Journal of Positive School Psychology http://jour nalppw.

com
2022, Vol. 6, No. 5, 7552–7567

Does Microfinance Really Help the Poor? Evidence from rural households
in Ethiopia

Birhanu Daba Chali1, Workneh Girma Gelalcha2, Zewdu Eskezia Gelaye3, Dr. Deepak
Tyagi4
1
Dept. of Accounting and Finance, College of Business and Economics, Dambi Dollo
University, Ethiopia
2
Department of Economics, College of Business and Economics, Dambi Dollo University,
Ethiopia
3
Dept. of Accounting and Finance, College of Business and Economics, Dambi Dollo
University, Ethiopia
4
Accounting and Finance, Dambi Dollo University, Ethiopia

Email: [email protected], [email protected], [email protected],

4
[email protected]

Abstract
The role of financial institution expansion in growth and poverty alleviation in develo
ping countries has received a lot of attention in the literature over the last two decades. The
primary goal of this study was to determine whether the provision of microfinance services
resulted in changes in clients' living standards in Ethiopia. To assess this effect, the researchers
collected primary data via questionnaires from 351 randomly selected respondents from five
districts of OCSSCO (Dambi Dollo, Nekemte, Ambo, Jimma, and Woliso). The data collected
was analysed using both a descriptive and a logistic regression model. Based on the result of
the findings, the researchers concluded that the OCSSCO is successful in improving the living
standards of poor households and plays a significant role in poverty reduction. However,
respondents identified a lack of adequate client training, follow-up and supervision of each
household's activities, a lack of sufficient lending amount, and a high imposed lending rate as
some of the main problems. According to binary regression output, access to microfinance
institution (OCSSCO) loan significantly increased amount of household annual income,
household annual saving, livestock of households, food security and diet intake, and household
cash crop. Because the majority of clients indicated that the loan amount and period was
insufficient to run their business, OCSSCO should make an effort to increase the loan amount
and period for its clients in relation to the size and type of business.

Keywords: OCSSCO, Microfinance, rural households, poor, poverty-reduction, living

standard improvement

1. INTRODUCTION 2021). Various micro finance institutions

(MFIs) are now serving as part of Ethiopia's
The services of microfinance in poor rural poverty reduction plan by providing much-
household community have the major role needed financial services, mostly to the
to eradicate poverty by enabling the farmers informal sector, which would otherwise
to use modern inputs and supplying these rely on exploitative moneylenders. One of
input for their agricultural work and MFIs operating in Ethiopia is Oromia
responsible to avoid this difficulty by saving and credit share company
providing financial service for those (OCSSCO), which targeting to fill the gap
individual household in order to upgrade of commercial banks and other financial
their living standards (Alam & Azad, institution which do not serve poor people

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7553 Journal of Positive School Psychology

due to high collateral requirement and increases poverty by increasing debt and
therefore the poor need an another source of that husbands use their wives as conduits to
credit services (Geleta et al., 2018). secure loans (Gelaw & Dawa, 2019). Hence
Providing affordable financial services to according to these scholars microfinance
the rural population still remains to be an alone play minor role towards altering the
important component of development problem of the poor. Adding to these,
strategy in Ethiopia (Alemu, 2015). In line (Ayele, 2014) opined that rather than
with this the major objective of the achieving long-term living improvements
OCSSCO is improving the living of household, access to credit from
conditions of rural households through microfinance only means temporary
mobilization of saving and provision of consumption flattening with a risk of being
credit. Hence, it is expected that the income stuck into debt for poor households.
of clientele households would increase. Hence, having the above gap, by combining
According to a growing collection of and studying critical aspects connected to
empirical studies cited in (Chirkos, 2014), MFIs' involvement in improving
Microfinance has a favourable impact on households' living conditions, this study
poor people's ability to better their living aims to fill a knowledge gap and presumes
situations. Previously conducted studies enormous value for the area. The major
point out that the poor have taken advantage question to be answered is whether this
of increase their incomes by start-up new microfinance service significantly
venture or expand the existing ones to contributes to increment the income of
improve consumption levels, send their household.
children to school, and build assets. In light of the overhead discussion, the
According to United Nations Office of main assessment queries to guide the study
Special Adviser on Africa (2013) cited in are as follows:
Nigusu Abera & M Asfaw (2019) “when 1. What are the practices of OCSSCO
properly harnessed and supported, in providing financial services?
Microfinance can economically empower 2. To what extent the client standard of
individuals and small enterprises and living was improved after the loan
enable them to contribute to and benefit service by OCSSCO?
from economic development”, currently 3. To what extent client are able to
most developing countries target is reimburse their loan on time without
enabling poor to economically empower any difficulty?
through microfinance institutions, “Poverty 1.1 Objective of the Study
reduction has been a concern of developing The objective of this study is to assess
countries through emerging microfinance whether microfinance institution
industry” (Ramanaiah & Gowri, n.d.). (OCSSCO) playing in enhancing living
Some anecdotal observations on the standard by reducing poverty of rural
ground, however, show that there are mixed households in Ethiopia.
influences of credit provisions on the 1.2 Significance of the Study
incremental income of the clients. From the This study was conducted to point out the
point of view of Dr Martina Mutheu in cited existing operation of OCSSCO towards its
(Benti, 2019), “Most of the credit given to impact on reducing rural household
the target segment is used to finance poverty, therefore the results of this
saturated business activities whose margin research will assist the rural households (for
of return is far less than what is charged on both client of OCSSCO and non–client of
the borrowed funds, the outcome is a OCSSCO) in order to understand the
deficit, pushing the borrower further into existing opportunity for them and utilized
debt and in effect making him poorer”, in this opportunity and then improve their
addition to this argument “micro- credit living standards. For policy makers this

