Impact of Microfinance on Poverty Reduction in Ethiopia: Case of Omo Microfinance in Hosana Town

Abstract

Poverty is a harsh and undesired phenomenon in mankind. Reducing, if possible eradicating poverty is unquestionable. Microfinance programs have been considered as an instrument in poverty reduction in recent development agenda. The main objective of this study was to investigate empirically impact of Omo microfinance institutions on poverty reduction at household level referencing Wachamo surrounding Omo microfinance institution. Mainly primary data was collected through structured questionnaire from 200 households by selecting 90 OMFIs participants and 110 non-OMFI participants from two sub cities using random sampling methods. Propensity score matching (PSM) methods was used to assess the impact of OMFI on household income, expenditure, saving and asset accumulation value. The estimation ATT results from PSM output show that participation in OMFI had brought significant impact on household income, saving and aggregate expenditure, but insignificant impacts on asset accumulation value.  Furthermore, sensitivity analysis tests on estimated ATT result shows effect of MFIs was insensitive to unobservable selection bias; even the two group allowed to differ in their odds of being treated up to 220% in terms of unobserved in which implying that being pure effect of program intervention. Thereby, improving living standard of participant and as far as ATT result was the only effect of intervention, thus microfinance intervention reduce poverty at household level.  It can be recommended that, importance of microfinance in poverty reduction is of immense benefit to the participant households in study areas. Therefore, there is the need to help sustain it and help its growth as its role to the development of the Hosanna town and the country at large is very good.

Keywords: Microfinance, poverty reduction, ATT and propensity score matching