Detrminants Of Smallholder Farming Households’ Access To Formal Credit: The Case Of Walmera District, Specal Zone, Oromia Regione

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.