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research will benefit in order to undertake person, their sense of self confidence and
proper microfinance policy in the manner social acceptance is improved and this can
of supporting rural development or over all help to empower the person to contribute in
country development by providing the economy and society. Hence, the main
comfortable microfinance services for their objective of this study is to find out whether
clients. Additionally, this research also the provision of microfinance services has
may have a significance for other brought changes on the living standards of
individuals and organization who wants to clients in Ethiopia.
conduct further study concerning on this 2.1 OCSSCO and Rural households in
topic. Ethiopia
Ethiopian microfinance institutions are
2. REVIEW OF RELATED emerged in recent years to achieve the
LITERATURE development goal. As a matter of fact the
objective of microfinance in Ethiopia is to
Poverty is highly affecting the life’s of the provide financial services by reaching
population of Less Developed Countries limited access with formal financial sectors
(LDCs) in general and that of rural people to the poor household and to make poor to
in particular. High vulnerability, lack of let the poor save their money from their
balanced diet, lack of education and profit for long term financial stability.
medical services, less participation in Micro finance institutions started
different decision-making activities are operations in the country following the
some of the major problems the rural people issuance of Proclamation No. 40/96, which
faced (Tarozzi et al., 2015). To overcome regulates the businesses of micro finance in
these and other related socio- economic the country. The National Bank of Ethiopia,
problems, micro finance Institutions that is the licensing authority, has since then
(MFIs) targeted the poor in general and the been issuing a number of guidelines that
rural people in particular. The most underpin the operation of micro finance
important role of microfinance institution is institutions in the country. The major target
to offer financial intermediations and groups of most of the MFIs operating in
financial services to the poor; this involves urban areas are women while the lion’s
the transitions of capital or liquidity from share of the target groups are men in rural
those individual who have surplus fund to areas. These institutions have been trying to
those who are deficits of funds at similar enlarge their client and area outreach for the
time (Geleta et al., 2019). According to last almost two decades (Aregawi et al.,
Ledgerwood (2006) cited in Alemu (2015) 2019). Among these institutions Oromia
‘‘If I were asked to suggest the best possible credit and saving share company
means of lifting people, especially people (OCSSCO) is one of the institution that
from developing countries from financial functioning to alleviate poverty in the state,
and social poverty without any confusion I OCSSCO began operations in 1997 the
would states that it is through the provision access to credit institution is not yet
of soft and well managed loans from the sufficient in the country; and similar to
community of microfinance institutions’’. different microfinance institutions in
It is expected that microfinance services Ethiopia, currently Oromia credit and
create employment opportunities, saving share company (OCSSCO) is
increasing income, enhancing improving the economic status of the region
empowerment and in aggregate improve the by increasing access to finance to poor
livelihood of the poor by generating access households particularly in rural area of the
to valuable capital for the poor (Alam & region (Gebru, 2011).
Azad, 2021). Adding to this, they opined The major purpose of OCSSCO is to
that by giving that material capital to a poor improve the economic position of low-

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7555 Journal of Positive School Psychology

income, productive impoverished people in and NGOs working towards achieving food
the Oromia region, primarily through security and poverty alleviation in the
expanded access to lending and saving region” (Dar 2004, 4). OCSSCO is working
services (Bekele, 2013). It will maintain on sustainable development goal by
cost effectiveness in service delivery, and increasing the living standard of poor and
integrates its activities with government absolute poor in the region.

