College of Social Science and Humanities, Department of

Civic and Ethical Studies

Local Government’s Challenge in Poverty Reduction in Case of

Bitena Town
A Senior Essay Submitted to Department of Civic and Ethical Studies in Partial
Fulfillment of the Requirements for the Degree of Bachelor of Art in Civic and
Ethical Study

By: Mebratu

Advisor: Tasew /M.A/

July, 2013 E.C

Wolaita Soddo, Ethiopia

 Wolaita Soddo University

College of Social Science and Humanities Department of Civics and

Ethical Studies

Examiners and Advisors Approval Sheet

(Finalized Senior Essay Submission Form)

The student known as Mebratu has produced BA Research entitled “Local Government’s
Challenge in Poverty Reduction in Case of Bitena Town” has incorporated all in the
comments given on the Research; hence he can submit his finalized Research to the school so as
to resume the data collection remaining Research activities.

Name of examiner: Signature…………………… Date……………..

Name of chairperson: Signature……………………. Date……………..

Name of advisor: Signature……………………. Date……………..

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 ACKNOWLEDGMENT
Foremost, I would like to express my genuine gratitude to my major advisor Tasew /M.A/ for his
uninterrupted hold up, gracious approach and precious comments. He spent his valued time in
commenting my work and showing me the right directions that he found very important for the
accomplishment of my Research. My unusual thanks go To Women entrepreneurs of Shinshicho
town who were voluntary to take part in the study through giving the right data. I would also like
to convey my gratefulness to my younger brother Birihanu Tesfaye for his prolonged support for
me in all my work. I also would like to thank especially my wife Misael Eyob for her committed
advice and remark for the success of my Research. Last but not least, I would like to thank my
friends, Sisay Daniel, Endalkachew Mokonin, Zakios Dache, Zerhun Feleke for being with me
whenever in need and for their continuous motivation and encouragement during and in all my
activities concerning my research with morale and material support always they are with me in
my study period. Finally, I am grateful for those who are not mentioned by name but who helped
me so much. But all of the above I thank my God.

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 DEDICATION
I devote this study to my mother Amarech Tesfaye for encouraging me with affection and
love and for her dedicated joint venture in the accomplishment of my research.

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 Abstract
Poverty is one of the central issues and the most far-reaching social matters on the planet. It has
no geological limit. Along these lines, this examination has done to distinguish the determinants
of the rural household poverty in Diguna Fango Woreda of Wolaita Zone, Ethiopia. To
accomplish this goal, 152 rural family units were chosen using a systematic random sampling
technique following the corresponding method’s likelihood. The primary and secondary data
optional information just as quantitative and qualitative subjective details have been used. In this
investigation, the Cost of Basic Needs approach has applied to determine the extent of the
poverty line and simple descriptive statistical method has been employed In the interim, sex, age,
educational level, land size, total livestock unit, use of technology and participation of saving
have a tangible negative relationship with the rural household poverty and factually huge up to
under 10% likelihood level. There is a need to reinforce the link between rural development and
poverty reduction programs that consider old aged and female-headed families in mediations,
limit populace size through integrated family planning and education obligations introduce
appropriate livestock packages, and create awareness of the farmers for using new agricultural
technologies.

Keywords: Cost of Basic Needs, Determinants, Extent, Poverty, Poverty Line, Food Poverty,
Non-Food Poverty

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Table of Contents
ACKNOWLEDGMENT...........................................................................................................................3
DEDICATION...........................................................................................................................................4
Abstract.......................................................................................................................................................5
Chapter one.................................................................................................................................................8
1. Introduction.........................................................................................................................................8
1.1. Background of Study...................................................................................................................8
1.2. Statement of the Problem.............................................................................................................9
1.3. Objectives of the Study..............................................................................................................10
1.3.1. General objectives of the study..........................................................................................10
1.3.2. Specific objectives of the study..........................................................................................10
1.4. Research Questions....................................................................................................................11
1.5. Delimitation /Scope the Study...................................................................................................11
1.6. Significance of the Study.........................................................................................................11
1.7. Organization of the Study.........................................................................................................11
1.8. Limitations of the Study...........................................................................................................12
CHAPTER TWO.......................................................................................................................................13
2. Review of the Related Literature.......................................................................................................13
2.1. Introduction...............................................................................................................................13
2.2. The Concept of Poverty.............................................................................................................13
2.3. Poverty Reduction.....................................................................................................................13
2.4. Challenges of Local Government to Reduce Poverty.................................................................13
2.4.1. Use of ‘second-tier’ institutions.........................................................................................13
2.4.2. Mobilizing resources through fiscal policies and tax reform..............................................14
2.5. New Approaches to Debt Relief and Debt Sustainability in Ldcs..............................................15
2.5.1. Overview of external debt in LDCs...................................................................................15
2.5.2. Specific Measures to Accelerate poverty Reduction in Ldcs.............................................18
2.5.3. Increasing Access to Financial Resources..........................................................................18
2.5.4. Development of Rural Infrastructure.................................................................................20
2.5.4. Accountability of Multilateral Financial Institutions..........................................................21

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 2.5.5. Other Measures to Accelerate Poverty Reduction in Ldcs.................................................21
2.6. The Role of Local Government to Reduce Poverty...................................................................22
Chapter Three............................................................................................................................................25
3. Research Methodology......................................................................................................................25
3.1. Description of the Study Area....................................................................................................25
3.2. Research Design........................................................................................................................25
3.3. Sampling Techniques and Sample Size Determination..............................................................25
3.4. Data Types and Method of Data Collection...............................................................................26
Chapter Four..............................................................................................................................................28
4. Result and Discussion........................................................................................................................28
4.1. Setting the Poverty Line in D/Fango Woreda ,Biten Town........................................................28
4.2. Demographic Factor of the Households that Challenges Poverty Reduction.............................29
4.3. Determinants of Poverty Reduction...........................................................................................30
4.4. Challenges of Local Government for Poverty Reduction...........................................................35
4.4.1. Good Governance and Poverty Reduction.........................................................................35
4.4.2. Increasing access to financial resources.............................................................................37
4.4.3. Development of rural infrastructure...................................................................................37
4.4.4. Establishment of farmer support services facilities in rural areas to improve agricultural
sector incomes...................................................................................................................................37
4.4.5. Resource Mobilization and Poverty Reduction..................................................................38
4.4.6. Population Size and Resource Allocation..........................................................................39
4.4.7. Financial Sector Reform Policies for Growth and Poverty Reduction...............................39
CHAPTER FIVE.......................................................................................................................................44
5. CONCLUSION AND RECOMMENDATIONS...............................................................................44
5.1. Conclusion.................................................................................................................................44
5.2. Recommendations......................................................................................................................45

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 Chapter one
1. Introduction
1.1. Background of Study
Poverty is one of the significant trauma and the most some social problems on the planet. It has
no geological limit. It has found every which way and corners (Borko, 2017). Notwithstanding
uncommon world advances in science, innovation and riches creation, poverty in the entirety of
its indications stays profound and dynamic. Poverty is multifaceted and has no single commonly
acknowledged definition. In reality, it is multidimensional. Thus, writings on the idea of
destitution show different understandings in monetary, social, political, institutional, ecological,
and social settings (Lekobane, 2017).

Rural poverty represents about 63 per cent of around the world, arriving at 90 per cent in
individual nations like Bangladesh and 65 and 90 per cent in Sub-Saharan Africa (IMF, 2010). In
the more significant part of the developing nations bigger populace are living in the country
than urban; some 3.1 billion individuals, or 55 per cent of the all-out populace, live in rural zones
out of this about 1.4billion individuals live on under US$1.25 per day, and near 1 billion
individuals experiencing hunger (Nakachew, 2018). In the vast majority of developing nations,
the quantities of poor and hungry individuals are expanding. Around 70 per cent of the world’s
needy individuals (approximately one billion) are rural, and a massive extent of poor people and
hungry among them are children and youth (Mohammed, 2017).

Poverty in Ethiopia has profoundly related with the size and structure of the families, the
educational level of the family unit head, the degree and degree of reliance inside the family,
asset possession (especially ownership of Oxen in rural areas), the control of the family unit
heads, fast populace development, significant medical issues, absence of foundation and
great natural debasement. Consequently, recognizing what attributes are related to rural
poverty can yield essential experiences for strategy creators (Borko, 2017).

The level and dissemination of poverty in Ethiopia are declining every now, and exceptional
financial development has been watched. As indicated by the outcomes acquired from the
2010/11 Household Income, Consumption and Expenditure Survey and Welfare Monitoring
Survey of the Central Statistical Agency (CSA,2011), around 39 per cent of the complete

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populace were under the poverty line, out of which 39 per cent in rural areas and 35 per cent in
urban zones.

