Determinants of Access to Formal Credit in Rural Areas of Ethiopia: Case Study of Smallholder Households in Boloso Bombbe District, Wolaita Zone, Ethiopia

Samuel Semma Waje

doi:10.11648/j.eco.20200902.13

Abstract

The majority of agricultural production in Ethiopia is carried out by smallholder farmers. Improving food security in short run and poverty in the long run has remained to be the major challenges in Sub-Saharan Africa countries especially in Ethiopia. This study required to identify determinants that limit smallholder households’ access to formal credit in the Boloso Bombbe District, South Region of Ethiopia. The study utilized cross sectional survey research design to attain the objectives. Primary and secondary data were used and analyzed by using STATA Version 14. Sample size determined by using Cochran formula and 312 households selected using multistage sampling techniques. Probit regression model was used to analyze quantitative data. The results shows that credit access was determined by the variables like Age, educational level of the smallholders, membership, extension service, saving habit, collateral, connection with local leaders and livelihood diversification. Output of the study revealed that only 36.54% of the respondents in the study area had accessed formal credit while 63.46% did not have any access to credit. This calls the government and non - governmental organizations have to be done more in credit access to improve the future productivity of smallholder agriculture in Ethiopia.

Highlights

Access to credit is an integral part of rural smallholders’ lives in order to activate income generating activities and in long run reduce poverty in developing countries [2]
Agricultural credit is an essential element for agricultural growth in developing countries [18]. It is a temporary substitute for personal savings and it accelerates technology change to stimulate agricultural production by enhancing smallholder farmers’ productivity, asset formation, and food security and subsequently, rural agricultural income In India and Brazil, for example, agricultural financing is given very high priority
General Objective The general objective of this study is to identify the determinants of access to formal credit to smallholders in the study area

Summary

Introduction

Access to credit is an integral part of rural smallholders’ lives in order to activate income generating activities and in long run reduce poverty in developing countries [2]. Many researches tend to focus on developing countries like African firms and rural credit markets in Asia especially in India. Low access to credit by smallholder farmers who are the majority of the sector drivers is among the major constraining factors [14]. Agricultural credit is an essential element for agricultural growth in developing countries [18]. It is a temporary substitute for personal savings and it accelerates technology change to stimulate agricultural production by enhancing smallholder farmers’ productivity, asset formation, and food security and subsequently, rural agricultural income In India and Brazil, for example, agricultural financing is given very high priority. The availability of formal finance to the smallholder farmers is essential, if they are to produce a marketable surplus and thereby contribute to the development process [33]

Objectives

Methods

Results