Abstract:
This study was sought to analyse the determinants of access to formal credit by small
holder farmers in Dedo Woreda. Preferences of small holder farmers towards financial
credits was scored and ranked, sources of financial credit for smallholder farmers were
assessed and factors affecting formal credit access of small holder farmers were
analysed and identified in the study areas. A Multi stage sampling procedures were
employed to select three rural kebele administrations and 167 farm household heads
were selected using probability proportional to size. Semi-structured interviews were
employed for collecting quantitative data from the sampled farm households in the
study area. Focus group discussion, key informants’ interview and field observations
were held to generate qualitative data. Ranking techniques of credit sources were
applied to know the preferences of all respondents and focus group participants for
credit sources. Descriptive statistics and binary logit model were employed for
analysing the quantitative data. SPSS version 20 and STATA version 13 were used for
data analysis. The results of the study were indicated that, out of 167respondent house
hold heads, 74 of the sampled farm households were formal credit users, whereas the
remaining 93 of the respondents were non-users. Relatives, friends and neighbours
were preferred as the best credit source for borrowers in the study area than other
sources due to its interest free, low transaction costand adjustments of repayment time.
In the study areas, access to formal credit services of smallholder farmers was limited
due to: some-times inconvenience of group lending in which group members’ took
responsibility of paying the defaulters risk, high interest rate charged on borrowers and
some respondents having external financial supports. But the logit model reveal that sex
of household heads, attitudes of household heads towards credit risks, preference of
household heads for group lending, age of the household heads and experience of the
household heads in credit using were significantly affecting access to formal credit by
smallholder farmers.