While break report on the poverty examination study arranged by MoFED utilizing the 2015/16
HICES and WMS uncovers, the poverty line declined to 29 per cent (CSA, 2016). Despite this
all improvement, neediness as a rule and rustic destitution in incredibly still it isn’t just
ceaseless yet additionally profound. Along these lines, poverty is a significant compelling
element among cultivating family units. Therefore, this examination centred on determinants
of rural household poverty in Diguna Fango District (Woreda) by including the most vital
segment and financial factors.

1.2. Statement of the Problem

Poverty in Ethiopia is profound and endemic. The country’s overall composition is influencing
numerous sufferings and misery to the populace’s most significant extent. It is the Government’s
high plan, benefactor’s offices, NGOs, and different entertainers that have the motivation to
diminish the level and alleviate the impact and its related effects on the prosperity of the
individuals (Tiruneh, 2006).

Ethiopia is perhaps the most impoverished nation on the planet, with extremely low Human
Development Indicators positioned 174th out of 188 countries (ADBG, 2015). Around 23
million Ethiopians live in conditions generously underneath the primary poverty line, and food
insecurity stays a significant test. About 40% of children under five are undernourished and
hindered (Nakachew, 2018).

As per CSA (2015), Population Census Projection out of the 18,276,012 all-out populace of
SNNPR around 89 per cent of the complete populaces lives in rural areas. The rate of rural
poverty incidence in the district is higher than the urban regions, and still an enormous number
of the rural population is underneath the poverty line.

Then again, Wolaita Zone is one of the main thickly populated zones in the SNNPR. It prompts a
little normal farming area per rural family unit around 0.45 hectares, one of the primary sources
for genuine and chronic poverty in the Zone (CSA, 2017).

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According to Diguna Fango Woreda Finance and Economic Development Office (2021), socio-
economic data indicates that about 6303 households and 18,858 populations of the Woreda
depend on the safety net program used relief and contingency aid. The Woreda faces different
constraints, including the shortage of land and soil infertility, low agricultural productivity,
vulnerable to rainfall shortages and variability, and their significant economic activity depends
on rain-fed agriculture.

Many researchers conducted on poverty and its correlates in Wolaita Zone and Diguna Fango
woreda in particular. Still, poverty is dynamic, and their determining factors vary from one place
to another because different areas have different development options. The poverty situations of
the study area have not focused much attention on the grass-root level. So, the problem triggers
the researcher to focus on rural poverty research studies in Diguna Fango Woreda’s study area.
Therefore, this Woreda has not yet been researched previously, and it needs the research to
identify the determining factors of rural household poverty.

Therefore, the research’s motive was to fill the knowledge and area gap in measuring poverty by
identifying those determinants of local government poverty reduction capacity and suggest
recommendations based on the findings. They become sound enough to plan on the poverty and
targeting of policymakers in executing the study area.

1.3. Objectives of the Study

1.3.1. General objectives of the study

The investigation’s overall goal was to evaluate the rustic challenges of local government
capacity to reduce poverty in the study area.

1.3.2. Specific objectives of the study

The examination dependent on the accompanying explicit targets;

 To assess the status of rural poverty in the study area.

 To distinguish the determinants of the rural household poverty in the study area.
 To examine the challenges that local government face to reduce poverty in the study area

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 1.4. Research Questions
 To what extent does poverty prevail in the study area?
 What are the determinants of the rural household poverty in the study area?
 What challenges does the local government face to reduce poverty in the study area?

1.5. Delimitation /Scope the Study

The study is delimited to investigate record, discuss and analyze Local Government’s Challenge
in Poverty Reduction in Case of Bitena Town. The etent of poverty line, the determinants of
poverty reduction and challenges of local government poverty reduction has been investigated.
However because of time, finance and other constraints it was difficult to cover the whole
kebeles women entrepreneurs in Bitena town. The head of the town, chief administrator of the
woreda , and coordinators of SMF , coordinator of woreda safety net program were assigned for
interview and the town households were assigned for questionnaires, and food security and
poverty reduction department members were selected for focus group discussion. The study was
aimed to be accomplished with in 11/Eleven/ months 10/01/2012 E.C up to 30/11/2012 E.C

1.6. Significance of the Study

This study conducted on the problem local government’s challenges to reduce poverty in
D/Fango woreda ,Bitena town in focus would be significant for the local government to
indicate the knowledge gap on poverty reduction; the result, discussion and recommendation
of the study would support the sector coordinators ,non-governmental organization and
interest groups to identify the problem and probe the appropriate solution; the study would be
the stepping stone for other researchers on the same problem; it would the input for policy
makers and experts as well as academicians on the area of development and ,governance.

1.7. Organization of the Study

This senior essay is composed of five chapters. The first part pinpoints out background of
the study, statement of the problem, objectives of the study. The second chapter is about the
literature review pertinent to the research topic and contains conceptual and theoretical issues.
The third chapter discusses research methodology and data collection tools and procedures.
The fourth chapter covers result and discussion; The last chapter presents the conclusion and
summary and recommendation of the study.

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 1.8. Limitations of the Study
To begin with the issue of language as most researchers did, there was no language barrier
between the researcher and the studied community. But this does not mean that my research
was free from any setbacks. There were a number of factors that might affect its quality.
Some of these are: infrastructural problem, time constraint and financial shortage. The advent of
COVID -19 and shortage of internet connection became the serious constriction.

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 CHAPTER TWO
2. Review of the Related Literature
2.1. Introduction

2.2. The Concept of Poverty

2.3. Poverty Reduction

2.4. Challenges of Local Government to Reduce Poverty

To help build financial institutions that serve the majority of the population, LDC Governments
should adopt and promote new approaches to funding, such as: Grant funding over a period of
time to finance the operating costs and loan portfolios of promising start-ups; Capitalization for
financial institutions that meet performance standards; Access to refinancing from development
banks and other second-tier intermediaries (financial intermediaries or networks providing
financial and institutional support services to retail intermediaries (see below)); and, Partial loan
guarantees to encourage the build-up of leveraged credit lines by local banks to specialized
financial intermediaries. When an institution has reached the scale and efficiency to cover costs
and manage fully commercial sources, it will be able to access international commercial funds.

2.4.1. Use of ‘second-tier’ institutions

Second-tier institutions (financial intermediaries or networks providing financial and
institutional support services to retail intermediaries), such as development banks, have major
roles to play over the next five to ten years as wholesalers of capitalization, sources of refinance,
and institutional development support, in the following areas: Building an agreed set of standards
of eligibility criteria for accessing support services; Organizing performance benchmarking
systems; Encouraging an exchange of experiences among participating retail institutions; Serving
as a wholesaler or broker of seed funding, capitalization funds, refinance of loan funds, and
institutional development support; Encouraging linkages between commercial banks and
specialized financial intermediaries; and Helping ensure that the appropriate legal, regulatory
and supervisory structures and incentives are in place.

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 2.4.2. Mobilizing resources through fiscal policies and tax reform
Many LDCs are experiencing unsustainable fiscal deficits, high debt-service costs and declining
official development assistance, all of which adversely affect their development process. A
particular challenge for these countries is the application of fiscal measures for domestic
resource mobilization through tax and non-tax instruments. Fiscal policies should be equitable
and create minimal disincentives for economic efficiency. However, most tax administrations
lack the resources required to function in an efficient manner and most taxpayers have limited
capacity to keep the necessary accounts. That has often led to the tax administration to focus on
businesses that are the least resistant and easily identifiable. These types of businesses tend to be
overtaxed, which, in turn, leads to tax evasion and corruption. Interest groups of taxpayers may
also make it difficult to reform a tax system which would increase their tax burden. Another
major challenge is that of capturing tax revenues from the informal sector, which often requires a
reform of the tax system to ensure compliance among taxpayers.

A desirable feature of a tax reform is that it should not introduce changes in relative prices and
should leave the allocation of resources undisturbed. This is achievable by broadening the tax
base and keeping tax rates as uniform as possible. Reforms should also focus on establishing an
efficient and simple tax structure with the following common elements: low rates, a broad base,
few exemptions, few surcharges, few temporary measures and, where there are exceptions, clear
guidelines. A successful reform of the tax administration additionally requires political
commitment and a well-trained staff. It’s also important to find the appropriate incentives for
taxpayers and tax administrators. These incentives should go along with measures that minimize
the cost of tax compliance and establish procedures for detecting violations and imposing
appropriate penalties.

Mobilization of resources through fiscal policies should be accompanied by efficient spending

of fiscal resources. In particular, the allocation of government spending should be poverty
sensitive. Furthermore, domestic resources can be mobilized by reorienting fiscal expenditures
towards areas that attract private savings and investment. This could, for instance, involve public
expenditure policies for infrastructure development, communication, and human capital
development. In LDCs, fiscal spending on, and investment in, rural roads and utilities would
have a positive impact, not only in opening up the rural economies and thereby improving rural

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incomes, but also in creating a favorable environment for financial service providers to operate
in rural areas, thus further stimulating the mobilization of resources.