Table 2.1: Summary of empirical literatures in Ethiopia

Author(s) Title Methodology Major finding

(Geleta et analyzing the ➢ questionnaire Household heads’ sex, education

al., 2019) impact of credit was distributed level, cultivated land size, livestock
on rural to 188 sample holding and frequency of extension
household households contact positively and significantly
income in ➢ stratified and affected the rural household’s
Cheliya simple random income; while dependency ratio
District, West sampling affected their decision negatively
Shoa, Oromia, techniques and significantly.
Ethiopia ➢ both
descriptive
statistics and
logistic
regression
model
(Alam & Microfinance's Questionnaires Microfinance credit has a positive
Azad, 2021) Impact on collected from 146 impact on women's income creation
Women's active clients and and employment rates.
Income and analyzed both in
Employment in descriptive and
Jigjiga, logit model
Ethiopia
(Tarozzi et The Impacts of data from a the impact of increasing
al., 2015) Microcredit: randomized microfinance access on a variety of
Evidence from controlled trial socioeconomic outcomes, including
Ethiopia conducted in agricultural income, animal
2003–2006 of time husbandry, nonfarm self-
series employment, labor supply,
education, and women's
empowerment indices
(Siyoum et The differential A survey of 106 Results show that Credit did not help
al., 2012) impact of households was impoverished households escape
microcredit on conducted, as well poverty or food insecurity, but it did
rural as a series of 18- help better-off and labor-rich
livelihoods: monthly in-depth households improve their living
district of interviews with 15 conditions.
Ebinat, northern households.
Ethiopia
(Teferi, A study on panel data When compared to those who do not
2011) impact have access to these microfinance
microfinance services, the loan supplied to the

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7556 Journal of Positive School Psychology

on poverty needy has had a favorable influence

reduction in on the lives of the clients.
Northern
Ethiopia
Kebede, et Influence of binary logit model Proper utilization of the disbursed
al. 2002 Micro-Finance loan, average loan size,
Services on appropriateness of loan
Farm disbursement schedule, and access to
Households required amount of loan were found
Income: to be significant factors influencing
OCSSCO the incremental income of the
Kuyu Branch, clientele.
Ethiopia
(Abera & Impact of Descriptive The findings of this study suggested
Asfaw, Microfinance method, by that MFIs employ people to better
2019) on Rural collecting data their living situations. According to
Household from household this study, the poor have used rising
Poverty in through incomes to enhance their
Ethiopia questionnaires. consumption, send their children to
school, and acquire assets.
Microfinance, according to the
report, enables underprivileged
people to boost their income by
launching new businesses or
growing existing ones.
(Alemu, Micro financing descriptive The clients were using the loan for
2015) and Poverty statistics (like Chi- unanticipated reasons, according to
Reduction in Square, Paired T- the findings of the investigation.
Ethiopia test and ANOVA) Clients were also found to be lacking
and Logistic in technical abilities, making it
Regression difficult for them to engage in more
lucrative commercial activities. As a
result, OCSSCO's present services,
in addition to loan providing, should
emphasize business training skills to
assist the poor in moving beyond
day-to-day survival and planning for
the future.
(Ewunetu, Microfinance: Using data from the researcher finds consistent
2011) Does it Support two rounds of evidence of a causal effect of
Households to regional Microfinance participation on
achieve an representative lowering child malnutrition and
Income above household surveys boosting yearly per capita
Self- (2006 and 2010) consumption spending. More
Sufficiency? crucially, the research revealed that
Evidence from the poorest of the poor in Tigray gain
Rural Northern more from the Microfinance loan
Ethiopia program than the moderately
impoverished rural households.

