| Abstract: | This study has aimed to identify factors affecting credit constraint and rural
households‘ access to credit in Sebeta City Administration. A total of 190
households, 24% of them female headed households, were included in the
study. Logistic regression was applied in order to identify factors affecting
credit constraint and rural households‘ access to credit. The study result
revealed that only 15% of households included in the survey had access to
formal credit service even though 60% of them indicated that they needed the
service. Many of them did not apply for credit for two major reasons, small
loan size offered by the institutions and lack of awareness about the process
and procedures of the organizations. Regarding access to credit, the result of
the survey indicates that four continuous variables, age, aging, family size
and number of livestock in tropical livestock unit significantly affected
access to credit. Similarly, four categorical variables, namely Extension
package, Sex of the household head, Ownership of irrigable land and Group
membership significantly affected rural household‘s access to formal credit.
However, education level, income and land size didn‘t have significant
impact on credit access. Number of livestock owned negatively influenced
access to credit while family size and aging have positive impact on access to
formal credit. Furthermore, the result of the study revealed that male headed
households were more likely to access credit compared to female headed
households. Finally, ownership of irrigable land, and group membership
positively affected access to formal credit service while access to extension
service had negative effect on access to formal credit.
With respect to Credit Constraint, the study result indicates that 57.3% of the
households included in the study were credit constrained households. From
the continuous variables, age of the household and number of livestock
owned have significant impact in determining credit constrained households
while number of dependent children, education, family size and land size
seemed to be insignificant in determining credit constraint. From the dummy
variables, Sex of households had impact on credit constraint while group
membership is insignificant in identifying credit constraint. Aging and
number of livestock owned negatively affected credit constraint. As people become older, they accumulate enough wealth which can serve as collateral
to access credit. Livestock ownership had negative impact on credit
constraint since livestock can be easily converted to cash; people with larger
number of livestock may prefer to sell their animals to meet their financial
needs instead of accessing credit from financial institutions.
The finding of the study also indicates that most of the explanatory variables
expected to affect access to credit were found to be in line with theoretical
and empirical findings of other studies. It also shaded light on the need to
revisit the loan size currently provided by financial institution and
importance of awareness creation activities to promote farmers
understanding about credit and saving. |
