The Challenges of Financing on Small and Medium Scale Enterprises (SMEs)

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In Ethiopia, growth and transformation plan through the promotion of small and medium enterprises (SMEs) has strongly underscored in various developments, but both the level of unemployment and a job opportunity is a remaining concern. To make the SMEs sector the engine of economic growth and reduce the problem of unemployment, it is important to understand what factors determine growth and investment in improvement in SMEs in the context of Ethiopia and as well as Addis Ababa city administration. In this paper, we provide data-based evidence on the determinants of SMEs' financial access in Addis Ababa city administration, with a focus on SMEs' finances accessibility problems. The main objective of this study was to identify the determinants of the challenges of financing SMEs in using a survey of 152 enterprises and financial sector 35 office and management level data from Addis Ababa city administration. Mainly different statistical analyses have used to both internal and external financial access factors and the relative effects of these factors on the SMEs. The findings of the study reveal that SMEs suffer from a host of internal financial problems (e.g. personal saving, family, friends, and retain profits fund) and of external factors including lack of access to credit. For small enterprises, a lesser amount of access to credit appears to be the constraint for their growth of SMEs. Hence, without, especially SMEs through improving access to loans not reducing credit constraints of SMEs, when increases the loan access to the SMEs renewed focus on promoting firm growth and improving the SMEs' growth. Since, the government creates an appropriate SME financial access regulatory environment. It is a potential for SMEs for creating more jobs and their growth, to accomplish those issues SMEs, the financial sector, and the government will have strictly cooperated with each other. The study showed that SMEs’ difficulty in accessing finances was influenced by the characteristics of the firm, loan repayment capacity, and financial information and that was within the depended-on SMEs' finances access to address these issues. The result revealed that by the statistically figures the coefficient was statistically significant. In case-independent variable are loan repayment, firm characteristic, and financial information on the dependent variable by the SMEs finances accessibility are statistically significant. As a final point, the study investigated and quantified the effect of these factors on SMEs’ that are accessibility problems to finances, from the perspective of both SMEs and the finance sectors. This thesis employs a sequential explanatory mixed-methods approach to investigate SME financing access challenges from the SMEs’ perspective and the finance sectors’ perspective in research


A thesis submitted to Addis Ababa University College of Business and Economics, Graduate Studies in Partial Fulfillment of the Requirements for the Degree of Executive Master of Business Administration (EMBA), Specialization in Management


Challenges, Financing, External finance, debt finance, Small and medium enterprises