Abstract:
Access to finance plays significant role in enhancing agricultural productivity. However, studies
showed that access to finance itself is affected by several factors though there is no consistency on the
factors. This study is aimed at identifying determinant of access to finance taking evidence from least
developed country, Ethiopia. To achieve this objective, 400 sample agricultural cooperative members
were selected using multistage sampling and logistic regression was used in the analysis. The study
found that participation in extension package, simplicity in lending procedures, Christianity in
religion, large number of working family size and large land size positively affect access to
cooperative credit. The study further found that short distance from MFIs, simplicity in lending
procedures; higher educational level, large working family size, and possession of non farm income
positively affect access to MFIs’ credit. Concerning access to informal credit, educational level,
working family size and land size were found to be significant factors. One interesting finding in this
study is the effect of religion on access to finance. Smallholder farmers who practice Christianity tend
to have high probability of accessing formal credit from cooperatives and MFIs. Muslim smallholder
farmers less likely in take credit from formal sources since Islamic religious customs do not allow prearranged interest rates but rely instead on profit and loss sharing principles. When we come to
informal sources of finance, religion is not found to be significant factor which implies that
cooperatives and MFIs in the region should improve their credit provision system that accommodate
the Muslim community as well.
