Microfinance and it Impact on Poverty Reduction in Ethiopia The Case of Gimbo Woreda, South West Region, Ethiopia

Abstract

Poverty remains a global challenge of a significant portion of the world population, demanding great attention to reduce it. In low-income developing countries, microfinance credit provision to rural areas is taken as a mechanism to reduce poverty. MFIs have made important contributions to poor people, by providing financial services to those excluded from the formal financial sector. The study assessed the impact of microfinance credit provision on poverty reduction in Gimbo woreda. Using multi-stage sampling method, primary data was collected from 200 rural women of which 75 were clients of Omo microfinance institution, used as control group. Both descriptive statistics and regression methods were employed for the empirical analysis. The estimation results from regression analysis carried out using propensity score matching method revealed that Omo microfinance institution had significant effect in increasing average annual household income, average monthly expenditure and savings of its clients confirming the positive role MFIs have in poverty reduction. However, the positive but insignificant association between microfinance and household living standards could imply that strategies focused at promoting savings may not yield desired outcomes, necessitating further inquiry into the underlying causes.