The Impact of Microfinance on Poverty Reduction in Ethiopia

Abstract

Microfinance has proven to be an effective and powerful tool for poverty reduction. The objectives of this review were to identify factors that affect microfinance and the impact of microfinance on poverty reduction in Ethiopia, respectively. The result of some studies indicated that age, education, time laps between loan application, disbursement, loan size, loan diversion, and repayment period, number of dependents, high interest rate, wealth status, gender, repayment policy, training, and supervision were important variables which had affected microfinance either positive or negative. And also the effects of those variables were depends on the area of studies had taken. This implies the same variables sometimes have different effect at different area. Other objective of this review was the impact of   microfinance on poverty reduction. Many researchers believed that the microfinance service is indeed having clear impact: improving the food security situation, the health status, educating the children, creating additional assets (improved housing). Finding of other studies concluded that lack financial sustainability the key element of poverty expansion.  Despite the fact those results indicated that the impact of microfinance is inconclusive. Furthermore, the impact of microfinance on poverty reduction indicated that further verification study may be required before concluded.

Keywords: Microfinance, poverty reduction, poor households

DOI: 10.7176/RHSS/11-21-01

Publication date: November 30^th 2021