Journal of
Economics and International Finance

  • Abbreviation: J. Econ. Int. Finance
  • Language: English
  • ISSN: 2006-9812
  • DOI: 10.5897/JEIF
  • Start Year: 2009
  • Published Articles: 312

Article in Press

Socioeconomic factors determining rural households’ access to credit and amount of loan utilization for proposed action: The case of Omo micro finance

Biruk Jagiso Fonke

  •  Received: 12 December 2018
  •  Accepted: 03 April 2019
Credit is an important instrument to improve the welfare of the poor. It could enable the rural households in overcoming liquidity problems, enhancing productive capacity and adoption of new technologies. In Ethiopia, the government is promoting microcredit services, but the participation of rural households’ for credit service is limited. Inappropriate use of loan money also exacerbated the challenges in achieving the desired goal and consequently, it influenced the loan repayment performance of the household. Therefore, this study was conducted with aim of identifying socioeconomic factors prompting farm households` participation in Omo Microfinance services and factors determining the utilization of loan money for proposed activities. To conduct this study, 120 rural households were selected randomly from 6 kebeles of Damot Gale district. The participation decision of the households in the credit market and factors determining the level of credit utilization for proposed activity is analyzed using double hurdle model. The study result shows that distance to formal lending institutions, education status, total livestock unit and frequency of contact with extension agents have significantly influenced access to credit. The second hurdle of the model reveals that amount of loan received, peer-monitoring system, expenditure in social festive and frequency of contact with extension agents affected the performance of loan utilization. Therefore, minimizing the barriers of access to credit and considering factors affecting loan money utilization for proposed activity is vital to achieve the desired goal.

Keywords: Credit, Credit market participation, Loan utilization, Omo microfinance, Damot Gale