"The case of BasonaWerana District in North Shoa Zone of AmharaRegionEthiopia"

In Ethiopia, among other things, lack of finance is one of the fundamental problems hampering
production, productivity and income of rural poor farm households. Since access to institutional
finance is very limited, the majority of the poor are forced to search financial services through
informal channels so forced them to remain in the vicious circle of poverty. The study was sought
to ascertain use of formal financial credit and factors that affect smallholder farmer’s access to
formal credit. A multistage sampling method was employed to select ten out of thirty rural
kebeles in BasonaWerana district and 422 farm households. Structured interview schedule was
developed, pre-tested and used for collecting quantitative data for the study from the sampled
household heads. Focus group discussion, and key informant interview were held to generate
qualitative data. Descriptive statistics and logit model were used for analyzing quantitative data
and the qualitative data was analyzed thematically. The output from the study indicates that 103
(24.41%) of the sampled farm households were formal financial credit users, whereas the
remaining (75.59%) were non-users. However, among the credit users 89(86.40%) reported as
they were not satisfied with the credit amount. Farmers acknowledge group lending solves the
problem of collateral requirement, but also mentioned as it has a sort of limitations in affecting
the credit demand negatively. Moreover, the analysis using the logit model revealed that the
demographic factors, age, sex and education status of the household heads, and majority of the
institutional factors such as, lending procedure, interest rates, rigid repayment period and
distance, as well attitude of household heads towards credit risk were the statistically significant
determinants that affect smallholder farmers’ access to formal financial credit