Abstract
Credit is an important instrument used to improve the welfare of the poor. It could enable the rural households in overcoming liquidity problems, enhancing productive capacity and adopting new technologies. In Ethiopia, the government is promoting microcredit services, but the participation of rural households for credit service is limited. Inappropriate use of loan money also exacerbated the challenges in achieving the desired goal, and consequently, it influenced the loan repayment performance of the household. Therefore, this study was conducted with the aim of identifying socioeconomic factors prompting farm households` participation in Omo Microfinance services and factors determining the utilization of loan money for proposed activities. To conduct this study, 120 rural households were selected randomly from 6 kebeles of Damot Gale District. The participation decision of the households in the credit market and factors determining the level of credit utilization for proposed activity are analyzed using double hurdle model. The study result shows that distance to formal lending institutions, education status, total livestock unit and frequency of contact with extension agents have significantly influenced access to credit. The second hurdle of the model reveals that amount of loan received, peer-monitoring system, expenditure in social festive and frequency of contact with extension agents affected the performance of loan utilization. Therefore, minimizing the barriers of access to credit and considering factors affecting loan money utilization for proposed activity is vital to achieve the desired goal. Key words: Credit, credit market participation, loan utilization, Omo microfinance, Damot Gale.
Highlights
Credit is an important instrument to improve the welfare of the poor by enhancing their productive capacity (Okurut et al, 2004) and overcoming liquidity problems (Fuentes, 1996)
The analysis shows that the level of utilizing from cash credit to proposed activity decreases by 256.17 units when the households had one more year of experience in credit market participation
Doublehurdle model was used to analyze the data and it is found that frequency of extension service contact, amount of loan received, peer-monitoring system and expenditure in social festive affected the amount of loan utilization to be spent in proposed activity
Summary
Credit is an important instrument to improve the welfare of the poor by enhancing their productive capacity (Okurut et al, 2004) and overcoming liquidity problems (Fuentes, 1996). If it is adequately accessed and used, it would have more impact on technology adoption and poverty reduction (Ebisa et al, 2013). Though the government of Ethiopia has put hurdle. The dependent variable takes either 0 or various efforts to solve rural financial problems by extending rural financial institutions, rural households’
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