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7557 Journal of Positive School Psychology

(Benti,2019) How Effective Used Based on the strategy of poverty

is Microfinance questionnaires and eradication, microfinance
on Poverty analyzed by institutions are playing significant
Reduction? Descriptive role on the reduction of poverty and
Empirical research design. increase source of income by
Evidence on providing financial services, such as
OCSSCO saving and credit to rural poor
(Ethiopia) household society particularly poor
women household.

Fig 2.1: Conceptual Frameworks

✓ Client’s income is increased
✓ Client’s saving is increased

Independent variable
Access to ✓ Client has better food security
Get credit and Invest in the
Microfinance duration
saving future
✓ Client’s livestock are increased
✓ Client’s ways of nutrition (diet) are
Source: own construction, 2021 improved
Poverty reduced
✓ Client’s dwelling and house items
was improved
DEPENDENT VARIABLE
✓ Client repay his/her loan safely
✓ Client’s cash crops is increased

3. METHODOLOGY districts (Dambi Dollo, Nekemte, Ambo,

Jimma, and Woliso). These are 13,623
Both descriptive and explanatory research loan active clients from all three districts as
design is employed. The total population of June 2021. By using Yamane (1967)
considered under this study is the total loan formula the sample size is:
active clients of OCSSCO from in five main
N 13,623
n = 1+N (e)2 , n = 1+13,623(0.05)2 = 389

Based on estimated sample, 389 active were selected through strata sampling
clients of OCSSCO from these five districts technique.

Table 3.1: proportionate sample size selected from each stratum (districts)
Districts Active clients Sample size
Nekemte 3,627 103=(3627/13623*389)
Woliso 2,415 69=(2415/13623*389)
Dambi Dollo 2,154 62=(2154/13623*389)
Jimma 2,879 82=(2879/13623*389)
Ambo 2,548 73=(2548/13623*389)
Total 13,623 389

Source: OCSSCO and compiled by the The study was survey research; Primary
researcher, 2021 data was obtained from questionnaire (both
open-ended and closed-ended

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7558 Journal of Positive School Psychology

questionnaire), which is actual information 3.1 Variables measurement

obtained from respondents, by distributing According to World Bank report (2015), An
structured questioner to the active clients of individual household has been considered
OCSSCO. In the questionnaire, the as poor when his/her households income
researcher tried to combine the numerical per a day fall below the minimum standard
questions as well as some non-numerical or poverty line, which is 1.25$ (which is
questions. Thus, the result of the research 62.5 Ethiopian birr/currency) per a day and
depends on numerical and non-numerical a household whose income per day greater
analysis, using both quantitative and than or equal to this poverty line was
qualitative methods. Further, interviewing considered to as non-poor. Hence, two
and observation was applied to validate binary responses, if household is poor it
data obtained using the questionnaire was takes a value of 0 and 1other wise since
survey. it was a binary response poor and non-poor.

Table 3.2: Summary of explanatory variables included in the model

Explanatory Type of Definition Measurements Expected
Variables variables sign
INC Dummy Improvement in income 1 yes and 0 no +ve
SAV Dummy Improvement in saving habit and 1 yes and 0 no +ve
amount
LVSTCK Dummy Improvement in livestock owned 1 yes and 0 no +ve
FSD Dummy Improvement in food security 1 yes and 0 no +ve
duration and diet
LRPA Dummy loan repayment ability 1 repay on +ve
time and 0 not
repay on time
DWHI Dummy Improvement in dwellings and house 1 yes and 0 no +ve
items
CCROP Dummy Improvement in Cash crops such as 1 yes and 0 no +ve
maize, coffee and khat

Source: from reviewed literature and was performed binary logistic regression
compiled by the researcher, 2021 model by used SPSS version 23 in order to
3.2 Method of Data Analysis show the relationship between dependent
It includes the comparison of income, and independent variables.
saving, livestock ownership, housing 3.3 Model Specification
condition, food security duration and The list of all variables for logistic model
nutrition, repayment ability and cash crops estimation in impact assessment of
of the clients before and after use of credit microfinance on poverty reduction for this
from OCSSCO and hence it can be seen research can be written as follows
that, if there is any improvement in their First to obtain the LOGIT model from
living standard after using credit or not. logistic function, write ‘‘Y’’ as the linear
Hence, both descriptive and inferential data function of Xs (independent variables in the
analyses were used. Descriptive statistics model) along with their parameters as;-
such as mean, tabulation, frequency Y = α + βixi +
distribution and percentage used to analyse εi ................................................................e
and interpret data obtained from quation (1)
questionnaires. Once the data was Then the model can be specified as:
organized and presented then the researcher

