Microcredit and Food Security: Evidence from Rural Households in Uganda

Abstract

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