A Thesis on The Role of Microfinance Institutions in Youth Economic Empowerment in Shire Town, Tigray, Ethiopia:

Abstract

Youth unemployment remains a pressing challenge in Ethiopia, particularly in post-conflict regions such as Shire Town, where economic disruption has constrained livelihood opportunities. The main objective is to evaluate how participation in MFIs affects youth income and to identify the institutional and demographic determinants influencing microfinance participation. The study employs a cross-sectional survey of 270 youth respondents, combining descriptive statistics with an Endogenous Switching Regression (ESR) model to correct for self-selection bias. Descriptive results reveal that the average respondent is 25 years old, with a mean family size of four and an average education level of five years. Males constitute 79% of the respondents, and 50% are microfinance participants. Approximately 63% of married youths and 49% of house owners are MFI participants, indicating that gender, marital stability, and asset ownership are major factors associated with financial inclusion. The mean natural logarithm of income corresponds to an approximate monthly income of ETB 68,000, suggesting considerable income variation among youth. The ESR model results confirm that microfinance participation significantly improves youth income, validating its role in economic empowerment. In the selection equation, sex, age, marital status, family size, and asset ownership significantly influence participation decisions. Male and older youths are more likely to participate, whereas larger family sizes decrease participation probability. For microfinance participants (Regime 1), income is positively affected by age and house ownership but negatively influenced by gender (female), marital status, and family size. Among non-participants (Regime 0), distance to market and house ownership remain key income determinants. The high positive correlation coefficient (ρ₁ = 0.963, p < 0.01) between the error terms of the selection and income equations confirms the presence of positive selection bias, indicating that youths inclined to participate in MFIs inherently have higher income potential. The results demonstrate that microfinance access enhances youth income and self-employment opportunities, consistent with prior empirical evidence. However, persistent gender disparities in income returns suggest that female participants face structural and institutional barriers even after gaining access to credit. Furthermore, the significance of asset and house ownership in both regimes underscores the importance of collateral and stability in fostering financial inclusion. In conclusion, microfinance institutions play a pivotal role in improving youth livelihoods in Shire Town by enhancing income, promoting self-employment, and strengthening asset accumulation. Strengthening institutional capacity and aligning microfinance services with youth development policies was crucial tosustaining empowerment outcomes and fostering inclusive post-conflict recovery in Tigray.