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7559 Journal of Positive School Psychology

PVTRED = α + β1INC + β2SAV + respondents will not be exposed to any risk

β3LVSTCK + β4FSD + β5LRPA + as a result of taking part in this study.in
β6DWHI + β7CCROP + εi ............. order to collect reliable data, questionnaires
equation (2) were translated and distributed to
3.4 Ethical Consideration respondents by local (Afaan Oromo)
Standard ethical guidelines and procedures language to reduce language barriers.
were followed to gather information from
each household which take part in the 4. DISCUSSION
study. Each of the participants took part in
the study voluntarily and an explanation 4.1 Descriptive analysis
was provided to each of the respondents From 389 questionnaires were distributed
about the purpose of the study, along with to the active clients of OCSSCO in five
their right to drop out of the study without main districts, 351 questionnaires (90.2%
having to explain why. They were informed response rate) were responded via properly
that responses obtained from each filled and used for discussion in both
participant will be kept in confidence and descriptive and regression statistics.

Table 4.1: demographic statistics of the respondents

Variables Measurement Frequency Percent
Male 246 70.1%
Gender Female 105 29.9%
Total 351 100%
Educational back ground of Unschooled 134 38.2%
respondents Educated 217 61.8%
Total 351 100%
Age of respondents 18-30 102 29.1%
31-45 152 43.3%
>45 97 27.6%
Total 351 100%

As shown in Table 4.1, among the overall more participating in microfinance credit
sampled households, 246 (70.1%) were than the unschooled. From the selected
male-headed while 105 (29.9%) were household heads for the study, 29.1% were
female. This implies that, male are more under 30 years old households while 43.3%
participated in microfinance service than were between 30-45 year old and 27.6%
female in the study area. From the selected were above 40 years old. This shows that
household heads for the study, 61.8% are the working age households were more
literate while 38.2% are unschooled. This participating in microfinance credit than the
shows that the educated households were elders.

Table 4.2: Impact of Microfinance on Income of Participants

Households Mean
Household annual income before OCSSCO services 6392.6 Birr.
Household annual income after OCSSCO services 9372.56Birr.

According to output in Table 4.2, the after receiving microfinance credit is

average annual income of households 9372.56 birr. It reveals that the average
before receiving microfinance credit is household income has increased by 46.62
6392.6 birr. The average household income percent. To summarize, OCSSCO

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7560 Journal of Positive School Psychology

microfinance credit aids and plays an standard of the individuals. An increase in

important role in improving household income, for instance, can pave the
income. It has been noted that the major opportunity to open business, employment
objective of microfinance is to create and entrepreneurship. Similarly, in terms of
income among poor households and their ability to afford different expenses like
thereby improve living standards, clothing, nutritional foods, house
empowerment and alleviate poverty. The ownership and basic social services;
increase or decrease in the level of income compared to before will be improved also.
may have an implication on the life

Table 4.3: Impact of Microfinance on saving of Participants

Mean
Household annual saving before OCSSCO services 892.32 Birr
Household annual saving after OCSSCO services 1259.24 Birr

The result obtained in Table 4.3 shows that respondents, the main reason behind saving
the average annual saving of households is; the loans given to them are mainly short
before getting credit from OCSSCO term loan and to avoid accumulated
microfinance is 892.32 Birr while after interest, the clients are encouraged to make
getting credit is 1259.24 Birr which means regular savings and this partly explains the
increased by 41.12%. This figure indicates increment because they work hard. This
that the average annual saving of saving is included physical assets but
households’ level was improved after they excluded the obligatory loan guarantee
get credit from OCSSCO. According to the saving.

Table 4.4: Impact of Microfinance on the improvement of Participants’ livestock

Respond Number Percent
Does your number of livestock are increased after you Yes 237 67.52%
received a loan from OCSSCO? No 114 32.48%

As seen from table 4:4 based on collected that OCSSCO microfinance improve
questionnaires, 237 (67.52%) of household number of livestock ownership of
increase their number of livestock after households if they do on. Hence,
getting credit from OCSSCO while 114 improvement in livestock indicates that
(3.48%) failed to increase their livestock betterment in living standard of household
after receiving loan. This finding implies which implies poverty reduction.

