The Role of Microfinance Institutions in Poverty Reduction Among the Rural Poor: A Case Study on Omo Microfinance Institution in Guraghe Zone of South Nations Nationalities and Peoples Region
No Thumbnail Available
Date
2017-05
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Addis Ababa University
Abstract
There has been a strongly growing interest in considering micro financing as a viable
strategy for the poor. Similarly speaking, Microfinance can be a critical element of an
effective poverty reduction strategy especially for developing countries. More than ever
after the success of the different MFIs, the system has been duplicated in the different
parts of developing world. Ethiopia is also one of the countries where microfinance has
been given due consideration as a safety net for the poor to help them overcome the
adversities of poverty. The services provided by microfinance institutions is desired to
enable the poor to smoothen their consumption, manage their risks better, build their
assets gradually, develop their micro enterprises, enhance their income earning capacity,
and enjoy an improved quality of life. Microfinance institutions, as mentioned above, are
basically set up with the goal of poverty reduction. Subsequently, in order to investigate
the above premises, this study has undertaken empirical evidence in Omo Microfinance
Institution taking a sample of 120 clients from Qebena woreda , Gurage Zone , South
Region nation and nationalities to discern its contribution towards poverty reduction.
Consequently the objective of this study is to find out the impact of microfinance towards
poverty with a particular reference to Omo Microfinance Institution. The research work
employed both quantitative and qualitative methods such as questionnaires, key
informants; focus group discussions, and observations to obtain primary data. In addition,
secondary sources of data have also been collected from different literature and OMFI
annual progress report. The contribution of Microfinance is analyzed based on income,
living condition, asset accumulation, saving, decision making power, self-confidence,
business management skills along with the strength and weakness of the institution
among others. Though studies found positive impact of credit and unambiguous selection
criteria, but ignored examining the suitability of the methodology focusing on
performance analysis in terms of financial and operational sustainability and outreach,
service delivery issues of microfinance in Ethiopia. Much of their focuses have been on
the microfinance institutions rather than the program targets. Even if the studies were to
focus on the beneficiaries of the program they were not far from investigating whether
poor people are being reached or not. The finding indicates that OMFI scheme has made
positive contribution to the clients in relation to observed variables. Nevertheless
significantly higher number of the clients complained about the institutions high interest
rate, too small loan size, repayment policy, problematic group dynamics. Therefore, as a
pointer to future endeavors, the current services of OMFI need to amend the loan size and
reduce the interest rate in order to resolve the issues at hand and to fit the financial
problem of the poor in the sector
Key Words: Microfinance Institutions, Microfinance, Microcredit, Poverty, Poverty
Reduction
Description
Keywords
Microfinance institutions, Microfinance, Microcredit, Poverty, Poverty reduction.