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E3 Journal of Business Management and Economics

E3 Journal of Business Management and Economics Vol. 5 (6) pp. 142-151, September 2014; © E3 Journals; ISSN 2141-7482

Microfinance as a pathway out of poverty and viable strategy for livelihood diversification in Ethiopia

Amogne Asfaw Eshetu1 *
1 Wollo University (Ethiopia): Department of Geography and Environmental Studies
*Corresponding Author E-mail:
Accepted 17 August 2014


Lack of capital is among the prominent factors which hinder livelihood diversification mainly in developing countries. Microfinance intervention is taken as a strategy to overcome such constraints and it is seen as one of the most efficient instruments to fight poverty in poorer countries. The objective of this paper is to examine the role of access to microfinance as a pathway out of poverty and livelihood diversification. Empirical evidences and secondary data from different articles, proceedings and research works have been critically examined. Microfinance intervention brings livelihood diversification in urban than rural one. In the rural areas, even though there are some promising contributions like asset building, women empowerment and an increase in income, most of the loan is used for consumption smoothening. Using the loan for non-productive purpose; lack of appropriate skill training and lack of follow up of the clients; lack of flexibility in the repayment period and low saving interest; low amount of loan allowed at a time are some of the commonly mentioned problems. Concerned bodies are expected to take in to consideration of all these issues and comprehensive impact assessment has to be done so as to examine the overall impact of microfinance and to identify prominent problems.

Keywords: Microfinance, livelihood diversification, non/off farm economic activities

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