Table 4.5: Impact of Microfinance on food security duration improvement of Participants

Duration Number Mean
For how many months does your household <3months 83 23.65%
guaranteed for food before the loan? 3-6months 119 33.90%
6-9months 63 17.95%
9-12months 56 15.95%
>12months 30 8.55%
Total 351 100%
For how many months does your household <3months 41 11.68%
guaranteed for food after the loan? 3-6months 76 21.65%
6-9months 97 27.64%
9-12months 81 23.07%

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7561 Journal of Positive School Psychology

>12months 56 15.95%
Total 351 100%

From table 4.5, the food security guarantee OCSSCO microfinance improved the food
of household before getting credit is on security duration of households in the study
average less than six months while after area.
credit is nine months. This indicates

Table 4.6: Impact of Microfinance on diet improvement of clients

Per day Number Mean
How many times does your household eat meals in a day 2 236 67.2%
before the loan? 3 115 32.8%
Total 351 100%
How many times does your household eat meals in a day 2 172 49%
after the loan? 3 179 51%
Total 351 100%

As displayed on the above table 4.6, the OCSSCO microfinance. This implies
collected data indicates on average (around improve their living standards and they
67.2%) the households eat twice per a day have got more chance of getting meals per
before getting credit while three times a day and quality diet after the loan from
(around 51%) a day after getting loan from OCSSCO as compared to before.

Table 4.7: status of your loan repayment of clients

status of your loan repayment Number (frequency) Mean
repay according to the schedule 204 58.12%
Not repay according to the schedule (default) 147 41.88%

Regarding the loan repayment performance loan on time which implies majority of the
(period) of the clients, about 41.88% of clients are in good position. Henceforth,
respondents failed to repay on time due to despite the discomfort in repayment period
loan period is too short. Even if 41.88% of for some clients, still most of the
clients failed to repay within given time, households can repay their loan on time
majority (58.12%) clients were paid their after they engaged in the loan access.

Table 4.8: Impact of Microfinance on housing condition of clients

Respond Number Percent
Does your house items and dwelling are improved after Yes 192 54.7%
you received loan from OCSSCO? No 159 45.3%

From the above result, more than half of the got the credit as compared to before. This
rural household client (54.7%) of OCSSCO finding supports the idea that MFI can
microfinance of five districts, able to slightly improve rural household housing
improve their housing condition after they and shelter by providing loan service.

Table 4.9: Impact of Microfinance on cash crops improvement of clients

Respond Number Percent
Yes 212 60.40%

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7562 Journal of Positive School Psychology

Does your cash crop such as maize, coffee and khat are No 139 39.60%
improved after you received loan from OCSSCO?

Based on output showed above, average wheat, and other major crops are grown
(around 60.40%) of clients who have during the main rainy season, while coffee
received credit from OCSSCO and Khat is the most important cash crop
microfinance were improved their cash grown in the district. This result implies the
crop. The district is ideal for a wide range improvement of household living standard
of crops, including maize, sorghum, wheat, as these crops are their main financial
haricot bean, and others. Maize, sorghum, source.

Table 4.10: summary of OCSSCO practices, monitoring and implementation

Items Strongly Agree Neutral Disagree Strongly
agree disagree
no % no % No % no % no %
OCSSCO provides continues 82 23% 96 27% 127 36% 34 10% 12 4%
training
OCSSCO provides advisory 106 30% 159 45% 63 18% 23 7% - -
service in business startup and
expansion
OCSSCO conducts continues 95 27% 87 25% 136 39% 31 8% 2 1%
follow up
OCSSCO lending procedure is 102 29% 93 26% 107 31% 29 8% 20 6%
difficulty
OCSSCO repayment time is 174 50% 109 31% 61 17% 7 2% - -
too short
OCSSCO lending interest rate 101 29% 131 38% 66 19% 53 15% - -
is high
OCSSCO amount of lending 130 37% 102 29% 97 28% 15 4% 7 2%
money is not enough

