CHAPTER ONE INTRODUCTION
1.1. Background Ethiopia is predominantly an agricultural country with the vast majority of its population directly involve in the production of crops & livestock. Agriculture accounts around 45 percent of gross domestic product (GDP), 85 percent of the employment and over 90 percent of foreign exchange earning of the country (CSA, 2001). It satisfies 70 per cent of raw materials requirements of the country's industries (Belay, 1998).
According to Wolday (2003) the delivery of credit has been as one of the antipoverty tool for the development programs. Because it helps unemployed became employed, …show more content…
Many agricultural development banks were created for political purposes and were not meant to operate as financial institutions. As they were established to channel subsidized donor and government funds to farmers, they lacked the market discipline and incentives of commercial banks. The provision of credit depended upon political decisions and interests.
Moreover, the irregular availability of loan funds, the setting of interest rate ceilings and the periodic write-offs of overdue loan seriously undermined the effectiveness of these agricultural development banks. It is not surprising that many of them have been either restructured or condemned to liquidation.
The new policies have led to a shift away from the administration of directed credit programmes that rely on continuous government subsidies. Attention is now given to the performance of financial institutions. When it comes to lending to poorer clients, two performance indicators have been developed, outreach and sustainability (Yaron, 1994; Christen et al, 1995). Outreach refers to the extent to which a financial institution provides high quality financial services to a large number of small clients. Attempts are also made to evaluate the degree to which a financial institution meets the effective demand for financial services from the targeted …show more content…
Under conditions of peasant agriculture, both the provision of credit and its efficient use in increasing agricultural productivity confront difficult problems. Some of the problems are lack of access to credit, inadequate supply of credit, untimely supply of credit, and diversion of credit.
In view of the current need for attaining food-self sufficiency in the country, and the study area being one of the strategic places to fulfill this requirement, the findings of the research would be of great policy use.
The study of factors affecting credit use is important in providing information that will enable effective measures to improve access to credit. It will also enable lenders and policy makers to get knowledge as to when and how to channel efforts in order increase access to credit. Moreover, the study on impact of credit on the livelihood of the society and gross farm income enables the lenders to stop, change, or continue providing credit service and the policy makers to formulate appropriate policy for extending
1.1. Background Ethiopia is predominantly an agricultural country with the vast majority of its population directly involve in the production of crops & livestock. Agriculture accounts around 45 percent of gross domestic product (GDP), 85 percent of the employment and over 90 percent of foreign exchange earning of the country (CSA, 2001). It satisfies 70 per cent of raw materials requirements of the country's industries (Belay, 1998).
According to Wolday (2003) the delivery of credit has been as one of the antipoverty tool for the development programs. Because it helps unemployed became employed, …show more content…
Many agricultural development banks were created for political purposes and were not meant to operate as financial institutions. As they were established to channel subsidized donor and government funds to farmers, they lacked the market discipline and incentives of commercial banks. The provision of credit depended upon political decisions and interests.
Moreover, the irregular availability of loan funds, the setting of interest rate ceilings and the periodic write-offs of overdue loan seriously undermined the effectiveness of these agricultural development banks. It is not surprising that many of them have been either restructured or condemned to liquidation.
The new policies have led to a shift away from the administration of directed credit programmes that rely on continuous government subsidies. Attention is now given to the performance of financial institutions. When it comes to lending to poorer clients, two performance indicators have been developed, outreach and sustainability (Yaron, 1994; Christen et al, 1995). Outreach refers to the extent to which a financial institution provides high quality financial services to a large number of small clients. Attempts are also made to evaluate the degree to which a financial institution meets the effective demand for financial services from the targeted …show more content…
Under conditions of peasant agriculture, both the provision of credit and its efficient use in increasing agricultural productivity confront difficult problems. Some of the problems are lack of access to credit, inadequate supply of credit, untimely supply of credit, and diversion of credit.
In view of the current need for attaining food-self sufficiency in the country, and the study area being one of the strategic places to fulfill this requirement, the findings of the research would be of great policy use.
The study of factors affecting credit use is important in providing information that will enable effective measures to improve access to credit. It will also enable lenders and policy makers to get knowledge as to when and how to channel efforts in order increase access to credit. Moreover, the study on impact of credit on the livelihood of the society and gross farm income enables the lenders to stop, change, or continue providing credit service and the policy makers to formulate appropriate policy for extending