Abstract:
This study was conducted to analyze the determents of smallholder farming households‟ access to
formal credit in Welmara district. Mixed research approach was employed to collect and analyze
both qualitative and quantitative data. A multi stage sampling method was employed to select
five out of twenty-four rural peasant associations’ and 139 farm households. Structured
interview schedule was developed, pre-tested and used for collecting quantitative data for the
study from the sampled farm households. Focus group discussion, and key informant interview
were conducted to complement the quantitative data collected through interview schedule with
farming households. Thematic content analysis was employed to analyze qualitative data
collected through focus group discussion, and key informant interview. Descriptive statistics and
binary logit model were employed to analyze the determinants of rural farming households’
access to formal credit. The output from the study indicates that 60 (43%) of the sampled farm
households were formal credit users, whereas the remaining 79 (57%) were non-users. It was
also found out that credit access to female headed households is still limited. Farmers
acknowledge group lending that solves the problem of collateral requirement by lending
institutions, controls misuse of borrowed funds and minimizes the risk of default and they also
recognize the provision of saving services by MFI, while strongly criticized the isolation of poor
farmers from the group formation. Moreover, the smaller loan size, earlier saving requirement
which was not convenient to the farmers, and repayment period by the MFI were among the
critical problems. Participation in extension package programs, total cultivated land size,
number of livestock in TLU, collateral or group formation and membership of MCOO were
found to be highly important in influencing access to formal credit use as evidenced by the model
output. There should be a policy environment whereby individuals may have access to MFI
credit, without forming groups, by means of using land use right certificates and guarantor as a
collateral.
