The role of Rural Microfinancing in Poverty Reduction: The Case of Berek Woreda, Oromia, Ethiopia

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2024-10

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Addis Ababa University

Abstract

This study examines the role of rural microfinancing in poverty reduction in Berek Woreda, Oromia, Ethiopia. Despite its proximity to the capital city, Berek Woreda faces significant infrastructural challenges that hinder economic development and sustain poverty, with approximately 45% of the population living below the national poverty line. This research employs a mixed-methods approach, combining quantitative data from structured questionnaires with qualitative insights from interviews and focus group discussions. The sample includes 387 households benefiting from selected microfinance institutions, along with selected stakeholders, local government representatives, and workers/managers of the selected MFIs. Data analysis involves both descriptive and inferential statistics, utilizing tools such as multi-linear regression analysis to evaluate the role of microfinance in improving household income and financial well-being. The findings reveal that microfinance initiatives significantly improve household income levels. However, several barriers, including geographical isolation, high-interest rates, socio-cultural factors, regulatory environment and operational challenges, limit the effectiveness of these interventions. The study concludes with recommendations for addressing these barriers and enhancing the role of microfinance in poverty alleviation. Keywords: Rural Microfinancing, Poverty Reduction, Household Income, Berek Woreda

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