2.5. New Approaches to Debt Relief and Debt Sustainability in Ldcs

2.5.1. Overview of external debt in LDCs

The build-up of foreign debt is not only a result of the high levels of external borrowing, but also
a consequence of varying exogenous and endogenous factors, such as adverse movements in the
terms of trade for agricultural commodities and some minerals (particularly in relation to
strategic imports such as petroleum), governance failures, unsuccessful macroeconomic and
structural reforms, poor debt management and internal conflicts. In general, the build-up of debt
and the resulting debt-servicing obligations have taken up large parts of the scarce budgetary
resources of the LDCs that could otherwise have been directed to productive and social areas.

Since the mid-1980s, the debt overhang of developing countries has become a major item on the
agenda of official creditor nations. Traditionally, the Paris Club approach has been to reschedule
debt-servicing payments, often combined with new lending from the IMF and multilateral
development banks.

The Heavily Indebted Poor Countries (HIPC) Initiative, which was launched in 1996 in response
to the growing international pressure for debt forgiveness for the poor countries, was intended as
a comprehensive approach to address the external debt problem of poor countries.

However, the World Bank itself, at the technical level, has been critical of the HIPC Initiative,
pointing out procedural and conceptual flaws. The procedural weaknesses have resulted in a slow
disbursement of funds, due to the various conditionality that must be met in order to access the
HIPC resources. Conceptual weakness included the assumptions that went into defining the level
of the debt sustainability target. Some have argued that the concept of the debt sustainability
level was not based on sound economic principles, and that projections of economic growth and
export performance were over-optimistic. Additionally, questions were raised about the generic
“one-size-fits-all” approach, and about the extent to which the debt-relief proposal was linked to
sustainable development. The HIPC Initiative has also failed to take into consideration the extent
of capacity weaknesses in the participating countries, and the need for effective governance in
such key areas as transparency, rule of law and security for the investor. Lastly, the HIPC

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Initiative did not represent a source of the new financial flows which are required to stimulate
economic growth and thereby generate the resources for sustainable debt servicing. In most
LDCs, such basic infrastructure as well-defined property rights, roads, schools, hospitals, and
clean water are inadequate to serve as a basis for profitable economic activity.

Since the principal problem of these countries is a lack of infrastructure, it’s unlikely that debt
relief will stimulate inflows of neither private foreign capital, nor that there will be higher
investments and growth. These are reasons to suggest that LDCs should not be targeted for debt
relief but for direct aid, to assist these countries in building their institutions and infrastructure,
and eventually to make them attractive for both domestic and foreign investment. In this context,
there has also been concern that debt relief may crowd out existing aid flows, in that it does not
necessarily represent new financial resources. To illustrate, aid flows to the HIPCs increased
continually from 1970 to the mid-1990s. Since 1996, however, aid flows have decreased
significantly. As a share of GDP, the decline is also salient: while in the early 1990s, aid flows
were about 17 percent of the GDP of the recipient countries, since 1996, they have only been
about 12 per cent.

Together, the fall in aid flows and the postponed reduction in debt service have caused a
significant decline in the net resource transfers to the HIPCs.

The apparent weaknesses of the original HIPC Initiative raises the question whether trying to
retool and launch an enhanced HIPC is the best available option to the international community,
and points to the need for innovative ideas to reduce foreign debt.

Using annual debt-service payments to establish public-private partnerships for national energy
efficiency initiatives With the exception of those LDCs with significant oil and gas production,
expenditures on imports of oil and gas represent a large share of the limited foreign exchange
available to most LDCs. Additionally, in the case of the landlocked developing countries and
small island developing countries, the high cost of transportation contributes to high domestic
energy prices, negatively impacting on poverty reduction, directly through the high cost of
energy services, as well as indirectly, through its negative impacts on economic growth and
competitiveness.

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In many developing countries, petroleum is used less cost-effectively than in the developed
world. In the majority of LDCs, opportunities exist for improving energy efficiency, and
consequently for a reduction in the amount of energy resources imported. But, on many
occasions, a major constraint to undertaking energy efficiency initiatives is the high cost of
domestic financing and the absence of supportive government policies. In this respect, foreign
creditors should be encouraged to use annual debt repayments as investment resources in energy
efficiency projects in LDCs, which could yield rates of return higher than the commercial
interest rates in the creditor countries. Over time, the savings in foreign exchange from reduced
petroleum imports would provide LDCs additional resources for repaying their outstanding
foreign debt and making the associated interest payments.

Using debt-service payments to establish public-private partnerships for renewable energy

development By virtue of their geographical location, the vast majority of LDCs has significant
renewable energy resource endowments in the form of solar, wind, biomass, ocean and hydro
power. One of the major recommendations from the World Summit on Sustainable Development
(WSSD) for fostering sustainable development in LDCs is the development of renewable energy
resources, to reduce both dependency on petroleum imports and its negative impact on global
climate change, as well as to create local employment.

There are opportunities to lower the cost of petroleum imports by raising energy efficiency but,
for LDCs, the cost of capital and the absence of supportive government policies often act as
obstacles. The development of public-private partnerships for renewable energy development
could make a contribution to reducing the pressure of foreign debt on the economy, while
providing employment, environmental and social benefits. This would include additional markets
for rural farmers who could become producers of biomass fuel for electricity.

Using annual debt-service payments to establish public-private partnerships for infrastructure

and new export markets Limited infrastructure development is an obstacle to economic growth
and poverty reduction in a large number of LDCs. To illustrate, as a result of high transportation
costs, the cost of inputs and everyday necessities are high, and farmers are often unable to
transport their products to markets (resulting in high levels of waste). Experiences from a
number of developing countries in the use of public-private partnerships to finance roads and
water supply projects represent a possible approach for LDCs. For instance, toll roads,

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constructed through private investment, could improve the weak infrastructure that makes
poverty reduction more difficult in rural areas. As with the energy proposals above, capital
investment could come from the conversion of debt payments into capital investment.
Repayment of loans would be drawn from the profits from the fees charged to users of the
infrastructure.

A significant number of LDCs are either coastal countries or SIDS and, as such, they often have
significant resources in their exclusive economic zones. However, the limited availability of
financial resources restricts the benefits they are able to derive from what is, for some countries,
a large natural resource endowment. For example, fisheries are constrained by small boats and
inadequate equipment that involve high personal risks and provide limited economic benefits to
fishing families. As the traditional fishery resources of the developed countries become depleted,
there is a growing opportunity for profitable investments to service an established and relatively
risk-free market. Similarly to the foregoing proposals on energy efficiency and renewable energy
development, private–public partnerships converting debt payments into capital investments
could provide financial resources for establishing profitable ventures in some LDCs.

2.5.2. Specific Measures to Accelerate poverty Reduction in Ldcs

In a number of LDCs, adverse economic conditions are increasing the number of the poor.
Especially in the rural areas, where the majority of the poor try to make their livelihood, the
macroeconomic changes recommended by the multilateral financial institutions have, so far, not
resulted in sufficient levels of economic growth to increase employment and income. Actions to
accelerate production and productivity should provide the foundation for increased opportunities
for the unemployed and under-employed, generating income earnings and making existing
livelihoods more rewarding and sustainable.

2.5.3. Increasing Access to Financial Resources

Evidence from microfinance clients in developing countries has demonstrated that access to
financial services enables poor people to increase their incomes and build assets, offers the
potential for growth and helps safeguard poor households against vulnerability. MFIs have been
credited with addressing the structural determinants of poverty, the economic and social status of
women, and other sources of vulnerability. In general, MFIs offer a range of financial services,
including credit, savings and insurance to poor enterprises and households, often helping to even

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out income fluctuations and maintaining consumption levels during lean periods. Typically,
MFIs are located near their clients, and utilize lending technologies that are simple and
inexpensive for both the client and lender.

The early MFIs were launched by non-governmental organizations and banks such as the
Grameen Bank (Bangladesh, 1976), the Kenyan Rural Enterprise Programme, Banco Solidario
(Bolivia, 1992), and Bank Ratyat Indonesia (BRI, 1984). In Ethiopia, formal MFIs began
emerging in 1995. By 2001, there were 19 MFIs serving over 600,000 clients, which represented
15 per cent of poor rural households registered with the National Bank of Ethiopia, deposits with
MFIs totalled about US$ 20 million and the sector was growing steadily.

Additional examples of MFIs operating in rural areas are BRAC in Bangladesh, SHARE in India
and Zambuko Trust in Zimbabwe. An impact assessment study of BRAC in Bangladesh showed
that members who participated in the programme for more than four years increased household
expenses by 28 per cent and assets by 112 per cent. Access to financial services enabled BRAC
clients to reduce their vulnerability by smoothing their consumption, building assets, and
receiving services during natural disasters.

