Impact of microfinance on livelihood of small holder farmers in hadiya zone, southern Ethiopia

Microfinance is a fundamental tool for poverty reduction by providing financial services to low-income individuals who are devoid of access to formal financial services. Microfinance institutions started operations in Ethiopia following Proclamation No. 40/96, and currently, there are 30 licensed MFIs and 448 branches with active clients of 2.3 million. Despite their outstanding contributions, however, their ability to improve livelihood is still in question. Multi-stage sampling was used to select a representative sample size of participants and non-participants. Descriptive analysis was run to reveal measures of central tendency and variability; while logistic regression was applied to determine factors affecting households’ decision to participate in microfinance. Logistic regression analysis indicated that seven variables significantly influenced program participation were four of them significant at 1% (i.e. Education level, household size, membership of cooperative and extension contact); and the other two variables were found significant at 10% (i.e. the number of dependents and Distant from OMFIs); while another variable has significantly affected participation at 5%. Microfinance institutions have to create awareness of its service to less educated smallholder farmers. MFI institution needs to expand its satellite sites to access the farthest rural farmers.