Rural livelihood diversification in south-eastern Bosnia: influence of household financial management.

A growing body of evidence shows that agriculture is no more sufficient to ensure sustainable rural development in Bosnia and Herzegovina (BiH) therefore rural livelihoods diversification is crucial. Farm activity diversification issue can be considered in terms of resources (land, labor or capital), location (on-farm or off-farm) and output (farm or non-farm). Well-developed financial systems are associated with more rapid and inclusive rural development and foster rural economy diversification. The paper aims at analyzing rural livelihoods diversification in south-eastern BiH with a particular focus on the influence of household financial management. The paper is based on an extended literature review and a questionnaire survey performed in March 2013 with 147 randomly selected rural households from nine municipalities in south-eastern BiH. The majority of the surveyed rural households (68.7%) have mixed (farm and non-farm) livelihoods. Household sources of income are quite diversified and many rural households have different non-farm income sources. More than two-fifths of the surveyed households had an activity on development or started new non-farm businesses in the last five years. However, about a half of these gave up because of many problems such as the lack of financial resources and time. Weak business skills are also a limiting factor. Financial literacy is often lower in rural areas. Moreover, it is positively associated to education level and negatively correlated to age. It comes no surprise that well educated and young rural people are those who started more new diversification businesses during the last five years. They find it less difficult to deal with paperwork, bureaucratic procedures and administrative documentation needed to make request for loans. Effective household financial management, depending mainly on household head financial skills, plays a significant role in determining livelihoods strategies and diversification endeavors success. Research article