The Role of Microfinance Institutions in Poverty Reduction Among the Rural Poor: A Case Study on Omo Microfinance Institution in Guraghe Zone of South Nations Nationalities and Peoples Region
Creators: name: Tesema, Tolera
Publisher: name: National Academic Digital Repository of Ethiopia
Year: 2017

description: There has been a strongly growing interest in considering micro financing as a viable strategy for the poor. Similarly speaking, Microfinance can be a critical element of an effective poverty reduction strategy especially for developing countries. More than ever after the success of the different MFIs, the system has been duplicated in the different parts of developing world. Ethiopia is also one of the countries where microfinance has been given due consideration as a safety net for the poor to help them overcome the adversities of poverty. The services provided by microfinance institutions is desired to enable the poor to smoothen their consumption, manage their risks better, build their assets gradually, develop their micro enterprises, enhance their income earning capacity, and enjoy an improved quality of life. Microfinance institutions, as mentioned above, are basically set up with the goal of poverty reduction. Subsequently, in order to investigate the above premises, this study has undertaken empirical evidence in Omo Microfinance Institution taking a sample of 120 clients from Qebena woreda , Gurage Zone , South Region nation and nationalities to discern its contribution towards poverty reduction. Consequently the objective of this study is to find out the impact of microfinance towards poverty with a particular reference to Omo Microfinance Institution. The research work employed both quantitative and qualitative methods such as questionnaires, key informants; focus group discussions, and observations to obtain primary data. In addition, secondary sources of data have also been collected from different literature and OMFI annual progress report. The contribution of Microfinance is analyzed based on income, living condition, asset accumulation, saving, decision making power, self-confidence, business management skills along with the strength and weakness of the institution among others. Though studies found positive impact of credit and unambiguous selection criteria, but ignored examining the suitability of the methodology focusing on performance analysis in terms of financial and operational sustainability and outreach, service delivery issues of microfinance in Ethiopia. Much of their focuses have been on the microfinance institutions rather than the program targets. Even if the studies were to focus on the beneficiaries of the program they were not far from investigating whether poor people are being reached or not. The finding indicates that OMFI scheme has made positive contribution to the clients in relation to observed variables. Nevertheless significantly higher number of the clients complained about the institutions high interest rate, too small loan size, repayment policy, problematic group dynamics. Therefore, as a pointer to future endeavors, the current services of OMFI need to amend the loan size and reduce the interest rate in order to resolve the issues at hand and to fit the financial problem of the poor in the sector Key Words: Microfinance Institutions, Microfinance, Microcredit, Poverty, Poverty Reduction