Abstract:
Microfinance institutions have enabling role for agricultural production; as credit is used for
investments that increase the production and productivity of agriculture and saving ensures a
safe storage of money, that can be channeled to its most productive use. However, some
weaknesses of the institutions coupled with household related characteristics are still hindering
farmers’ utilization of services. This study was conducted in Gimbo district of Kaffa zone,
Southern Ethiopia with specific objectives; to examine households’ participation in saving and
credit services of Omo Microfinance Institution, identify the determinants of credit participation
and loan amount received, and assess major challenges and opportunities of microfinance
service provision in the district. The study was based on the data collected from 200 sample
households selected through two-stage sampling technique. In addition, data collected from key
informants’ interview and different secondary data sources were also used. Both descriptive
statistics and econometric model were used to analyze the data. A double hurdle model was
employed to assess the determinants of households’ credit participation and the amount of loan
received. Econometric model result showed that sex, education level, family size, land size,
distance from service provision center, extension contact, perception on group lending, and
perception on loan provision time were found to be significant in influencing the probability of
credit participation. Furthermore, sex, education, family size, land size, livestock holding, and
extension contact were found to be significantly affecting loan amount received. The result
suggests the need for improvement on delayed loan disbursement time for credit service and
attractive incentive structure coupled with convenient withdrawal system to be developed for
saving in order to increase households’ participation in the services.
