Impact of Microcredit on Selected Livelihood Assets of Rural Households: The Case of Shebedino District Omo Microfinance Institution, Sidama Zone of Southern Ethiopia

Abstract

Microfinance institutions provide different financial services for the poor, where microcredit is one of its major services. The main objective of this study was to identify the impact of microcredit on selected livelihood assets of microcredit participant households. Both primary and secondary data were collected and used for this study. The primary data were collected from randomly selected 110 microcredit participant households who have at least three years of participation status in Omo Microfinance Institution and 120 non-participant households who hadn’t ever accessed loan from Omo Microfinance Institution. Secondary data were collected from review of different related literatures. Both descriptive and inferential statistics were used to analyze the collected data. The result of descriptive statistics showed that, microcredit participants use loan for different livelihood activities, such as financing agricultural activities, food preparation and sell, cloth trading, supply of local construction material (Atena), shop keeping and petty trade. Fear of risk of default, interest rate, transaction cost related with accessing loan, repayment policy, compulsory saving and group lending approach were the main factors affecting microcredit participation in the study area. The result of PSM analysis indicated that microcredit participation has a positive and significant impact on average annual income, saving, physical asset and children schooling of households. The sensitivity analysis result showed that the impact results estimated by this study are insensitive to unobserved selection bias. Therefore, Omo Microfinance Institution, other governmental and nongovernmental organizations should expand access of credit to rural households in poverty reduction strategies.

Keywords: Impact, Livelihood Assets, Microcredit, Omo Microfinance Institution, PSM