Developing Country Studies www.iiste.org ISSN 2224-607X (Paper) ISSN 2225-0565 (Online) Vol.3, No.7, 2013 24 Constraints of Rural Women to Utilize Microfinance Institutions: the case of Members of Microfinance Institutions in Rural Districts of Dire Dawa Administration, Ethiopia Dereje Kifle * , Yenenesh Tadesse , Jemal Yousuf Department of Rural development and Agricultural Extension, Haramaya University, Ethiopia * E-mail of the corresponding author: d_kifle@yahoo.com Abstract In countries like Ethiopia where the per capita income is 370 USD (which is below regional average of USD 1,257) and more than 30% of the people live under poverty, the significance of microfinance institutions is unquestionable. It becomes more important when it has been given to rural women who do not have access to various resources. In spite of the contribution of microfinance institutions to members, there have been also constraints that challenged them from effective utilization of the services given by these institutions. Thus, the study was conducted in order to find out the major constraints that members faced to utilize the services of microfinance institutions in rural part of Dire Dawa Administrative Region, Ethiopia. Two districts (Halo Busa and Hula Hulul) were selected randomly. From these districts, 48 members of microfinance institutions were chosen purposefully. Focus group discussion and interview schedule were employed to collect the data. The data were analyzed qualitatively. The result of study showed that insufficient loan amount, lack of training and follow up, unavailability of nearby market, high cost of inputs and animal diseases were the major constraints of members. Thus, the study concluded that the microfinance institutions have to pay attention to the loan size that it should be sufficient to run a business sustainably. Training should also be properly given and clients have to be followed so that they can engage in businesses that they can run easily and make profit out of them. Key words: Rural women, Microfinance institutions, Dire Dawa, Constraint 1. Introduction Ethiopia is one of the least developed countries. The per capita income of the country, though it showed improvement in recent years, is USD 370 which is lower than the regional average of US$1,257 (World Bank 2013). The study conducted by Ministry of Finance and Economic Development of Ethiopia (2012) shows that the proportion of poor people (poverty head count index) in the country is estimated to be 29.6% in 2010/11. The proportion of the population below the poverty line stood at 30.4% in rural areas, according to the study. The poverty that prevails in the country has been caused due to various reasons. Some argued that the cause of poverty in developing economies among other things is that the poor does not have access to credit for the purpose of working capital as well as investment for its small business (Jean-Luc 2006). The government of Ethiopia has been taking various measures to alleviate poverty in which expanding microfinance institutions is among them. It is indicated that although the development of microfinance institutions in Ethiopia started very recently, the industry has shown a remarkable growth in terms of outreach particularly in number of clients (Wolday 2007). Among the poor the focus of microfinance institutions in the developing countries has been mainly women. There are good reasons to target women. The World Bank (2001) reports that societies that discriminate on the basis of gender have greater poverty, slower economic growth, weaker governance and lower standard of living. It has also been indicated that gender inequalities in developing societies inhibit economic growth and development (Cheston and Kuhn 2002). Moreover, they stated that as women spend much of their income on their household, when women are supported to increase their incomes, the welfare of the whole family is improved. Women in Ethiopia had not been exposed to the economic opportunities that would enable them practice alternative income-generating activities. But recently, many scholars, policy-makers and development planners have started advocating the important role of the emerging new phenomenon, microfinance program, for the advantage of poor Ethiopian women. Microfinance institutions in the country are formed with major objectives of poverty alleviation and women empowerment to mention few (Haimanot, 2007) In spite of the benefits that women especially those who live in rural areas got, there have been constraints that hindered them to effectively utilize the services offered by the microfinance institutions. Thus, the objective of this study was to investigate the various constraints that members of microfinance institutions had faced in order to perform their businesses effectively.