A study of SHARE in India revealed that three fourths of the clients saw improvements in their
economic well-being and half the clients graduated out of poverty. Participation in the Zambuko
trust had a positive impact on the consumption of high protein foods in extremely poorclient
households. In general, experiences from an increasing number of successful MFIs show that
with new methods of lending, often involving small loans without collateral and at full-cost
interestrates (repayable in frequent instalments), the vast majority of clients repaid on time.

Establishment of farmer support services facilities in rural areas to improve agricultural sector
incomes

The objective of any policy to reduce poverty in rural areas involves raising the incomes of
farmers, by increasing their productivity and the income received from their products. In the case
of African LDCs, the need for an increase in productivity is apparent from the fact that the
population of sub-Saharan Africa increased by morethan 3 per cent annually in the 1980s and
early 1990s, while food production increased by less than 2 per cent.

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The constraints in sub-Saharan Africa are agro-ecological and socio-economic. There is a lack of
water and the soils are often hard to cultivate. About 38 per cent of the land base in eastern and
southern Africa is arid or semi-arid desert. Of the remaining 62 per cent (where at least 86 per
cent of the rural population lives), just under half can produce one rain-fed cereal crop per year.
Socio-economic constraints include subsidized food imports from Organization for Economic
Cooperation and Development (OECD) countries, food prices which have been kept low in order
to favour consumers over producers, lack of market transparency, lack of access to such
resources as land and credit, and inadequate knowledge and limited research to improve
agriculture.

In view of these constraints, Governments, with the support from international donor agencies, in
partnership with NGOs and the private sector—particularly those involved in agricultural inputs,
marketing, or agro-industry, should consider establishing farmer support services in rural areas.
These services should assist farmers with access to credit, technical assistance, capacity building,
and marketing information crop and product diversification.

2.5.4. Development of Rural Infrastructure

In many LDCs, weaknesses in basic national infrastructure (such as transport, utilities and
communications) are major constraints on agriculture. Infrastructure constraints affect the cost
and continuity of production and the quality of products. For instance, numerous studies have
indicated that the provision of roads reduces the costs of inputs and outputs, and leads to an
increase in agricultural output, crop area and yield. Infrastructure helps make the more remote
rural areas part of a broader market, contributing to the marketability and profitability of
agriculture. It also promotes information flows between communities and rural and urban areas,
and thus has the potential of linking farmers to markets for goods, input supplies and agricultural
services. More generally, rural infrastructure plays a vital rolein empowering people, connecting
isolated communities and providing rural people with access to political and decision-making
entities. In this context, LDCs and their development partners need to identify critical
infrastructure requirements and address them on a priority basis.

Make international aid a catalyst for economic development in LDCs Several of these measures
to accelerate poverty reduction require external financial assistance in the form of aid and loans.
Without increase indevelopment assistance to the LDCs to develop financial services for the

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poor, improving infrastructure, implementing land reform, building mechanisms for good
governance, and supporting small and medium enterprises to create a diversified and modern
rural sector, the chances of achieving the Millennium Development Goals appear limited for the
majority of LDCs.

It is important to consider both the quantitative and qualitative aspects of aid. To enable donors
to test the effectiveness of their support, new approaches (such as the performance-based
conditionality being implemented by the EuropeanUnion) are required, focusing on outcomes in
key economic and social sectors (rather than on the implementation of specific policy measures
or actions). Mechanisms focusing on outcomes inkey economic and social sectors, and a good
governance regime as a prerequisite for assistance, should create an enabling environment for a
new partnership between the international donor community and LDCs to promote economic
growth, which is the only sustainable means of reducing poverty.

2.5.4. Accountability of Multilateral Financial Institutions

The relationship between economic growth and poverty in developing countries is complex, and,
so far, no general understanding has been reached over the best approach to achieving poverty
reduction. Yet, over one billion people, including 400 million in LDCs, are now living in
countries whose Governments are preparing Poverty Reduction Strategy Papers (PRSPs) as a
condition for concessional aid and debt relief. Efforts to improve the standard of living of the
poor should continue, but unless the actual policy solutions are well grounded in a deep
understanding of the causes of poverty, and how those causes have been, and can be, effectively
addressed, they could end up with worse results. In the past, the lack of accountability of the
development partners of LDCs may have contributed to additional hardships in a number of
these countries. In this respect, as part of the overall accountabilityof Governments for good
governance, and to improve the effectiveness of the World Bank and the IMF, multilateral
financial institutions should be held accountable for the policy advice that they provide to LDCs.

2.5.5. Other Measures to Accelerate Poverty Reduction in Ldcs

Other measures to accelerate poverty reduction in LDCs range from the establishment of
agricultural commodity insurance, to strategies to promote export diversification, to action to end
the dumping of surplus food production from developed countries in LDCs. The key elements of
such measures should be formulated in further detail, but fall beyond the scope of this report.

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 2.6. The Role of Local Government to Reduce Poverty
Decentralization policies in the three countries studied formally entrust statutory regional
or local bodies with varying degrees of responsibility for economic and social
development, self-government and self-administration. In each of the countries, the
‘empowerment’ of local governments includes a responsibility to raise a significant part of their
own revenues. As a new forum for bottom-up political decision-making, local governments are
considered to be well-positioned to mobilize scarce public and private resources to priority needs
of local communities.

The cases reveal several reasons why local governments experience difficulties in doing so:
An unclear task division between central and local government structures; Weak human,
material and financial capacities. This produces a vicious circle of poor performance and
mistrust. Central governments ‘postpone’ the devolution of resources and authority to local
government structures, arguing that they lack capacity for accountable management. Local
governments are nonetheless expected to meet local demands for service provision and must
attempt to mobilize local resources to deliver development goods and services while lacking
the human resources and management systems to raise revenue, control private sector
operators and attract investment.

When citizens fail to see concrete outputs, their faith in local government remains weak,
and they are often reluctant to pay rates and taxes. This perpetuates local dependency on
(often erratic) resource flows from central governments and donor agencies.

The political dominance of centrally nominated officials or civil servants over local decision-
making can negate the efforts of democratic bodies to influence local development and
thus undermine the legitimacy of statutory structures; The tendency of local and
international NGO’s to occupy the gaps left by an absent State in the provision of basic
services can have a similar outcome. For various reasons, constructive partnerships between
NGO’s and local governments remain the exception rather than the rule; The poor
involvement of non-state actors such as community groups, traditional authorities and the
private sector in the design of the decentralization process and local government decision
making. Consequently, there is a danger that these actors adopt a ‘wait-and see’ attitude.

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Most commonly, they cooperate with local officials via patrimonial networks, or simply
avoid any cooperation formal authority.

Despite these constraints, the cases indicate that citizens and local governments are
beginning to occupy spaces created by the rolling back of the State. Some local
governments are entering into new partnerships with local communities and private sector
operators. These processes often begin on an ad hoc basis, fuelled by local initiatives or
innovative donor support. They are fragile and their potential for development and poverty
reduction remains largely untapped. Local governments are fragile and their added value
may still be rather marginal in terms of outputs. However, there seems to be no real
alternative to decentralization if local development is to be nurtured in Africa. If properly
supported, evidence suggests that local governments could gradually develop a comparative
advantage in the promotion of effective poverty reduction strategies by playing the
following roles: Providing vertical and horizontal information and insights to central
government and other development agencies and on the specific needs of urban
neighborhoods and rural communities; Coordinating the mapping and mobilization of local
capacities and resources. This holds especially true for the informal private sector. If properly
supported, it could play a key role in promoting local economic development, in
employment creation and in the generation of an economic surplus in the form of taxes that
can help local governments assume their new roles as catalysts of local development; Providing
a domestic framework to promote the participatory formulation, conceptualization and
operationalization of local development plans. A particular challenge is to ensure the
adequate participation of women. During the consultations in Guinea,for instance,itbecame
clear that cultural factors prevent women from participating in local development processes
in a way that is commensurate with their economic role. This points to a need for more
thorough gender-differentiated consultations and participation modalities.

Ensuring the fair and equitable targeting of poverty reduction programmes at the local level;
Facilitating the development of economic, social and physical infrastructure; Generating
greater trust and accountability between the State and its citizens by involving local
leaders, entrepreneurs and civic organisations in democratic dialogue and in the workings of
local government.

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Whether local governments will be able to play these roles will largely depend on local
conditions. While there is evidently a need for a common legal framework at the national
level, it is also important to allow for institutional flexibility in setting up local government
structures and ensuring their effective operation. In Guinea,for instance,one cannot expect
relatively better off communes in the coastal zones to operate in the same manner as communes
in the poor and sparsely-populated communes of the Northeast, or those on the Liberian
border that absorb a sizeable influx of refugees. The need for locally adapted structures and
modalities also holds true in Ethiopia, where the decentralisation process takes different shapes
and velocity in different regions. This is only logical given the huge diversity between regions
in terms of financial, human and organisational capacity, as well as in terms of size and
geographical scope. Regions like Tigray and Amhara have already internalised their
constitutional right to self-government and, as a result of their strong organisational
capacities, can harness the potentials of decentralisation development. Regions like Afar and
Gambella have not arrived at this stage and are essentially run by the central administration.

