Abstract:
Microcredit becomes so important tool in recent years that has a great role in the fight against poverty. It has been adopted as one of the sustainable development strategies at the international level. The provision of credit can help the youth to make own economic decisions and escape from poverty by engaging in income generation activities. The aim of this study was to investigate formal credit access by rural youth and its role in income generation activities. It was based on four specific objectives. A two-stage sampling method was employed to select four out of thirty six rural kebeles and 148 respondent rural youth. A structured questionnaire was used to collect the data from the sampled rural youth while the focus group discussions and key informant interviews held to generate qualitative data. Descriptive and inferential statistics, Likert scale and binary logit model were used to analyze the quantitative data while qualitative data were analyzed by using narrative method of data analysis. The result of data analysis indicated that from the total sample respondents, 34.5% are formal credit users while 65.5% are non-users. This study indicated that formal credit access by rural youth particularly by female rural youth is limited in the study area. The respondents were perceived application procedure for loan, prior saving requirement and loan size as not appropriate where as they acknowledged group lending method, loan repayment duration and interest rate charged by Omo micro finance institution. The maximum likelihood estimates of the logistic regression model show that education and contact with extension agents and/or loan officers are positively influence formal credit access by rural youth. On the other hand sex, perception of the application procedure for loan, prior saving requirement, loan size and distance from the lending institution were more likely to negatively influence formal credit access by rural youth. Therefore, the government and microfinance institutions are recommended to take appropriate measurements for those factors which inhibit formal credit access by the rural youth.
