ASSESSING THE ROLE OF MICROFINANCE IN RURAL LIVELIHOOD ENHANCEMENT AND CHALLENGES IN SABATAHAWASS WEREDA, SOUTHWESTERN SHEWA ZONE OF OROMIA REGION, ETHIOPIA

Abstract

Currently micro-financing is one of the most powerful tools for combating poverty primarily by providing loan to the poor. Including OCSSC today 32 MFIs have been operating in Ethiopia with the ultimate goal of poverty reduction. The general objective of this research, therefore, is to analyse the role of OCSSC microfinance in livelihood improvement, asset building, and smoothing income and consumption levels of users. Moreover, the study also aims at examining factors affecting clients‟ access to credit and provision. The study was based on questionnaires which were distributed to sample respondents randomly selected from the two KPAs of Sabata Hawas Woreda; namely Dalaty and Tafki. The study adopts mixed research approach of both quantitative and qualitative in order to answer research questions of the study. In order to achieve the stated objectives both primary and secondary sources of data were used. Primary data collected from borrowers and key informants through close ended questionnaires and interview guide prepared for interviewing 130 sample borrowers, 10 MFI staff members and four key informants from OCSSC at Sabata branch. The Statistical Package for Social Science (SPSS) software, version 20 was applied to simplify the data organization and analysis. The study mainly employed statistical analytical tools such as frequencies, percentages, mean and mode The findings indicated that the OCSSC micro finance institution has improved the clients‟ income, asset holdings, access to various social services. However, since the institution strictly requires group formation by self-selected potential borrowers as a precondition to access loans, the situation excludes the target poor from accessing credit. The findings prove that after joining the program the income of the borrowers increased to the extent that it exceeds expenditure and improve their saving; the expenditure of borrowers improved to cover the cost of food, health, education and other expenses. However short repayment period, high interest rate on loan, small amount of loan provided, and low interest rate on saving are proved to be constraints or challenges in accessing and utilizing of loan. Finally the study recommends to design appropriate institutional conditions and procedures; probably flexible loan size based on scope of intended activity, reasonably lower compensating balance, and wise institutional intervention during group formation process.