Determinants of Access to Formal Credit in Rural Areas of Ethiopia: Case Study of Smallholder Households in Boloso Bombbe District, Wolaita Zone, Ethiopia

Abstract

The majority of agricultural production in Ethiopia is carried out by smallholder farmers. Improving food security in short run and poverty in the long run has remained to be the major challenges in Sub-Saharan Africa countries especially in Ethiopia. This study required to identify determinants that limit smallholder households’ access to formal credit in the Boloso Bombbe District, South Region of Ethiopia. The study utilized cross sectional survey research design to attain the objectives. Primary and secondary data were used and analyzed by using STATA Version 14. Sample size determined by using Cochran formula and 312 households selected using multistage sampling techniques. Probit regression model was used to analyze quantitative data. The results shows that credit access was determined by the variables like Age, educational level of the smallholders, membership, extension service, saving habit, collateral, connection with local leaders and livelihood diversification. Output of the study revealed that only 36.54% of the respondents in the study area had accessed formal credit while 63.46% did not have any access to credit. This calls the government and non - governmental organizations have to be done more in credit access to improve the future productivity of smallholder agriculture in Ethiopia.