The Effect of Micro-Credit on Rural Households’ Income in the Case of Sinana District, Bale Zone, Oromia National Regional State, Ethiopia

Abstract

Rural credit is one of the tools used to combat poverty. Credit enables smallholder farmers to purchase agricultural tools and inputs when cash is scarce. Therefore, the main objective of this study was to investigate the effect of access to credit on household’s income. Both primary and secondary data were utilized in this study. Primary data was collected using semi-structured questionnaires. Descriptive, inferential, and econometric techniques were applied for data analysis. The mean comparison test revealed that on average the total annual income of smallholder farmers who received credit was better than non-beneficiaries by 26,878.46 Ethiopian Birr per annum. Heckman's two-stage econometric model was fitted. The Wald chi-square test of independency of access to credit and total household income per annum (rho = 0) was tested and showed that there is a strong relationship between the two equations at a 1% significance level. Landholdings, membership to cooperatives and education attainment of household head were among the common underlying factors which affect access to credit and the level of household income statistically significantly at less than 5% significance level. Therefore, government and non-governmental institutions must expand credit services and solve the problem of credit rationing facing smallholder farmers in Ethiopia.