Micro finance credit use and its impact on farm productivity of rural households: the case of Machakel woreda of Amhara region, Ethiopia.

Abstract

Heruy Adamu

BThe main objective of this paper is to analyze access to microfinance credit and its impact on the farm productivity of rural households in Machakel woreda east Gojjam zone, Ethiopia. Using a cross-sectional data related to the fiscal year 2021/22, standard Tobit model was utilized to analyze the determinants of credit use and endogenous switching regression model was employed to evaluate the impact of credit on farm productivity. The result in the Tobit model shows that the amount of credit is positively and significantly affected by enterprise ownership, bank account, age of the house- hold head, educational status, output per hectare, and the value of house while family size found to affect it negatively and significantly. The result from endogenous switching regression analysis shows that, the treatment is endogenous to the outcome variable. Taking into account this endogeneity problem, the study estimates the treatment effect of credit on farm productivity. The estimated treatment effect result shows that output per-hectare of credit user households is 38.05 percent more than their non-user counterparts. This implies that keeping other things remain constant credit can improve the productivity of households by 38.05percent in the study area. Finally, since credit is crucial for farm pro- ductivity, the study recommends the concerned bodies to arrange the way to access formal agricultural credit for rural households.

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