SMALLHOLDER FARMERS ACCESS TO FORMAL CREDIT

In Ethiopia, lack of finance is one of the fundamental problems hampering production, productivity and income of rural people. Since access to institutional finance is very limited, the majority of the poor are forced to search financial services through informal channels. The study was sought to ascertain the status of women and different wealth groups access to credit sources. From the study it was found out that credit access to female headed households is still limited and the difference between the wealth groups in accessing credit from the formal sources was also statistically significant. 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 strongly criticizing the isolation of very poor farmers from the group formation. Moreover, the smaller loan size, earlier saving requirement by farmers, and repayment period by the MFI were among the critical problems. Therefore, policy aimed to accelerate agricultural development in the area could be successful if these problems are taken into consideration.