Microcredit and Food Security: Evidence from Rural Households in Uganda

Abstract

This study investigates the effect of participation into a microcredit program on household food security parameters of female borrowers in a rural setting in Uganda. We explore the modes of food acquisition, dietary diversity, caloric and protein intake, and qualitative food insecurity measures for different categories of respondents. We conduct a cross-sectional analysis comparing old clients to newly registered first time borrowers. Next, we compare first time borrowers and non-borrowers using a panel design. While the cross-sectional analysis allows the comparison of women that similarly self-selected into borrowing, the panel analysis complements by providing insights into changes of food security parameters. In both cases, we use Kernel matching, or difference-in-difference with Kernel matching, to control for potential bias in observables, and perform a sensitivity analysis with respect to unobservables using Rosenbaum bounds as well as an individual fixed effects panel analysis. Results show a decline in food security following the uptake of microcredit. In particular, the analysis reveals robustly lower dietary diversity among long-time borrowers than new borrowers, and larger reductions in dietary diversity scores among new borrowers, after 1 year, compared to controls. The reduction in dietary diversity was traced to a reduction in animal-source food, fruit and sugar intake. We find indicative evidence that this is partly explained by a shift from own production to reliance on food purchase by households. Other household members relegating the burden of food provision to women after borrowing may also help explain the observed result.

Coping Strategies to Mitigate Food Insecurity at Household Level: Evidence From Urban Setting in Addis Ababa, Ethiopia

“… 41 In a Ugandan study, results showed a decline in food security following the uptake of microcredit. 42 Studies demonstrate that microcredit has had positive impacts on 3 important sectors of national development: the alleviation of poverty, the empowerment of women and food security. 43 The effect of microcredit participation on food security may be non-linear in which participation initially has either no effect on food security or may actually worsen it before improving it in the longer run.…”

Improving Food Security through Financial Inclusion

“…By applying the Tobit regression technique, Loibl et al (2017) demonstrated that children's food insecurity was recorded higher in families who had payday loans or pawn shop loans and in families who participated in the Individual Development Account (IDA) than the general population. Along with this, Namayengo et al (2018) with the Difference in Difference (DiD) technique concluded that food security decreased after households took credit. This could be caused by the households having difficulty in paying off the credit installment which later forced them to reduce their consumption (Augsburg et al, 2015).…”

“…By applying instrumental variable techniques, Annim & Frempong (2018) concluded that access to credit contributes to an increase in the diversity of food consumed by households. On the other hand, research by Loibl et al (2017) in the United States and Namayengo et al (2018) in rural Uganda concluded a negative relationship between financial inclusion and food security. By applying the Tobit regression technique, Loibl et al (2017) demonstrated that children's food insecurity was recorded higher in families who had payday loans or pawn shop loans and in families who participated in the Individual Development Account (IDA) than the general population.…”