The Paradox of Poverty Reduction in Ethiopia: Are Microfinance Institutions Really Pro-poor?

Abstract

Financial investment is one of development interventions to improve per capita income and consumption of the urban population. This study evaluates whether Adiss Credit and Saving Institution (ADCSI) as a microfinance institution is pro-poor and identifying determinants of borrowing credit. The study employed primary data collected from 108 clients and 108 non clients selected using three stage cluster sampling. Propensity Score Matching (PSM) and Tobit model were used to evaluate the impact of ADCSI on poverty reduction and to identify determinants of borrowing fund respectively. The Average Treatment effect of Treated (ATT) indicates significant welfare difference between clients and non-clients in terms of consumption expenditure. Although the positive welfare impact of microfinance institutions, they are mostly out of the reach of the poor for the reason that credit is limited to those who own residential houses and earnings. Hence, repositioning the financial industry towards pro-poor institutions through minimising collateral related hindrances, supervising borrowed fund to be invested on production activities, and equitable financial service targeting for unemployed youths for creating job opportunities are suggested financial policy options.