Outreach Frontiers of Microfinance Service Development in Rural Ethiopia: A Case of Shinile District in Somali National Regional State

Abstract

Over the past one and half a decade, provision of adequate microfinance service has been persuaded as a promising pro-poor financing strategy in Ethiopia. Practical and timely steps were taken by the government to provide policies and legal framework services that promote rural financial intermediation in remote villages, where the majority of people face acute shortage of access to financial capital, being engaged in subsistence agriculture, which is little supported by modern technologies, thus, yield very low rate of return on investment. During this period, thirty-one microfinance institutions were initiated but due to the lack of equitable service allocation system, these were unevenly distributed among the regional states of the country. In Somali region where this study was selected as its setting, there has been no effective microfinance service regardless of the large unmet demand. Hence, the purpose of this study was to identify the main factors constraining the development of the service, using data collected from the Shinile district of the region. Results indicate that pastoralist specific socio-economic factors, failure of outreach policy of financial institutions and reluctance of state functionaries have lagged behind the development of microfinance service in the region. Therefore, consideration of these factors would immensely help in crafting policies aimed at promoting sustainable microfinance service development in the region.

Keywords: Microfinance, Pastoral economy, Outreach frontiers, Somali