Journal of Research in Economics and International Finance (JREIF) (ISSN: 2315-5671) Vol. 3(1) pp. 25-32, January, 2014 DOI: http:/dx.doi.org/10.14303/jrief.2014.011 Available online http://www.interesjournals.org/jreif Copyright © 2014 International Research Journals Full Length Research Paper Impact of Micro Credit on the Livelihood of Borrowers: Evidence from Mekelle City, Ethiopia 1* Bekele Abraham Diro, 2 Dereje Getachew Regasa 1 Department of Accounting, Banking and Finance, Aksum University, Ethiopia 2 Department of Cooperative Studies, Mekelle University, Ethiopia *Corresponding author’s email: dbikila2020@gmail.com Abstract Micro credit has been found to be a critical instrument in order to improve the livelihood of poor people. It is prominently used to improve the livelihood of urban household borrowers where it is believed to be under exploited in research hence is indispensible to examine its real effectiveness. Therefore, the objective of this study was to assess the impact of Dedebit Credit and Saving Institution’s (DECSI) micro credit service on the livelihood of household borrowers residing in Mekelle city. For the purpose of assessing the impact of DECSI microcredit on the livelihood of borrower households, a sample of 287 respondents (that is, 118 clients who have at least 3 years of attachment to the organization and 169 eligible non participants representing the characteristics of existing sample borrowers had they not been participating. Data were collected through semi-structured questionnaires that were prepared and distributed for both clients and eligible non clients and interview was conducted while the questionnaires were filled out by the respondents. The result of the study displayed that microcredit participation has a positive significant average effect on households’ average monthly income, consumption expenditure, savings and housing improvements. However, the number of employment generated to and out of household members showed no difference. Whereas, the average effect on children education and medical care expenditure are positively changed in the study area and sample. Thus, government authorities, NGOs, aid agencies and other stakeholders who are concerned with microfinance as a means to poverty reduction should take in to consideration the results of these indicator variables for better promotion of microfinance in general and microcredit in particular. Keywords: DECSI, household, impact, livelihood, microcredit, PSM INTRODUCTION The entire purpose of development issue is to fight against poverty which is a critical problem in the world both in rural and urban areas. This can be minimized through different intervention programs where micro credit is one of the major interventions. According to Reddy (2000), the micro credit program is highly successful that is evidenced by the high rate of repayment, awareness generated among target group and beneficial development impact created on the borrowers. However, some critics oppose that poverty cannot be eradicated with a small amount of money provided by micro finance institutions rather it implicates the poor in the long debt cycle (Ghalib, 2007). Eventually, about 1000 to 2500 MFIs are serving 67.6 million borrowers around the world (Sengupta and Anbuchon, 2008) hence globally the outreach of micro credit showing the contributions made by the program to the poor (Ahmed, 2004). Thus, micro finance makes the socio-economic conditions better for the poor. According to Moll (1998), micro credit has emerged as an antipoverty instrument in many developing nations, targeting the poor, especially women, with financial services to help them become self employed. Similarly in Ethiopia, micro finance has been found to be a critical instrument in order to improve the livelihood of poor people. The prevalent of poverty in Ethiopia is high