Microenterprise Credit and Poverty Alleviation in Ethiopia the Case of the Project Office for the Creation of Small Scale Business Opportunities (POCSlBO) in Addis Ababa
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Date
1999-06
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A.A.U
Abstract
The study examined the contribution of POCSSBO 's microfinancing scheme to poverty
reduction (based on descriptive analysis) and investigated the determinants of loan
repayment peljormance (based on a recursive model) using primary data, collected from
a sample of 241 individual beneficiaries in Addis Ababa. the results indicate that, the
credit scheme has contributed positively towards poverty reduction. by creating
employment opportunities for many program beneficiaries the credit scheme has
contributed positively to a rise in household income, as verified by the wilcoxon nonparametric
test. by increasing ability to pay, the credit scheme has also contributed
positively toward improved access to health and educational facilities as well as in
improving the nutritional status of householdshowever, the peljormance in the area of
saving mobilization was not satisfactdly due to the non-attachment of saving facility with
the credit scheme and poor effort in encouraging saving
POCSSBO's loan repayment peljormance was not satisfactDlY and the binomial probit
model results indicate the existence of several filctors that significantly influence the
probability of full loan repayment. While loan diversion, loan size, and monthly income
from business financed by the loan are found to be repayment performance undermining
factors, beneficiwy 's age, perceived cost of defilUlt and suitability of repayment period
are found to be repayment enhancing factors.For greater contribution towards poverty alleviation, there is a need for an effective
saving mobilization strategy as well as a more transparent selection criteria in order to
improve targeting efficiency. For improved loan repayment performance and overall
sustainability of the credit scheme, credit provision should be based on non-subsidized
interest rate since interest free credit has negative demonstration effect and incentive
problems. Also the office should consider repayment enhancing and undermining factors
in designing a more effective loan repayment mechanism.
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Keywords
Credit, Proj ect