Impact of Revolving Credit Fund: The Case of Atsbi-Wonberta

Abstract

Providing credit to the rural poor has been a continuously perused undertaking through out the country to help them solve their economic problems. One of this is the revolving credit fund delivered to poor farmers by World Bank through cooperatives and other governments institutions like the food security coordination bureau. The final outcome of credit delivery should be superior enough to change the well being of the rural poor. This is because it may not give confidence for the lending institutions to extend additional credit. Hence, this study is undertaken to analyze the extent and impact of revolving credit fund on the rural poor in A/Womberta Woreda, Tigray region, Ethiopia. During the study, primary data were collected from 120 members and 60 non members of a multi purpose cooperative. In addition secondary data were collected from the relevant institutions. For the data analysis, descriptive statistics such as frequency distribution and percentages were used to describe institutional and socio-economic characteristics of the respondents. In addition, the t and Chi-square tests were employed to test the relationship of dependent variables with respect to some explanatory variables. A Multiple and logistic regression model were used respectively to analyze factors influencing average annual income of respondents and their repayment performance. Different explanatory variables were included in the empirical model and were tested their statistical significance. Therefore, consideration of the factors influencing average annual income of respondents and their repayment performance is critical because it helps lending institutions to have understanding as to how and where to channel their credit. The amount of loan authorized to beneficiaries is not disbursed on time which may discourage farmers to demand revolving fund. About 54.00 percent of the sample respondents utilized the loan fully for the purpose initially intended. Further, respondents revealed that lack of awareness; expenditure for consumption purpose and ceremonial expenditure were the main reasons for misutilization of the revolving credit fund. Variables such as number of oxen owned, extension contact and clients credit experience were found to have influenced the average annual income of the respondents. It was also identified that out of the total respondents 80.00 percent were non defaulters and only 20.00 percent were defaulters. According to the estimates of the regression model the variables which greatly affect the repayment performance by clients include age of borrowers, extension visit, off farm income of the borrowers and loan diversion.