Abstract:
In the developing countries, formal credit has dominant role for the development of agriculture sector. Even though, participation in formal credit was among the majority of agricultural households remains constrained. Thus, this study was carried out to examine actors that affect smallholder farmers’ participation in formal credit in Mida Kegn District West Shoa Zone Oromia national Regional state, Ethiopia. A three stage sampling techniques was used to select representative households from the study area. Mida Kegn District was selected purposively and, then 150 farm households were selected from four rural peasant associations out of twenty-four. Semi- Structured interview schedule was developed, pre-tested and used for collecting quantitative data for the study from the sampled farm households. Focus group discussion, group interview and field observations were held to generate qualitative data. Both descriptive and econometrics analysis were employed to meet the objective of the study. The results from descriptive analysis indicated that about 69 (46%) of the sampled smallholder farmers were formal credit participants, whereas the remaining 81 (54%) were non-participants. 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. While, they strongly criticizing the isolation of very poor farmers from the group formation, the smaller loan size, earlier and repayment period by the MFI were among the critical problems. The first hurdle of regression results revealed that age, education status of farm household head, land holding size, participation in extension package and training of farm household by MFI were positively and significantly affect smallholder farmers participation in formal credit service. While sex, family size, livestock, distance travelled by farmers to lending institution and lending procedure were negatively and significantly affect smallholder farmer’s formal credit participation. The truncated results of the second hurdle revealed that farmers’ age, family size, livestock and participation in off-farm income were positively and significantly affect loan amount received by smallholder farmers from formal credit. This study recommends that in order to make agricultural development successful these factors and problems are taken into consideration by policy makers to enable participation in formal credit and the amount loan amount received from formal financial sources
