[lent of Access to Formal Credit and its Challenges for Households: The Case of Mareko Worda,Guraghe Zone in SNNPR.

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Date

2011

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Addis Ababa University

Abstract

Credit plays an important role in agricultural development, and it is believed that expansion of credit program will have beneficial effects on agricultural production and improving rural household's incomes. It is also a key to poverty alleviation, livelihood diversification, and increase the business skill of rural households. In the study area, the rural households dependent on subsistence farming, and their loan is mostly from informal lender, thus access to formal credit remains low. There is a need to examine, fiu·ther rural households access to formal credit, and determine the factors that influence accessibility of formal credit and identifY the major challenges of accessibility to credit. The survey questioner distributed to 120 respondents, interview with key informant, and focus group desiccation with farmers employed to data analysis. The major methods of analysis ill this study were both descriptive analysis and logistic regression model to meet on the aforementioned objectives '. Out of 120 respondents 41 of them have access to credit during the time of the study. Access to credit by rural household was limited & credit service in the research area was not well served. Thus farmer's needs of credit led them tn borrow from informal leaders. In this study a combination of demographic, econumic and institutional factors found to influence access to credit. The major challenges of access for credit in the study area are lending group formation, credit collateral, high interest rate, limited number of MFI, lack of awareness and fear of risk are, restricted the fanners Fom accessing forma l credit. It is recommended that accessibility to credit by small farmers could be improved by providing innovative financing schemes that address problems of farmers who lack collateral. In this way farmers may be encouraged to better access to formal credit and decrease their reliance on informal lenders. Thus avoiding these and other constraints that hinder farmers ii-om access to credit, will increase their farm productivity, improve their income and livelihood. Key words: Formal Credit, Access, Rural Household, Challenges, Mareko Woreda

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Keywords

Formal Credit, Access, Rural Household, Challenges, Mareko Woreda

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