FACTORS AFFECTING SMALL HOLDER FARMERS’ ACCESS TO FORMAL CREDIT SOURCE IN ABESHEGE DISTRICT, GURAGE ZONE, ETHIOPIA

Abstract

In Ethiopia, among other things, lack of finance is one of the fundamental problems hampering production, productivity and income of rural farm households. Since access to institutional finance is very limited, the majority of the poor are forced to search financial services through informal channels. The study was sought to ascertain factors that affect smallholder farmer’s access to formal credit and also the status of women and different wealth groups’ access to formal and informal credit sources in the study area. A two stage sampling method was employed to select three out of eighteen rural peasant associations and 130 farm households. Structured interview schedule was developed, pre-tested and used for collecting quantitative data for the study from the sampled farm households. Focus group discussion, group interview and field observations were held to generate qualitative data. Descriptive statistics and logit model were used for analyzing quantitative data. Farmers acknowledge group lending that solves the problem of collateral requirement by lending institutions, controls misuse of borrowed funds and minimizes the risk of default and they also recognize the provision of saving services by MFI, while strongly criticizing the isolation of very poor farmers from the group formation. Moreover, the smaller loan size, earlier saving requirement which was not convenient to the farmers, and repayment period by the MFI were among the critical problems