Poverty In Ethiopia

1. Introduction

Poverty is the major challenge and a fundamental issue of economic development in most developing economies. According to the World Bank Report (UNDP, 2001/2002), two-third of the developing countries people live in rural areas where the extent of poverty is very severe. Development finance is among the most important inputs to break the vicious circle of poverty as it would increase employment, income, consumption, and empowerment of disadvantaged groups. Microfinance group lending subject to joint liability has gained global approbation as an important poverty reduction tool in many developing countries. It has become popular all over the world since Dr. Mohammed Yunus, a Nobel Prize-winning activist and founder of Grameen

The country’s 80 percent small holder farmers (average size of 1-2 Hectar) residing mostly in rural areas, produce more than 97 percent of agricultural output for the national economy (CSA, 2007). Despite the impressive GDP growth for more than a decade and macroeconomic fundamentals, around 25 million people in the country (29 per cent of the population) live below the nationally defined poverty line (MoFED 2012). Due to the fact that the lion share rural population derives its livelihood from agriculture, poverty is by large a rural phenomenon. The prevalence of such grinding poverty is structurally linked to the low production and productivity of subsistence agriculture sector. Indeed, poverty reduction is the central development policy agenda of the Ethiopian Governments’ and the rural poor is at the heart of the development endeavors. In its effort to fight against urban and rural poverty, the current Ethiopian government recognized that the development of financial markets in particular, microcredit services as one of the major poverty reduction strategies put in place and; hence, set a legal framework for establishment and operation of microfinance institutions to provide financial services to rural small-scale farmers, urban poor households and

The Economics of Microfinance: Forthcoming from the MIT Press.

Central Statistical Agency of Ethiopia (CSA), 2007. Agriculture: Statistical Survey, 2007; Federal Democratic Republic of Ethiopia, Addis Ababa, Ethiopia.

Green, 2008. Econometrics Analysis, six Edition, New York University: Pearson Prentice Hall.

Johnson, S. and Rogaly, 1997. Microfinance and Poverty Reduction: London, Oxfam.

Kothari C.R, 2004. Research Methodology: Methods and Techniques, New age international limited publisher.

MOFED (2012). Ethiopia’s Progress Towards Eradicating Poverty: An Interim Report on Poverty Analysis Study (2010/11), Development Planning and Research, Ministry of Finance and Economic Development, Addis Ababa Ethiopia.

Wolday Amha, 2008. Innovations in the Delivery of Financial Services through the Deposit Taking Microfinance Institutions (MFIs) in Ethiopia: Paper Presented at AFRACA Workshop on Innovations in Addressing Rural Finance Challenges in Africa, Addis Ababa, Ethiopia.

___________, 2000. Review of microfinance industry in Ethiopia: Regulatory framework and performance; Occasional paper 2, Association of Ethiopian Microfinance Institutions