The Impact of Microfinance on Poverty Reduction in Ethiopia

doi:10.7176/rhss/11-21-01

Abstract

Microfinance has proven to be an effective and powerful tool for poverty reduction . The objectives of this review were to identify factors that affect microfinance and the impact of microfinance on poverty reduction in Ethiopia, respectively. The result of some studies indicated that age, education, time laps between loan application, disbursement, loan size, loan diversion, and repayment period, number of dependents, high interest rate, wealth status, gender, repayment policy, training, and supervision were important variables which had affected microfinance either positive or negative. And also the effects of those variables were depends on the area of studies had taken. This implies the same variables sometimes have different effect at different area. Other objective of this review was the impact of microfinance on poverty reduction. Many researchers believed that the microfinance service is indeed having clear impact: improving the food security situation, the health status, educating the children, creating additional assets (improved housing). Finding of other studies concluded that lack financial sustainability the key element of poverty expansion. Despite the fact those results indicated that the impact of microfinance is inconclusive. Furthermore, the impact of microfinance on poverty reduction indicated that further verification study may be required before concluded. Keywords: Microfinance, poverty reduction, poor households DOI: 10.7176/RHSS/11-21-01 Publication date: November 30 th 2021

Highlights

Day, poverty alleviation is a major issue all over the world
Different microfinance institution are working on poverty reduction and vulnerability of poor households by increasing agricultural productivity and income by providing credit to poor household in different regions of Ethiopia, most of them are effective in the strategy targeting of the poor (Bogale, 2016)
Income-generating self-employment activities, their find that increased access to loans was not associated with more nonfarm business creation, while we find some evidence of impacts on the scale of farm activities, the estimates are imprecise

Summary

INTRODUCTION

Poverty is one of the widespread hurdle in achieving higher escalation and attractive standard of living of the people in the majority of the low income countries (Taruna and Arpit, 2016). This means a condition in which a person of community is deprived of the basic essentials and necessities for a minimum standard of living (Aziza, 2013). In developing countries, including Ethiopia, micro financing institutions (MFIs) emerged with unique opportunity to poor people who do not have access to commercial Banks (Gudata et al 2016). Different microfinance institution are working on poverty reduction and vulnerability of poor households by increasing agricultural productivity and income by providing credit to poor household in different regions of Ethiopia, most of them are effective in the strategy targeting of the poor (Bogale, 2016).

LITERATURE REVIEW

CONCLUSION