This study examines the impact of microfinance credit on household food security in drought-prone North Wollo, Ethiopia, while addressing selection bias and gender disparities in credit access.
Using primary data from 369 households, we employ an endogenous switching regression (ESR) model to estimate the effects of microfinance participation on caloric intake, dietary diversity and food consumption scores. Instrumental variables distance to microfinance institutions[(MFI) offices and perceived interest rates] control for endogeneity.
Results indicate that microfinance participants consume 17% more calories (2,496 vs. 2,129 kcal/AE/day) and achieve significantly higher dietary diversity (6.29 vs. 5.72 food groups) than non-participants. Counterfactual analysis confirms non-participants could attain similar gains with credit access. However, male-headed households are 15.5% more likely to access credit, highlighting persistent gender inequities. High perceived interest rates and joint liability risks further deter participation.
MFIs should adopt gender-sensitive lending practices, align repayment schedules with agricultural cycles and improve transparency on interest rates to enhance food security impacts. Policymakers must strengthen rural financial infrastructure to mitigate geographic and institutional barriers.
This study contributes to the agricultural finance literature by rigorously quantifying microfinance's role in food security using ESR, while identifying context-specific barriers in vulnerable agro-ecological zones.
