Financing challenges of smallholder farmers: A study on members of agricultural cooperatives in Southwest Oromia Region, Ethiopia

Abstract

Smallholder agriculture plays a great role in food self-sufficiency, employment creation and economic growth. However, studies conducted in Ethiopia indicated that access to finance and input/output marketing are two of the critical problems affecting the productivity of smallholder agriculture in the country in general and in Oromia regional state in particular. The main objective of this study is to investigate how smallholder farmers in southwest Oromia zones finance their farming activities and examine problems associated to access to finance. To achieve this objective, 400 sample smallholder farmers who are members of agricultural cooperatives were selected from three zones (Jimma, Buno Bedele and Illu Aba Bora) and survey were conducted. Both structured and unstructured interview were made with farmers and officials of selected primary cooperatives operating in the three zones to scrutinize the issue in depth. The data collected were analyzed using descriptive statistical tools to come up with appropriate conclusions. The finding of the study showed that despite the expansion of cooperatives and MFIs to rural area, there is still a challenge to get credit from these formal financial sources. Some of the problems include: absence of interest free loan for Muslims, long lending procedures, problems related to repayment period. As a result of these, smallholder farmers tend to prefer informal sources such as credit from traders, family members, friends, and Iqube. Key words: Access to finance, cooperatives, smallholder farmers, Southwest Oromia.