Training is very crucial to develop private and follow-up, the majority of respondents
outcomes and inclusive well-being for (52 percent) responded positively, in that
beneficiaries and to progress institutional it’s doing very well to make in touch with
consequences for the microfinance client business in order to make the smooth
institutions (Chomen, 2021). About 50% of relationship in paving the atmosphere in
the respondents got training from the motivating clients to repay back the loan
institution especially on saving, loan and help them to in refreshing their
utilization and about the market and general knowledge of business.
training while the others do not get training. On other hand beneficiaries of
In addition to financial services, OCSSCO microfinance institutions face various
provides nonfinancial services (like constraints and challenges. Concerning
training, advising, follow up and challenges and constraints, more than
monitoring) for the beneficiaries to build up (67%) of the beneficiaries said their great
their capacity (Sabit & Mohammed, 2015). problem for accessing funds from this
Based on collected data about 75% of microfinance institution was the rate of
respondent were received necessary interest they were charged for assessing
business advice and business plan funds (Table 4.10). Furthermore, the study
preparation. Concerning OCSSCO's control has investigated about repayment period

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which about 81% respondents are reacted Generally, this result assures that rural
by loan repayment period is too short (table households in Ethiopia have faced lack of
4.10). In addition this, most of the access to finance outreach due to high
respondent (about 55%) reacted on credit amount of imposed interest, restricted
policy of OCSSCO was restricted while lending procedure, weak financial
67% of respondent answered the amount of institution base and governance, and
borrowed money is not enough for our insufficient loan size.
business.
4.2 Regression analysis

Table 4.11: Summary of regression analysis

Variables in the Equation

B S.E. Wald Sig. Exp.(B)
a
Step 1 INC .144 .246 .345 .006 .866
SAV .025 .244 .011 .017 1.026
LVSTCK .226 .253 .801 .031 1.254
FSD .050 .253 .039 .044 1.051
LRPA .429 .255 2.825 .033 .651
DWHI -.214 .247 .753 .185 .807
CCROP .044 .196 .050 .022 1.045
Constant .525 .373 1.985 .019 1.691
a. Variable(s) entered on step 1: INC, SAV, LVSTCK, FSD, LRPA, DWHI, and CCROP.

Based on the binary LOGIT regression variables that are not incorporated in the
analysis result in table 4.11, the relationship model.
between the variables included in the model In table 4.11 the regression output indicates
can therefore, be represented as follows: that there is positive significant at 1% level
PVTRED = .525 + .144INC + of significance with poverty reduction
.025SAV + .226LVSTCK + .05FSD + implication; the extent of saving
.429LRPA − .214DWHI + .044CCROP + improvement households and OCSSCO
εi .....................equation (2) credit. This indicates that, other things
From the regression results in table 4.11: R remain constant; a unit Birr access to credit
squared value is 0.60 which indicates the from OCSSCO can improve future income
impact of listed variables (income of household by 14.4cent which implies
improvement, saving improvement, poverty reduction of household in study
improve in livestock, food security duration area. This finding also convenient with
and diet improvement, loan repayment Abera & Asfaw (2019), Alam & Azad
ability, dwelling and housing items and (2021) and Benti (2019) studies found that
cash crop improvement of households) microfinance uses people to improve their
through access to credit by OCSSCO income by initiate to start-up new venture
Microfinance improve the living standard which leads to increase their future income.
of rural households by 60% while the Hence, households living in Ethiopia have
remaining 40% were wavered by other

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7564 Journal of Positive School Psychology