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 Chapter Three
3. Research Methodology
3.1. Description of the Study Area
The investigation has led in Wolaita Zone, Diguna Fango Woreda, one of the 16 Woredas in the
Wolaita zone, SNNPR, Ethiopia. It is situated at 156 km southwest of the Hawassa town,
Southern Regional State’s capital and 330km from Addis Ababa. As per the Diguna Fango
Woreda Agriculture and Natural Resource Development Office (2018), the Woreda covers
38,040.8 hectares of land and has two agro-ecological zones. In particular Highland/Dega
10%/and Midland/Woynadega 90%3/. Its height ranges from 1500-2950 meters above ocean
level with a mean yearly temperature of 180c.

In view of the 2007 Census led by the (CSA), the total population of the Woreda is 184,125 of
which 90,794 are men, and 93,331 are women. Population thickness of the Woreda is 502 for
each square Km; which is a lot higher than the regional thickness of 141 individuals/km2 and the
zonal thickness of 414 individuals/km2. The average family size of the Woreda is five, which are
equivalent to the Zonal and local normal of 5 (CSA, 2007).

3.2. Research Design

The study used a cross-sectional study design, where data were collected at a single point in time
using a survey method. The reason for choosing this design is because it is flexible and economic
(Babbie, 1995). Besides, the subjects were tested once at the same time.

3.3. Sampling Techniques and Sample Size Determination

Multistage sampling procedures were applied to choose the sample respondents. Diguna Fango
woreda was selected by purposive sampling methods at the principal stage because of the
researcher’s past and current information and admittance to get information. In the subsequent
stage, the Woreda was defined as dependent on agro-ecologic qualities like Dega (highland) and
Woina Dega (midland). Thirdly, from complete 24 Kebeles found in the Woreda, one Kebele
from Dega and four Kebeles from Woynedega was chosen using a simple random method.
The chosen Kebeles were Zala Shasha, Gulgula, Wachiga Busha, Kenefa Godera and
Waja Shoya.

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Finally, 152 example respondents were selected from five chose Kebeles by utilizing
systematic random sampling methods based on the Probability Proportional to Size (PPS)

Sample size determination techniques were applied by using Yamaneh (1967) formula to
decide the necessary size at a 92% confidence level, and level of precision= 8%. Likewise;

Though; 𝑛𝑛=𝑁𝑁

1+(𝑒𝑒) 2

Whereas; 𝑛𝑛= 5068

1+5068(0.08)

2=152

Where, n = is the sample size, N = is the population size (absolute individuals from households),
and e = is the level of precision (margin error) 92% degree of accuracy was checked.

Accordingly, 33, 23, 52, 17 and 27 households were selected randomly for the household survey
from Zala Shasha, Gulgula, Wachiga Busha, Waja Shoya and Kenefa Godera kebeles,
respectively.

3.4. Data Types and Method of Data Collection

Both qualitative (subjective) and quantitative information were gathered from primary and
secondary sources. The primary data were collected through a household survey from the
chose 152 sample respondents. Secondary data were accumulated from legitimate records,
books, diaries, releases, magazines, measurable reports, sites, and unpublished materials.

All the quantitative information was gathered by utilizing Interview Schedule meeting plan
from the sampled respondents, and qualitative (subjective) data was collected from non-
sampled respondents such as Focus Group Discussion (FGDs) and Key Informant Interviews
(KIIs).

Strategy for Data Analysis The information was dissected by utilizing various techniques,
for example, enlightening, FGT strategy and econometric models.

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Descriptive statistics For example, elucidating factual procedures, mean, rate, and standard
deviation were utilized to distinguish financial factors in examining information. In particular,
SPSS version 21 programming was used to break down all of the quantitative data gathered in
the review.

Inferential insights were utilized to see the connection between theorized defining factors and
ward factors; for example, t-test and chi-square test was used. Derivation of poverty line Cost
of Basic Need approach (CBN): was utilized to decide the poverty line; it considers both the
food and non-food prerequisites, is the most broadly used strategy for assessing the destitution
line. It was more delegate, and the limit was steady with actual consumption across time,
space and financial gatherings. This methodology is favoured because it is utilized to discover
utilization essential to meet least means needs (NPC, 2017; World Bank, 2005).

The rundown proportion of the poverty line was made utilizing the most well-known ratio
of destitution Foster, Greer and Thorbecke (FGT, 1984) classes of neediness measure.
Encourage, Greer and Thorbecke level of destitution investigation was utilized to decide the
extent of family units living beneath or more poverty line and the size of poverty in the

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 Chapter Four
4. Result and Discussion
The result and discussion of this section have included in three parts. The first section deals with
the poverty line’s derivation and poverty measurement using the poverty index. The second section
deals with the descriptive statistics on demographic factors that challenges local government not
to reduce poverty, and the third section focused on identifying governmental and institutional
challenges of poverty reduction.

4.1. Setting the Poverty Line in D/Fango Woreda ,Biten Town

Following the methodology sections’ steps, the study area’s poverty line was established by the
following form. This part is set to identify the range of poverty occurrence in the study area.

Table 1: The Status of Poverty in Diguna Fango Woreda Bitena Town in Focus

Kebeles Non-Poor poor Total % share of poor

Lasho 14 19 33 23.3
Edo Diguna 9 14 23 15
Diguna Tukiya 22 30 52 36.7
Bitena 5 12 17 8.3
Fango Humbo 10 17 27 16.7
Total 60 92 152 100
Source: Diguna pango woreda statistics office, (2021)

Based on this poverty line, out of 152 households, 60 households (39.47) per cent were
non-poor, and 92 households (60.53) per cent were identified as poor. Measures of Poverty
Using the poverty as mentioned earlier line based on the total expenditure necessary for
measuring aggregate poverty.

According to the above implication non –poor are less than poor in the study areas. This implies
the local government has a lot of assignment to do on poverty reduction in the study areas. The
incidence of poverty (headcount index) shows that 39.47 per cent of the sampled households in
the study cannot afford the essential calorie requirement per day and deemed below the poverty
line. The poverty gap (consumption shortfall) of poor to reach the poverty line in is 10.35 per
cent, and poverty severity index shows that 4.27 per cent variation among poor households in the
study area.

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 4.2. Demographic Factor of the Households that Challenges Poverty Reduction
Table 2. Demographic Factor of the Households That Challenges Poverty Reduction in Diguna
Fango Woreda Biten Town in Focus

Variables Poor (n=60) Non-poor(n= 92) Total (n=152) t–value

Mean SD Mean SD Mean SD
Age 57.45 9.71 43.21 8.21 48.83 11.24 53.564***
Family size 7.55 2.17 5.01 1.15 6.01 2.046 36.238***
Depend. Ratio 1.05 0.62 0.70 0.39 0.84 0.52 19.727***
Land size 0.49 0.45 0.75 0.66 0.65 0.60 13.280***
Oxen owned 0.35 0.48 1.08 0.65 0.79 0.69 14.168***
TLU 1.76 0.58 3.77 1.05 2.98 1.33 27.614***
Source: Diguna pango woreda statistics office, (2021)

The segment attributes of family units demonstrated that the absolute examined family unit
heads ran from 26 up to76 years, and the general mean age esteem is 48.83 years. The time of
low-income family heads went from 32 as long as 76 years having the mean age estimation of
57.45 years while the non-poor family unit heads ran from 26 up to 62 with the mean age
estimation of 43.21 years. The finding uncovered that the average family size was 6.01(CSA,
2007). The t-test result shows a significant mean distinction among poor and non-poor family
units for age, family unit size, and reliance proportion (Table 2).

The mean cultivated land size of poor, non-poor and all families was 0.49, 0.75 and 0.65
hectares. The t-test result estimation shows significant mean distinction among poor and non-
poor family units at under 1% likelihood level (t = 13.280; p= 0.000) (Table 4). Along these
lines, bigger farm landholder would be less poor than those with the little land proprietor,
because of the way that, the bigger landowner has related with higher chance to create more
food. It is the most significant resource for ranchers, and their employment relies predominantly
upon it.

Table 2 demonstrates a chi-square test for discrete factors theorized to influence provincial
family unit destitution. About 80.9% were male-headed family units from the complete sampled
families, and 19.1% were female-headed families. Out of whole male-headed families, 35.8%
have found to be poor, and 64.2% were non-poor. Out of all-out female-headed families, 55.2%
were discovered to be poor, and 44.8% were non-poor. It demonstrates destitution rates are high

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in female-headed families than male-headed family units. This could be because of the
nearness of women’s oppression in the work market, and they have denied the chances of
practicing when contrasted with males in numerous angles.

