% save in cash save in cash More than 90 percent of farmer % of households who 91% 94% 98% households rely on non-financial own livestock savings in the form of livestock

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To ensure future impact, Nuru M&E recommends the following:

1. As farmer households demonstrate a predisposition towards livestock ownership, NE FI should explore potential ways to incentivize savings, perhaps through livestock IGAs or other mechanisms identified by NE FI.

2. The baseline data also suggest that farmer households are more engaged in loans and IGAs as opposed to financial savings. That said, NE FI should consider exploring the barriers to financial savings via a tool like the Barrier Analysis and working with Nuru farmer households to overcome these obstacles. One suggestion is to leverage the pre-existing savings systems employed via the informal Iddir and Iqqub groups.

3. NE FI should monitor savings deposits, withdrawals, loans and income from IGAs at the individual level on a regular basis. This will allow self-reported annual impact data to be validated with financial data on actual savings and loans behavior.

4. NE M&E should ensure the FI evaluation survey training addresses data collection quality issues with improved explanations of the meaning of the questions and emphasis on reducing missing data points. In particular, as saving in cash is not a cultural norm, NE M&E should ensure that translations of questions about cash savings are framed to communicate the original intent.

5. NE M&E should reduce the length of the follow up survey to increase the number of farmer household responses to questions.

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Introduction The Nuru Monitoring and Evaluation Program (M&E) produces useful and relevant information that can contribute to key decision-making about Nuru’s programs (e.g., whether to continue, replicate and/or scale an intervention, etc.). With this focus on utilization at the center of its strategy, M&E works to objectively monitor and evaluate the performance and impact of Nuru’s four impact programs—Agriculture, Financial Inclusion, Healthcare and Education.

In service to this approach, Nuru Ethiopia (NE) M&E administered a household level survey in April 2014 (Non-Nuru B1 and Nuru B1) and May 2015 (Nuru B2) to provide a baseline for the question:

What is the impact of the Nuru Ethiopia Financial Inclusion Program on participating farmer households versus non-participating farmer households? This paper reviews M&E’s approach to assessing the baseline for program impact and highlights the findings for farmer household savings, loans and coping mechanisms.

The Integrated Nuru Model Nuru International is on a mission to end extreme poverty in remote, rural areas. Communities facing extreme poverty deal with fundamental challenges of hunger, an inability to cope with economic shocks, averting preventable disease and death and illiteracy. In Nuru’s Kenya Project, Nuru has proven its ability to deliver lasting impact in these four areas and is currently positioning its model for global scale.

As a catalyst for sustainable development, Nuru’s role is to identify nationals it can raise up as servant leaders and nation builders; remove barriers preventing them from realizing their full potential; equip them with skills, resources and attitudes to end extreme poverty in their region;

and provide them with access to a reliable, market-based source of capital through Nuru Social Enterprises. By establishing locally led community development organizations funded through forprofit businesses, Nuru enables nationals to lift an entire region out of extreme poverty within seven years.

Nuru Ethiopia Financial Inclusion Program Established through Nuru Ethiopia’s participatory Program Planning Process, Financial Inclusion (FI) is a savings-led program with a primary objective of helping farmer households cope with mild to moderate economic shocks. The four core objectives of the Nuru Ethiopia Financial Inclusion Program (NE FI) are: 1) increased ability to cope with shocks; 2) improved savings behavior, financial literacy, and numeracy skills trainings; 3) gaining access to financial services; and 4) increased income attributable to income generating activities (IGAs). NE FI plans to achieve its goal through providing Nuru farmer households with access to cost-effective, locally available savings and loan services, conducting community trainings in financial management skills, supporting business plan development and building the leadership capacity of cooperative leaders.

Working through the existing NE Agriculture cooperative structure, NE FI enrolls members from Nuru farmer households as “savers.” While NE Agriculture works to improve farmers’ harvests, NE FI encourages savers to contribute to a savings account and invest with money earned from selling the household yield surplus. At the start of the planting season, NE Agriculture provides each Nuru farmer household with an input loan via the cooperative along with extension services to enable farmers to increase crop yields. During the planting season, NE FI provides each Nuru farmer household with access to savings groups and monetary loans as well as training on money management. Following harvest, Nuru farmer households repay their agriculture loans and store yields to feed their families. Ultimately, in the event of an unexpected economic shock, access to financial services such as savings and loans enables Nuru farmer households to not liquidate productive assets or pay exorbitant interest rate to local moneylenders.

