The Demand for Microcredit Service in the Afar National Regional State - the case of Gewane Woreda

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Addis Ababa University


Despile Ihe presence of plenty of business opportunities that can be promoted by micro finance inslitutions (MFls) and despite the presence of large unemployed and economically active popllialion in Alar, the development of MFIs has long been conceived as costly and laborious at hest and impractical at worst. Although some small credit schemes around Awash (zone three) hv CARE Awash, Gewane (zone three) by Farm Africa and Afdera and Teru (zone two) by UNICEF - WIBS (United Nations International Children's Emergency Fund - Woreda IlIIegrated Basic Service) program have been undertaken, fitll time fimctioning commercial micro/in(lnce institlltions have not been introduced to the regioll yet. This has hampered the development olmicroellterprises. Economically active people ill the region are kept idle and spend th eir life fin ancially insecure. The primUlJ! ohjective of the study is to show the extent of potential demand for microcredil in Gewane woreda, to indicate the most important household characteristics which dictate the hOllsehold's decision for a given amount of loan, alld to show the presence of plenty of business opportllnities that can be a potential base for the development of sustainable fillancial institutialls. Prilllmy rial({ were collected through cross-sectional survey. Both purposive and systematic /'{fndolll sampling techniques were employed to select woreda, farmers associations (FAs) and hOllseholds. Slmctllred questionnaires and focused group discussions were used to collect prilllaty data. Quantitative and qualitative techniques were used to analyze the data. Major [tnc/iugs of the study shows that in Gewane woreda the livelihood of households is mainly dependent on livestock production. About 70 percent of the sample households are engaged in livestock production. On the average, there are about 6.1 dependents and 3.4 economically ({Clive people ill a household. About 314'" of the households earnl1lonthly income which is below Ihe woreda average (547.61 Bin). Livestock and crop production and urban and rural petty lrades including Gulit, small shopping center, selling of food, local drinks, and chat and the !,rodllclioll ol halldicrafts such as Sifet, Selen, and Gadeta are the major business opportunities in Gel·val/e woreda. Shortage of capital and marketing are the major problems faced by lIIicroenlreprenellrs. Cattle disease, marketing and instability (because of the conjlict with Issa) lire also the main causes to household food insecurity problem. These causes offood deficit may also be potential weakllesses ofGewane woreda to the development of micro finance institution. More thelll 90 percent of Gel·vane woreda households need credit to operate gainful lIIicrobllsilless ({ctivities. Out of these 68.3 percent require a loan amount of 2,000 Birr or less. The stlldy revealed that rural households demand higher amount of loan than urban households. Frolll Ihe lotal salllple survey population, more than 95 percent are willing to pay for the iil/ancial service they would receive. Out of these, 61.8 percent are willing to pay 12.5 percent or lIIore interest for the loan delivered to them. About 314'" of rural and hall of urban households {Ire willillg 10 P({Y the indicated amount of lending interest rate. The analysis using logistic regressioll lIIodel illdicated that age, ethnic group, level of educatioll, /lumber of dependents and nllll/her ol econol/Jical~)I active age people in the household and monthly income of the household head ({re Ihe 1II0st important household characteristics which injluence the decision of the hOllsehold/or a given amount of loan.



Demand for Microcredit Service