Access to Micro Finance Credit and its Impact on Farm Productivity of Rural Households: The Case of Machakel Woreda, Amhara Region, Ethiopia

Abstract

Abstract Agriculture is the main livelihood of Ethiopians and it is characterized by its low productivity and traditional backward way of production. The main objective of this paper is to analyze access to microfinance credit and its impact on the farm productivity of rural households in Machakel woreda east Gojjam zone, Ethiopia. Multistage sampling technique was employed to select sample respondents from the total population. Quantitative type of data was collected from primary and secondary sources available. A structured questionnaire was used as the main instrument of primary data collection. Using a cross-sectional data related to the fiscal year 2019/20, standard Tobit model was utilized to analyze the determinants of credit access and endogenous switching regression model was employed to evaluate the impact of credit on farm productivity. The result in the Tobit model shows that the amount of credit is positively and significantly affected by enterprise ownership, bank account, age of the household head, educational status, output per hectare, and the value of house while family size found to affect it negatively and significantly. The result from endogenous switching regression analysis shows that, the treatment is endogenous to the outcome variable. Taking into account this endogeneity problem, the study estimates the treatment effect of credit on farm productivity. The estimated treatment effect result shows that output per-hectare of credit user households is 38.05 percent more than their non-user counterparts which implies that keeping other things remain constant credit can improve the productivity of households by 38.05percent in the study area. Finally, since credit is crucial for farm productivity, the study recommends the concerned bodies to arrange the way to access formal agricultural credit for rural households.