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In the absence of adequate support from formal social safety nets, rural households in Ethiopia have developed collective risksharing strategies to buffer them against adverse livelihood shocks, thus building their resilience capacities. Social capital and network based indigenous mutual support arrangements are the most important strategies that are institutionalized and widely practiced among rural households for centuries in Ethiopia to support households to cope with shocks. Nonetheless, resilience research and rural poverty alleviation policies have yet to fully recognize and embrace social capital as a tool to tackle poverty and vulnerability. Robust policy and academic studies on the role of indigenous welfare system with implications for social development policy making in Ethiopia are lacking. Using ethnographic techniques and simple descriptive statistics, we studied indigenous mutual support systems and how they shape the resilience trajectories of rural households against livelihood shocks within two selected PAs of Babille district of Oromia region. We found that mutual support practices are very effective in building coping resilience of households by smoothing consumption shocks. However, the traditional coping mechanisms often fail when the shock is systemic or covariate, when shocks last longer, and when a household has low level of human or finical capital.