Enhancing farmers’ resilience to climate change-induced impacts through financial inclusion in Sidama region, southern Ethiopia

Abstract

ABSTRACT Building climate resilience is vital owing to the potentially severe effect of climate change. However, there is limited empirical evidence on the contribution of financial inclusion to climate resilience using household-level data. This paper adds to the literature by examining the potential role of financial inclusion in building farm households’ climate resilience. The study uses semi-structured interviews and structured questionnaires to collect relevant data from the Sidama region in southern Ethiopia. Principal component analysis is used to estimate a climate resilience index, and multiple linear regression is used to show the effect of financial inclusion on climate resilience. The results show that financial inclusion significantly and positively affects households’ climate resilience by increasing their asset ownership and diversification of income. Ownership of bank and microfinance institution accounts, mobile money services, and access to credit are the major financial services that contribute to climate resilience. However, there are certain factors limiting farm households’ level of financial inclusion. Thus, if the full potential of financial inclusion in building climate resilience is to be achieved, different strategies should be devised to increase its level and outreach.