The differential impact of microcredit on rural livelihoods: Case study from Ethiopia

This paper examines the differential impact of credit on rural Ethiopian households. Though credit is generally expected to have a positive impact on household livelihoods, this paper argues that credit affects households differently depending on wealth. Results show that credit failed to enable poor households to move out of poverty and food insecurity, whereas better-off and labour rich households used credit to improve their livelihoods. For poor households, rather than achieving long-term livelihood improvements, access to credit only means short-term consumption smoothing with a risk of being trapped into a cycle of indebtedness. Participation in a safety net programme could, to some extent, break through this cycle, because such participation enhanced the credit-worthiness of poor households. The paper is based on ethnographic research, including a survey of 106 households, and a series of monthly in-depth interviews with a group of 15 households in the district of Ebinat, northern Ethiopia, over an 18-month period, from February 2009 to July 2010.