NE FI specifically targets wives in Nuru farmer households as savers as evidence demonstrates that providing women (rather than men) access to financial services leads to greater improvements in the family’s quality of life.1 In order to encourage wives to save, NE FI offers financial management trainings to provide tools to plan and budget as well as manage savings and loans. Specifically, savings trainings emphasize the importance of savings and helps savers identify areas where they can cut unnecessary expenses. The overarching goal of the financial management trainings is to build up savings habits over time. In addition, loan trainings improve savers’ abilities to understand how to be responsible borrowers.

Nuru also creates access to financial services by way of a savings fund, which helps savers contribute to a savings account at their cooperative. This fund provides a safety net should savers face unexpected economic shocks. Savers also have access to loans, which they may use to bridge financial gaps or for additional IGAs.

The average potential income from farming alone in Boreda is too low to begin a meaningful savings scheme on the individual level. Therefore, NE FI chose to incorporate the income generating activity (IGA) component to encourage savers to begin new or additional farm and offfarm IGAs that could help Nuru farmer households diversify income sources, increase income so that they can contribute to their savings account in a meaningful way and also cope with unforeseen economic shocks. Overall, through a series of trainings as well as savings accounts and Fletschner, Diana and Lisa Kenney. “Rural women’s access to financial services: credit, savings and insurance.” The Food and Agriculture Organization of the United States. ESA Working Paper No. 11-17. http://www.fao.org/3/a-am312e.pdf loans, NE FI aims to shift the behavior of savers from living for today to planning for tomorrow. By increasing savers’ ability to cope with shocks, Nuru farmer households can continue to progress out of poverty over the long term.

Methodology The following section outlines the 2014 and 2015 methodology for assessing the baseline data collected during the NE FI surveys, which were administered in conjunction with the follow-up surveys for the Multidimensional Poverty Index (MPI) and NE Agriculture. Results from the MPI and NE Agriculture portions of the survey are reported separately.

Sampling Frame In April 2014, a representative sample of Non-Nuru households2 and a census of Nuru farmer households in Boreda Woreda were given the MPI, Agriculture and FI surveys (see Figure 1 below).

In May 2015, NE M&E also baselined a representative sample of a future cohort of potential savers in Nuru farmer households for MPI, Agriculture and FI (Nuru B2).

Figure 1: Boreda Woreda, Gamo Gofa Zone, SNNPR, Ethiopia

Nuru Ethiopia pays each Non-Nuru household 30 birr ($1.50 USD) to compensate farmers for time away from their farming responsibilities.

The total number of farmer households surveyed in 2014 and 2015 are listed in Table 2. In total, NE M&E baselined 1,363 farmer households in 2014 and 2015: 492 Non-Nuru B1, 488 Nuru B1 and 383 Nuru B2.

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Data Collection At both baselines, NE M&E officers contracted 40 enumerators to collect the data in the field at baseline and supervised the data collection process. For Nuru B1 and B2, data were collected from farmer households who had previously received agricultural inputs through an NE Agriculture cooperative; while for Non-Nuru B1, M&E surveyed a representative sample of farmers.

To ensure the quality of the data analyzed in this report, NE M&E built a system of checks and balances into the data entry process whereby each individual survey was reviewed three separate times: during a process of checking, scoring and coding and then once again before final entry.

Throughout the process, data entry managers highlighted collection errors so that field based supervisors could correct any mistakes the following day with enumerators. Moreover, in 2015 specifically, an additional round of quality checks were included once all data entry was completed, whereby NE M&E searched for and fixed logical inconsistencies and erroneous values in the data.

Given the system employed by NE M&E, the 2015 season resulted in a reduced number of data quality issues relative to the 2014 season.

Timeline The following table outlines the baseline survey timelines for the enumerator training and data collection schedules in 2014 and 2015.

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Analysis In the following sections, the baseline results and analysis for the intervention and comparison groups answer the following principal questions: 1) are farmer households saving and using loans;

and 2) do farmer households use savings and/or loans to cope with shocks. Furthermore, data presented on access to financial institutions and IGAs highlight the current financial landscape of farmer households in Boreda Woreda. M&E aggregated results by using frequency counts and, where applicable, performed a proportions’ test for statistical significance on key variables from the FI baseline.

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