In light of the examination result, the family heads’ educational background was 21.7%,
28.9%, 31.6%, and 17.8% incapable of perusing and composing, grade 1-4, grade 5-8, and grade
9-12, separately. The chi-square test shows that poor people and non-poor had huge relationship
at under 1% likelihood level (χ2=32.521; p=0.001) (Table 2). It demonstrates when people’s
education level builds their degree of getting, ability, and so on increments and works can get
work with great pay, conduct businesses and any financial exercises dependent on the
sufficiently beneficial knowledge -besides, resource utilization of educated households and
diversifying their livelihood options to overcome rural poverty.

4.3. Determinants of Poverty Reduction

Table 3: Determinants of Poverty Reduction in Diguna Pango Woreda Biten Town Cluster

Variables Categories Poor (%) Non-poor (%) Total (%)

Sex Male 73.3 85.9 80.9

Female 26.7 14.1 19.1
Education Unable to read 33.3 14.1 21.7
1-4
and write 31.7 27.2 28.9
9-12 10 22.8 17.8
Remittance Yes 41.7 55.4 50
No 58.3 44.6 50
Extension Weekly 23.3 48.9 38.8
Monthly 28.3 28.3 28.3
Sometimes 48.4 22.8 32.9
Use of technology User 56.7 76.1 68.4
Non-user 43.3 23.9 31.6
Health center User 41.7 84.8 67.8
Non-user 58.3 15.2 32.2

Source: Own Survey Data, 2021

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According to table 3, the determinants of poverty reduction are sex, education, health care,
technology, extension, and Remittance. The higher estimation of the sensitivity estimations
shows the better classification of the events using the specified model. Furthermore, the model
outcome shows the accurately anticipated per cent of all inspected family unit were 94.1%,
which is more noteworthy than 0.50 demonstrated that the model had fitted the information quite
well.

The descriptive statistical model show that eight were significant out of the fifteen factors
hypothesized to distinguish rural family unit poverty determinants. Simultaneously, the rest
of seven was not critical in clarifying the varieties of the dependent variable. The significant
variables were, for example, sex of family head, age of family head, family size, educational
level, land size, total livestock unit; use of technology and saving participation was a significant
effect on the determinants of rural household poverty (Table 3).

Sex of the Household head (SEX) was huge at under 10% likelihood level and showed a negative
relationship with rustic neediness. That implies holding different factors consistent; when the
family head was male, the log chances of falling into neediness diminish by a factor of 0.018
occasions lower than their partners. The conceivable clarification of this outcome was that
female-headed families have a higher probability of falling into neediness than their male
partners. It can be contemplated out that male family heads better participate in any productive
activities than female heads. This finding was following the comparative investigation directed
by Firew (2017). It found that female-headed families have lower admittance to gainful assets
and social administrations, which influences their beneficial capacity and their intra-family unit
allotment of assets.

Age of the Household head (AGE) was huge at under 10% likelihood level and showed a
negative relationship in clarifying the rustic family level destitution. It implies, as the age of the
Household Head increments by a solitary year, keeping different variables stays steady. This
shows the family unit heads who are at the scope of dynamic working-age participate in various
off-farm activities and net income to improve their family riches status.

Family size in Adult Equivalent (FAMLSZ): The family size in adult equivalent was decidedly
related to rural poverty, and the coefficient is measurably critical at fewer than 5 per cent

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likelihood level. Therefore, large family sizes result in a high fertility rate in rural areas, less
employment opportunity, weak off-farm income participation, family members become
unemployed, decreased savings, and low payment rate. This finding was consistent with
similar studies conducted on rural poverty. According to Nega (2015), in his analysis of rural
poverty determinants and dimensions, as family size expands, there is no admittance to have
more land for development to satisfy the need for enormous family size.

The per-capita land size fall makes more weight on food utilization and bothers the opportunity
of being falling into poverty. Tadelech (2018) indicated in her investigation of the rural poverty
determinants and weakness, an expansion in family size outcomes in diminishing per capita
salary and diminishing per-capita reserve funds. Accordingly, having more family unit size
disturbs the opportunity of falling into rural poverty.

The family unit head’s education coefficient was negative and measurably noteworthy at less
than 1 per cent probability level. 33.3 % of the family members are not able to read in the study
area. This implies that the awareness of poverty indicators is low in the study area. People
understand on pure water, sanitation, per-capita income, saving, marginal productivity, health,
and modern agriculture is not exceeding high. Similar studies conducted on poverty by Moges
(2013) and Mohammed (2017), confirms these findings. They found that when peoples’
education level increases their understanding, skill, and labours, they can get work with an
excellent salary, conduct businesses, and any economic activities dependent on product
knowledge.

Household’s Land size in hectare is generally expected that the cultivable land size coefficient
had contrarily related and measurably noteworthy at less than 1% likelihood level, implying that
land size shows a negative relationship with the rustic family poverty status. The suggestion is
that the probabilities of being non-poor increases with farm size. Households with larger sizes
tend to be highly produced than those with littler sizes, and the other way around. This is perhaps
because the size of landholding is an intermediary for a large group of elements including riches,
access to credit, and the ability to bear risk and income. Bigger farmlands are related with more
prominent richer and income and expanded accessibility of capital, which increment the
likelihood of interest in acquiring homestead inputs that expand food creation and get away
from absolute poverty. One could see that more superior efficiencies in the utilization of farm

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assets than the smallholding farms. The smallness of land possessions diminishes various
current agrarian contributions because of the absence of buying power in small farmers’
possession. It shows a family’s capacity to produce adequate monetary business relies upon the
farming area. The chances proportion for the variable suggests that holding different factors
consistent, expanding one area of developed land and the likelihood of family falling into
neediness diminishes by fewer amounts. This finding was predictable with the comparative
investigation led by Borko (2017), says that pay and utilization may go up for a rustic
family unit as landholding has expanded. This shows a family’s capacity to produce adequate
monetary occupation relies upon the earth where the land exists for rural use.

The whole livestock unit had contrarily related and measurably critical at under 1% likelihood
level. The rationale behind it is that families who have huge herd size had higher
probabilities of getting away from neediness since they can procure more income from
livestock animals creation and get a chance to consume animal products. As livestock
ownership of the household increases by a unit (one TLU), the family’s likelihood of
falling into poverty decline by minimum level, when other factors stay constant. This finding
was steady with the close examination done by Moges (2013) and Afera (2015), found that
livestock animals possession expands the income of the rural household. This empowers them to
buy food when they are short of their stock and put resources into the acquisition of homestead
inputs that expand food creation and their family sustenance.

Use of various farming innovation was adversely related and measurably noteworthy at fewer
than 10% likelihood level. Family units utilizing distinctive agrarian design have better
opportunities to get more yields per hectare and more pay which lifted them above the destitution
line. The employments of various agricultural innovation have discrete changes from 0 to 1 (no
utilization to utilize), the likelihood of getting away from destitution increments by low;
expecting different things were held steady. This finding was predictable with the discoveries of
Girma and Temesgen (2017).

The saving participation was contrarily associated with rural family-level poverty and
statistically significant at less than 10% likelihood level. This outcome suggests that family
units’ saving paring cooperation increments from 0 to 1, the likelihood of falling into
poverty decline by fewer amount, keeping different factors consistent. This finding was

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reliable with a comparative investigation on rustic destitution in southern Ethiopia directed by
Tadelech (2018).

It shows that families with saving have a better opportunity to escape from poverty since they
have significant ground to contribute to beneficial organizations and adapt momentary market
stuns. At the individual level, sparing assists families with smoothing utilization and profitable
limit.

4.4. Challenges of Local Government for Poverty Reduction

Table 4: Challenges of Local Government to Reduce Poverty in D/Pango Woreda, Bitena Town

Variables Agree Strongly Disagree Strongly Neutral

% Agree % % disagree% %

Good governance is practical in the town 34 12 43 11 0

reduction resources access is increasing
Financial 12 22 38 27 1
Development of rural infrastructure is 8 12 63 15 2
available
Establishment of farmer support services 13 7 55 25 0
facilities is real
Resource mobilization is equitably 11 9 64 8 2
distributed
Population size and resource allocation is 9 13 53 25 0
equivalent
Financial sector reform policies for growth 23 17 45 15 0
is exemplary
Source: Own Survey Data, (2021).
The reply under Table 4: 34% replied agree, 12 strongly agree, 43 dis-agree, and 11 is strongly
dis agree on the practice of good governance in the study area. 54% replied that there is no good
governance in Diguna Fango Woreda Bitena cluster.
According to Key Informants Reply for the question is there good governance to reduce poverty?
“Good governance components such as a political system that encourages input from all
groups of civil society; Transparency, predictability, and accountability in decisions by
government and public bodies; Effective public sector management with stable
macroeconomic conditions, effective resource mobilization, and efficient use of public
resources; and adherence to the rule of law in a manner that protects personal and civil
liberties and gender equity, and ensures public safety and security with equal access to
justice for all are available at minimum level in the study area. ”

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The prevalence of good governance is low in the study area. This implies one of the challenges
for local government to reduce poverty is the absence of good governance in the study area.
There is low resource mobilization for the society in the study area that the farmer’s couldn’t get
best seeds, pesticides, insect sides, fertilizer, generator, infrastructure, pure water, road etc.
Microeconomic conditions, key obstacle to mobilizing resources in the study area is
macroeconomic instability, aggravated by the lack of depth and resilience of the domestic market
economy.

