Analysis of Utilization of Credit and its Impact on Smallholder Farmers’ Income, Asset Holding and Expenditure in Edja District, Guraghe Zone, SNNPR, Ethiopia

Smallholder farmers in Ethiopia cannot fully utilize improved agricultural technologies and recommended amount of inputs by using their own funds. They need credit to solve the liquidity constraint thereby to properly adopt new technologies. Therefore, the major concern of this study was to assess the impact of credit from MFIs on farmers’ income, expenditure and asset holding, to identify factors affecting farmers’ credit access, to analyze the pattern of credit use by the smallholder farmers and to estimate the return of credit per business type. For the purpose of the study primary data were collected from three sample kebeles. A total of 120 households comprising 60 credit users and 60 non-users were selected randomly each sampled kebeles. In addition, secondary data were collected from relevant organizations. Descriptive statistics such as mean and percentage were used for analyzing the data. Moreover, t-test and χ2 - test were employed to compare credit users and non-users with respect to the hypothesized and other related variables. A binary logit model was employed to examine factors influencing Microfinance credit access. Propensity Score Matching Technique was employed to analyze the impact of credit on farmers’ income, expenditure and asset holding. And also financial ratios such as gross margin analysis, benefit-cost ratio were used to analyze the return of credit in different business types. The education level of the household head, age of the household head, the household size, non-and/off-farm income and size of cultivated land were found to be an important factors influencing farmers’ credit access. Keeping other things constant, access to credit has a significant impact on farmers’ income, expenditure and asset holding as evidenced by the model output. In addition the returns of credit are different in different crop production and different business types. Promoting Microfinance institutions in wider range of areas, disclosing business types which can generate more return to clients, providing farmers with other factors of production and adding non-and/off- farm income generating activities are critical factors that should be practiced by stakeholders in the study area