The Impact of Micro-financing on Poverty Reduction: A Case Study of Oromiya Credit & Saving Share Company (Ocssco) In Eastern Wollega Zone of Oromiya National Regional State, Ethiopia
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Date
2003-07
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Addis Ababa University
Abstract
The prevalence of poverty has been a common phenomenon in Ethiopia. The prevailing
operation of the conventional financial institutions in Ethiopia is inefficient in providing
financial services to the poor. The challenge Ethiopia is facing today is to reduce poverty and
achieve sustained economic growth for healthy national development. One of the economic
policies of the country is introduction of MFIs in the country. Currently, microfinancing is
being practiced in the country as a tool to deliver financial services to the poor with the
objective of attacking poverty.
OCSSCO, one of the 22 licensed microfinance institutions in Ethiopia, was established in
August 1997 in ORNS for this purpose. The objective of this study, therefore, is to find out
whether the delivery of financial services of the MFI has made changes on living standard of
the clients. Primary data were collected through structured questionnaire from clients and
non-clients using simple random sampling method. Secondary data were gathered from
different MFIs’ reports and literatures. Both are quantitative and qualitative in nature.
Descriptive analysis, dichotomous binary model and sensitivity analysis were applied in the
study.
The impacts are analyzed based on two approaches. First, the impacts are observed in
association mainly with income, which in turn have effects on nutritional status, access to
education and medical facilities, employment generation, savings and empowerment, among
others. The finding indicates that the OCSSCO’s microfinancing scheme has made positive
contribution to the clients in relation with observed variables. The impacts are also evaluated
based on MFI’s outreach and sustainability having the conceptual framework that if both
outreach and sustainability have been enhanced then the program intervention is judged to
have a positive impact as it has created the financial market to the poor. The finding also
indicates that in spite of improvement in outreach and sustainability, a number of respondents
are looking for the services. However, considering the sustainability of the MFI, the result
shows 100% loan repayment performance except the first year of establishment in the study
area. Adequate advising, supervision and giving services on time are some of the factors that
help in loan repayment performance.
The overall objective of MFIs in Ethiopia is to increase the productive potential of the poor
and poverty reduction. The study found out the importance of the program. The intervention
has enabled the clients to generate income that could be spent on better facilities, which could
improve the living standard of clients. Therefore, strengthening the existing operation would
be appropriate socio-economic policy.
KEY WORDS: Microfinance, Loan products, saving products, Impact assessement,
Outreach, Sustainability, Poverty.
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Keywords
Microfinance, Loan products, Saving products