An Assessment of the Socio-Economic Impact of Usury in Ethiopia: The Case of Aira Woreda, West Wollega Zone, Oromia Regional State

Abstract

Usury is a practice of lending money with exorbitant or abusive rates of interest which illegally enrich the usurers. Usury is now a day’s become a serious problem in economic activities across the globe and it is one of the contributing factors for fluctuations of economy and obstacle in economic development; especially in the third world countries. Usury is abstract mechanisms which dry out the interaction between supply and demand and affect the socio-economic life of the society. This study is aimed to assess the socio-economic impact of Usury in Ethiopia by taking Aira Woreda as a case which found in Oromia region West Wellega Zone; With the specific objectives of investigating mechanisms of practicing usury, identifying major causes of usury, examining the socio-economic effect of usury and identifying the major challenges that faces the eradication or elimination of usury. The investigator used exploratory case study type of research design and mixed method is employed as the research strategy. The data were collected from both primary and secondary sources. The primary data for this study was collected from 207 respondents which were selected by applying systematic sampling techniques using survey questionnaires and in depth interview was conducted with 8 individuals who were affected with usury by identifying them through snow-ball technique. The study applied both qualitative and quantitative methods of data analysis to interpret the result of the study. The study’s finding shows that; usury is accepted as a normal practice and loan is easily obtained through usury than formal loan. Traders, farmers, government and NGO workers are engaged in usury activity in study area. Furthermore the study shows lack of access of formal loan and inability to fulfill requirements of MFI are major causes of usury. In addition this study indicated that brokers are the most mediators between borrowers and usurers and this usury has negative impact on social and economic life of the community and result in expropriation of assets of poor by usurer. Based on the findings of the study, the impacts of usury on socio-economy of the community are identified. As recommendation different government institution and NGO should focus on creating the awareness of the society on the effect of usury. In addition justice sectors should entertain loan contract in line with anti-usury measure. In general this study shows that the impact of usury significantly affects the socio-economy of the society.