Does Microfinance Really Help the Poor? Evidence from rural households in Ethiopia

Abstract

The role of financial institution expansion in growth and poverty alleviation in developing countries has received a lot of attention in the literature over the last two decades. The primary goal of this study was to determine whether the provision of microfinance services resulted in changes in clients' living standards in Ethiopia. To assess this effect, the researchers collected primary data via questionnaires from 351 randomly selected respondents from five districts of OCSSCO (Dambi Dollo, Nekemte, Ambo, Jimma, and Woliso). The data collected was analysed using both a descriptive and a logistic regression model. Based on the result of the findings, the researchers concluded that the OCSSCO is successful in improving the living standards of poor households and plays a significant role in poverty reduction. However, respondents identified a lack of adequate client training, follow-up and supervision of each household's activities, a lack of sufficient lending amount, and a high imposed lending rate as some of the main problems. According to binary regression output, access to microfinance institution (OCSSCO) loan significantly increased amount of household annual income, household annual saving, livestock of households, food security and diet intake, and household cash crop. Because the majority of clients indicated that the loan amount and period was insufficient to run their business, OCSSCO should make an effort to increase the loan amount and period for its clients in relation to the size and type of business.