improved their income after they access rural households’ poverty reduction (table
credit from OCSSCO. 4.11). Based on the regressed output, a unit
Another key mission of microfinance is to access to credit from OCSSCO in Ethiopia
improved knowledge and attitude toward leads to increase households’ saving ability
microcredit and the saving behaviour of its by 2.5% which leads to reduce households’
beneficiaries (Chomen, 2021). Saving is poverty. This finding is in line with
also one of the variables which significantly previous conducted research
(at 5% level of significance) important for
by (Ewunetu, 2011) and (Chomen, 2021) be spent on better facilities, which improve
found-out that access credit from their living standards and they have got
microfinance increase annual saving habits more chance of getting meals per a day and
of households. As a result, it is possible to quality diet after the loan from OCSSCO
forecast that access to credit from OCSSCO than before the loan, this finding was in line
can built the rural households’ saving with Chirkos (2014), microfinance
power which leads to economic growth of institution clients have more chance of
the country. improving their diet in comparison to non-
Additionally Livestock is another variable clients. Henceforth, the result of the finding
which affects positively (at 5% level of indicated that the interference of OCSSCO
significance) the poverty of households in in the study area had positive impact on
Ethiopia. Based on table 4.11 output, a unit food security and diet improvement of
Birr credit access from OCSSCO leads to households.
incremental by 0.23 unit of households’ However, Based on output from table 4.11
livestock. This finding is align with the dwelling and house items improvement is a
study of (Tarozzi et al., 2015) which found statistically insignificant which leads to the
access to finance by microfinance increases contribution OCSSCO on improvement of
animal husbandry and (Geleta et al., 2018) client housing and shelter and then reduce
who found livestock increment has positive poverty is not significant.
significant impact on household income The finding also indicated the positive
which pointers of poverty reduction. Hence, significant impact of OCSSCO on the
household livestock are increased after improvement of households’ cash crops
access to credit from OCSSCO. items like maize, coffee and khat in the
Loan repayment ability (LRPA) is study area. Based on table 4.11, one
statistically positive significant at 5% incremental in lending amount leads the
confidence level which a unit improvement improvement of household’s cash crops by
in loan repayment performance by 4.4cents. From this, it’s possible to infer
household of OCSSCO implies 42.9% that the provision of loan results in
reduction in poverty of households in betterment of living standard by
Ethiopia. This finding was in line with incrementing these cash crops items.
Mulatu (2020) participants in microfinance
institutions in Kenya had considerably the 5. CONCLUSION
clients sold their pre-existing productive
asset to pull through the defaulted loans in Hence grounded on the descriptive
case of loan repayment. analysis, the majority of the respondents
Additionally, as displayed on the table 4.11 reported that the overall quality of living
food security duration and diet is positive standard of rural households of Ethiopia is
significant at 5% level of confidence with improved after access to credit from
coefficient β=0.05 which implies as a unit OCSSCO microfinance. This clearly shows
increase loan from OCSSCO increase 5% that the OCSSCO is successful in
in food security. In other word, as clients improving the living standard of the poor
enable to generate better earning they could households and plays a great role in poverty

© 2022 JPPW. All rights reserved

7565 Journal of Positive School Psychology

reduction. But absence of adequate training Additionally based on binary logistic

clients, follow up and supervision the regression result, the study also concluded
activities of each household, lack of that access to microfinance institution
sufficient lending amount and high imposed (OCSSCO) loan significantly increased
lending rate were some of the main amount of household annual
problem identified from the respondents.
income, improved household annual ✓ Sufficient training and follow up has
saving, increased Livestock of households, been given to the clients to minimize the
Food security and diet intake improved and difficulty of loan repayment whereas
household cash crop is improved. the OCSSCO ought to make an effort to
Therefore OCSSCO plays an effective increase credit period and loan size for
contribution to reduce poverty in Ethiopia the clients in relation to their business
by improving households’ living welfare. size and type.
✓ OCSSCO employees should have
5.1 Recommendation understood how to facilitate credit, have
✓ The study recommend that good knowledge technically and
microfinance institution (OCSSCO) to prosperous practices and finally know
continuously improve their outreach how to follow the customers operation
and its accessibility for rural household might support the client to be capable to
to enable them users of financial service repay the loan.
and improve their overall living ✓ The institution (OCSSCO) should have
standards since it has a significant role to focus on the main reason for loan
to reduce the poverty status of the rural repayment default of clients.
household from the data obtained. ✓ This study recommends that to change
✓ In addition to this the study also many peoples’ lives; the institution has
recommends that OCSSCO should to reduce the interest rate charged to the
strengthen its monitoring and respondents when accessing financial
supervision about the clients’ credit products.
facilities and their usage whether they ✓ Finally the study recommend that the
spent for the intended purpose or not. rural household who are not clients of
✓ The government should encourage and OCSSCO and who have need of credit
facilitate other microfinance institution facility and other financial services
to operate in the rural area, so as to should have to aware about the
make microfinances accessibility to the significance of OCSSCO in improving
poor easily and reduce the monopoly of the living standard of the poor.
market share by OCSSCO.

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poverty reduction. KDI School of

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Appendix

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