According to table 4, and key informants implication, Evidence from microfinance clients in the
study area has demonstrated that access to financial services enables poor people to increase their
incomes and build assets, offers the potential for growth and helps safeguard poor households
against vulnerability. MFIs have been credited with addressing the structural determinants of
poverty, the economic and social status of women, and other sources of vulnerability. In general,
MFIs offer a range of financial services, including credit, savings and insurance to poor
enterprises and households, often helping to even out income fluctuations and maintaining
consumption levels during lean periods. Typically, MFIs are located far from their clients, and
utilize lending technologies that are complex and expensive for both the client and lender.

In Table 4 the availability of infrastructure was identified as the respondents reply is agree 8%
strongly agree 12% disagree 63% strongly dis agree 15 neutral 2 %. Based on the above
implication the majority implied that there is low access of infrastructure in the study area.

In this study area the weaknesses in basic national infrastructure (such as transport, utilities and
communications) are major constraints on agriculture. Infrastructure constraints affect the cost
and continuity of production and the quality of products. For instance, numerous studies have
indicated that the provision of roads reduces the costs of inputs and outputs, and leads to an
increase in agricultural output, crop area and yield. Infrastructure helps make the more remote
rural areas part of a broader market, contributing to the marketability and profitability of
agriculture. It also promotes information flows between communities and rural and urban areas,
and thus has the potential of linking farmers to markets for goods, input supplies and agricultural
services. More generally, rural infrastructure plays a vital role in empowering people, connecting
isolated communities and providing rural people with access to political and decision making
entities.

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Establishment of farmer support services facilities in rural areas to improve agricultural sector
incomes question in Table 4 indicates that 13% is agree 7 % is strongly agree 55% is dis-agree
25 is strongly disagree. Is 75% implied that farmer support facilities in the study area is less than
what is expected to be performed. The objective of any policy to reduce poverty in rural areas
involves raising the incomes of farmers, by increasing their productivity and the income received
from their products. In the case of Diguna pango woreda the need for an increase in productivity
is apparent from the fact that the population of the study area increased by more than 3 per cent
annually in the 2000 s and early2010s, while food production increased by less than 2 per cent.

According to focus group discussants implication, the best measures to accelerate poverty
reduction in the study area range from the establishment of agricultural commodity insurance, to
strategies to promote export diversification, to action to end the dumping of surplus food
production from developed countries. The key elements of such measures should be formulated
in further detail, but fall beyond the scope of this report. In view of these constraints,
Governments, with the support from international donor agencies, in partnership with NGOs and
the private sector—particularly those involved in agricultural inputs, marketing, or agro-industry,
should consider establishing farmer support services in rural areas. These services should assist
farmers with access to credit, technical assistance, and capacity-building, marketing information
and crop and product diversification.

Resource mobilization and poverty reduction in Diguna Pango woreda Bitena cluster is not
compatible according to the implication of respondents in the Table 4. The respondents reply is
11 % agree 9% strongly agree 64 % disagree8 % strongly disagree 2 %neutral. Based on the
above implication 72 % are dis agree on the compatibility of Resource mobilization and poverty
reduction in Diguna Pango woreda Bitena cluster.

As key informants imply,

“Mobilizing domestic financial resources for the development of the private sector in the
study area is difficult for a number of reasons: the high cost of finance and debt servicing
reduces the availability of financial resources at the national level; the financial sector is
underdeveloped, risk averse, and offers only a limited range of products; and there is
limited access to financial services in the more remote areas.”

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There is, therefore, a need for local Government to become innovative in mobilizing domestic
financial resources to support the development of the private sector. Additionally, international
development partners will need to live up to their commitments to provide both debt relief and
development assistance. This would provide Local Governments with the resources to finance
social expenditures and the infrastructure critical for sustained economic growth, as well as to
invest in developing the capacity needed to ensure good governance.

4.4.1. Population Size and Resource Allocation

Poverty in LDCs is pervasive: the number of people living in poverty has more than doubled
over the past thirty years. This lack of progress towards poverty reduction is most noticeable in
the African LDCs. Poverty is, in general, more severe in rural than in urban areas, with the
poorest of the rural poor living in remote areas. In sub-Saharan Africa, three fourths of the poor,
particularly the extremely and chronic poor, work and live in rural areas, and more than half are
expected to do so in 2025. The remoteness, but also the lack of natural, physical, human and
social resources, as well as social and political exclusion, are aspects of persistent rural poverty.
People in irrigated zones within rural areas face a much lower poverty risk.

6. The poverty situation in LDCs indicates that a significant proportion of the population has
been left out of the development process. In the developed and some middle-income developing
countries, poverty reduction involves income transfers, social welfare systems or targeted job
creation programs. But, in situations of generalized poverty (as in the majority of LDCs), where
the available resources in the economy, even if equally distributed, are barely sufficient to cater
for the basic needs of the population on a sustainable basis, poverty reduction can be achieved on
a major scale only through economic growth.

4.4.2. Financial Sector Reform Policies for Growth and Poverty Reduction
Measures should be taken to put in place a solid financial infrastructure that enables enterprises
to enter the market and operate effectively, as well as to help restructure firms to operate
efficiently in competitive national and global markets. Furthermore, withrespect to the poor, who
usually operate either in the non-monetized system or in the informal financial sector, there is a
need to encourage participation in the formal financial sector. The approach to be adopted should
focus on two areas: reducing the risk associated with lending; and providing incentives for
financial institutions to diversify financial products in order to cope with the operational

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requirements of businesses and households. In these two areas, the following actions are
recommended: Development of collective investment schemes should be promoted—directly or
indirectly—in order to open up investment opportunities for small-savers and increase the
mobilization of domestic savings; Capacity-building in formulating viable projects should be
strengthened (for example, advising on feasibility studies and project write-up) to meet the
requirements of banks; Small businesses should be encouraged to form consortia or business
associations (including farmer associations) that can guarantee certain loans to the businesses
operated by members; Local governments in most LDCs are often too dependent on tax revenues
and should, therefore, explore other sources of revenue. One alternative is market-based
borrowing, such as issuing marketable instruments (or “certificates”) which could attract
household savings and investments from the corporate sector and financial institutions. The
success of this approach would depend on the financial conditions of the local government, that
is to say, whether it is operating under a balanced budget and maintaining up-to-date audited
annual accounts and a highly transparent system of public accounts; Closer links between formal
and informal financial markets should be developed by encouraging formal financial institutions
to mobilize deposits and allocate credit through informal and community-based banks and
microfinance agents in areas where the reach of formal banks is limited.

Fiscal policies, as well as regulatory and supervisory structures, should be designed to encourage
these developments; Not-for-profit financial cooperatives, such as credit unions and savings and
credit cooperatives should be encouraged to further support savings mobilization. Banks could
improve their services to small-scale farmers and enterprises by syndicating small loans with
financial cooperatives and community banks, thereby promoting resource mobilization and
financial intermediation. In this context, there is a need for continued improvement in the legal
framework governing links between financial cooperatives and locally based financial
institutions, such as community banks and other financial institutions. Improvement in internal
auditing and the procedures of financial cooperatives are also recommended; Action should be
taken to restructure and recapitalize existing development financing institutions to spearhead
national and regional investment financing, and enable firms to make long-term investments in a
competitive environment.

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Furthermore, central banks should be encouraged to promote the growth, efficiency and
geographical spread of development finance institutions. This could be achieved by providing
equity capital, or by creating an enabling environment for existing financial institutions to
diversify their products;

There is also a need to diversify financial instruments and products available for financing
productive investments. In particular, the development of capital markets, leasing activities,
venture capital, bond markets, securitization (structured finance), derivatives (financial contracts
whose value is derived from the value of another asset), factoring (a form of receivables finance)
and microfinance are some of the instruments that can be developed to fill gaps in the existing
financial system;

Capital markets should be revitalized to enable them to raise larger amounts of finance for
companies. Action needs to be taken to introduce institutional procedures and mechanisms to
create confidence on the part of investors. Corporate and financial sector governance needs to be
improved, in particular in the areas of regulation and supervision, transparency, and contract
enforcement. This could entail improving the conduct of public companies, disclosure
requirements, and shareholders’ rights, as well as the regulatory and supervisory role of central
banks;

The small size and limited diversity of many LDC economies suggest that a regional approach to
resource mobilization is needed to lower transaction costs and the risks involved in financial
sector development and other forms of domestic resource mobilization. For instance,
mechanisms should be established to link emerging domestic capital markets with regional and
international capital markets.

