Impact of Participation in Microfinance on Income of Rural Poor Households: The Case of Shinile District of Sitti Zone, Somali Region, Ethiopia

Micro-finance plays a great role in improving the livelihood of its beneficiaries. The objective of this study wasto evaluate the impact of micro-finance on rural poor households’ income in Shinile district, Sitti zone of Somali region. A total of 200 households (100 from participants and 100 from non-participants) were randomly selected from the three kebeles, based on probability proportional to size. Quantitative and qualitative data were collected through structured questionnaire and focus group discussions respectively.Descriptive analysis and propensity score matching method were used to describe household characteristics and evaluate the impact of credit intervention on participant households’ annual income respectively. The first stage of Propensity Score Matching used logit model to identify factors affecting participation in credit scheme and also estimate the propensity scores for the matching purpose.Results show that sex, and repayment rate significantly and positively affect participation in the credit program while livestock owned, land size, saving and interest rate affect participation in the credit program negatively and significantly.Participation in credit scheme significantly increased the annual income of the participating households byBirr 17591.04 (112.79%)on average compared to non-participants.The intervention through micro-finance in the study area significantly improved the livelihood of the rural poor in the study area through increased annual income indicating the need to increase the outreach of MFI through improved services.The study recommends that the micro-finance institutions in the study area and government agents has to educate and should supply the available amount of credit to smallholder farmers, the company needs to expand its accessibility among smallholder farmers headed by females and also to create awareness among farm households to use the loan for the intended purposes