Also, to the extent possible, regional monetary authorities should be created as they stand a
better chance of enjoying independence and credibility than national central banks;

Action should be taken to build local capabilities in risk management. This encompasses
development of trust and policy credibility, as well as governance procedures. Macroeconomic
risks can be reduced by pursuing sound macroeconomic policies, improving coordination
between fiscal and monetary policies, and careful management of government borrowing.
Market risks can be mitigated by improving capital market efficiency, reducing interest rate

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volatility, developing secondary markets for treasury bills and improving liquidity management
by Governments.

Microeconomic risks can be lowered by improving the accuracy, reliability and timeliness of
financial information, enforcing financial contracts, providing efficient and reliable payment
systems, risk-sharing and credit risk insurance schemes, and enhancing diversification in small
markets;

Furthermore, the development of credit rating agencies stands out as one of the possible options
that would help reduce risk and check the high lending rates charged by financial intermediaries
in the country. Credit rating agencies can help the financial intermediaries overcome asymmetric
information and its related problems: adverse selection (a phenomenon under which potential
borrowers with higher credit risks are the ones who most actively seek and get loans) and moral
hazard (the risk that borrowers might divert loans and therefore lower the probability of
repayment). Equally important, credit rating agencies could help to de-emphasize the high
importance attached by financial intermediaries to track records, a requirement that results from
mistrust and lack of information about potential borrowers.

4.5. Institutional Challenges of Poverty Reduction at Local Government Level

The descriptive statistics indicates that 44.25% of the sample households were found to be poor.
To examine institutional challenges of poverty reduction in the study area, we raised some
questions that are related to the institutions. And we examined the perception of the
sampled household heads (both poor and non-poor, we used the pooled for analysis
purpose) toward the institution in the way of the out of poverty.

Table 5: Institutional Challenges of Poverty Reduction at Local Government Level in Diguna

Pango woreda Bitena cluster

Items Poverty Status

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 Source: Own Survey Data, 2021

Dummy variables: Table 1 shows that 68 % of the sampled households reported that they do
not feel secured on the current land ownership status; while about half the sampled
households reported that they perceive that their family members, relatives, and communities
help them in moving out of poverty (during challenges). Again we asked the households if
they trust the local or municipal and half of the sampled households reported that they do not
trust the local or municipal authorities while about 52 % of them reported they perceive that their
local authorities are not accountable.

Further, about 55 % of the sampled households said that they perceive that their local
authorities are not transparent. Table 1 indicates that about 54 % of the sampled households in
the study area perceive that their local authorities are not participatory.

Table 1 further show that around 82 % of the households in the study area reported that they
perceive that their local authorities demand bribe, while only about 26 % of the sampled
households in the study area have received welfare or public assistance.

This finding is in line with what was stated by other authors (Todaro and Smith, 2006; Thirlwall,
2006). Furthermore, Table 1 indicates that the second tier institutions namely Development
banks, MFI, NGOs, and ECX are not available to the 66, 80, 96 and 98 % of the sampled
households respectively in the study area.

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 CHAPTER FIVE
5. CONCLUSION AND RECOMMENDATIONS
5.1. Conclusion
Poverty is one of the central issues and the most certain social problems on the planet. It has no
geological limit and multidimensional. Along these lines, this examination was led to distinguish
determinants of rural household poverty in Sodo Zuria Woreda, Woliata Zone, Ethiopia. The
survey data were gathered from 152 sampled households from five Kebeles.

The investigation utilized the Cost of Basic Needs technique to process the poverty line and FGT
strategy to quantify the examination zone’s total poverty index. Thus, 39.47% of the Woreda
family unit was discovered to be poor among the examined families. The absolute poverty line
for the study area was 5348.073 Birr every year per adult identical.

The poverty gap in the examination zone was 10.35% of the poverty line which implies the
average total consumption expected to bring the whole poor family units at any rate at this
poverty line was 10.35% of the poverty line. The gauge of the seriousness of poverty among the
rustic poor was 4.27% this suggests there was 4.27 per cent of relative material hardship among
poor families.

The most significant probability evaluations of the logistic regression model show that many
fifteen explanatory factors (seven continuous and eight dummy) factors were remembered for the
model. The Binary logistic model assessment uncovered that eight explanatory factors
were statistically significant to under 10% likelihood level. In comparison, the staying seven
factors were not significant in explaining variations of the dependent variable. The critical
factors were, for example, sex of family head, age of household head, family size, educational
level, land size, total livestock unit, use of technology and saving participation was
significant effect rural household poverty status. Family size was positively correlated with
households’ poverty status, whereas, the rest were inversely related to rural household poverty
status.

The investigation discovers that agribusiness keeps assuming a prevailing function in the
examination zone’s livelihoods and income source. The smaller landholding size was related to
huge family size and population growth, causing the deficiency and shortage of cultivable land.
This makes more weight on scant land. It consequently disturbs youth migration from the region

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and the progressive loss of land productivity, especially depletion of soil fertility. Henceforth, the
low yield and low efficiency of agricultural production increment the issue of rural household
poverty.

5.2. Recommendations
The study’s findings are the survey data results highlighted; the following recommendations
are forwarded as substitutes for reducing rural poverty in general and particularly for Sodo
Zuria Woreda.

As an intrinsic good, good governance is a sine qua non for the attainment by a society and an
economy of the maximum welfare possible given limited resources availability. For developing
countries, good governance is a necessary condition for expanding their ability to generate
income and reduce poverty in the future. Good governance also enhances economic efficiency
and reduces transaction costs through the effective application of the rule of law, transparency in
government and corporate management, and accountability for every institution and individual in
society. To the extent that good governance catalyses civil society to increase the rate of physical
and human capital accumulation, it can also help to reduce developing countries’ dependency
and vulnerability, and even ameliorate the impact of economic vulnerability.

 Female household head has a higher probability of falling into poverty than the
male household head. Their level of literacy and involvement in economic and social
activities are low compared to their counterpart. Hence, educating women and creating
a conducive environment for their participation in social and economic activities and
empowering women is one of the remedial measures to reduce poverty in the research
area.
 Age has found to be the determining factor of poverty in the research area. The result
implies that age increases the household’s productive capacity decreases, and the
individual becomes a few savings. Therefore, governmental or local agencies that would
like to support aged households in the examination area.
 The study found that family size was positively and significantly associated with rural
poverty. This calls for improving family organizing and strengthening of the Integrated
Health Extension Package program in the assessment area. As needs be, despite home
to home care appearances on family masterminding open discussions about how to use

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 safeguard systems ought to be realized in more sifted through route than beforehand.
The acute effects on women’s prosperity, work power backing, and productivity could also
decrease dependence and dejection.
 Land size in hectares was one of the determinants of rural household level poverty in the
study area. As land is the essential asset for the farmers, effective utilization of it
improves its productivity. For the shortage of land, policymakers need to focus on
improving land fertility for reducing poverty in the study area.
 Educational background of household head was the other determinants of rural
poverty. Education broadens humans’ thinking capacity and improves welfare; hence,
strengthening primary, secondary, and higher education and vocational training is better
in reducing poverty status in the study area.
 Livestock is the leading means of agricultural production and one of the
significant explanatory variables. As far as the rural household has been leading non-
mechanized agriculture based on livestock farming, attention should be given to asset-
building programs and credit programs, emphasizing livestock production.
 Using of innovation was additionally adversely related to neediness in the investigation
territory. Utilization of innovation assumes a noteworthy part in expanding creation and
boosting agricultural profitability, and that offers a chance to be engaged with
salary producing exercises. It determines the high efficiency of the family unit to escape
from neediness. Therefore, governmental bodies and NGOs should be introduced and
create awareness on using new agricultural technology options.
 Participation in saving is also one of the determining factors of poverty. Saving is crucial
for individual and societal welfare. Savings help households in smoothening consumption
and finance productive investments in human and business capital. Therefore, awareness
creation for participating in any formal or informal saving institution was critical for
reducing rural poverty in shock seasons.
 Poverty reduction strategies should target specific locations and specific households as
most of the time poverty by its nature is individual-centred rather than aggregate.
Therefore, schemes that can improve incomes of individual households and certain
localities should be employed selectively. Furthermore, there ought to be joint exertion in
identifying the causes, outcomes, and duties in the Government’s execution.

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  Finally, poverty is not only the problem of Sodo Zuria Woreda; instead, it is a problem for
the country. Therefore, the poor themselves, Government, NGO, and other
stakeholders should strengthen their participation to reduce poverty.

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