Determinants of access to credit in commercial Banks in Ethiopia. The case of Small and Medium size Enterprises in Addis Ababa
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Date
2023-06-08
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A.A.U
Abstract
This study aimed to identify the determinants of small and medium-sized enterprises' (SMEs) access to credit from commercial banks in Addis Ababa, Ethiopia. The general objective was to elaborate and discuss possible factors that affect SMEs' access to credit using both qualitative and quantitative research approaches. The study employed a mixed-methods approach with an explanatory and descriptive research design. The key independent variables investigated were collateral requirements, SME profile, financial performance, the number of financial institutions, and interest rates charged. Data was collected from 271 SMEs operating in Addis Ababa, using a questionnaire survey for primary data and annual reports National Bank of Ethiopia directives for secondary data. Simple random sampling was used to select respondents. The collected data were analyzed using SPSS version 26.0 and presented using percentages, means, standard deviations, and frequencies. In conclusion, the study found that collateral requirements, SME’s profile, number of financial institutions, and interest rate all have significant effects on access to credit for SMEs in Addis Ababa. Collateral had the strongest effect, followed by interest rate, financial institution, and SME‘s profile. Based on these findings, policymakers and commercial banks should consider relaxing collateral requirements and reducing interest rates to improve SMEs' access to credit. Establishing more financial institutions could also increase competition and improve access to credit for SMEs. In summary, the findings can inform lending practices and policies to improve access to credit for small and medium-sized enterprises, which are critical for economic growth and development in Ethiopia.
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Keywords
Small and Medium-sized Enterprises, Access to Credit, Commercial Banks, Collateral Requirements, Financial Performance, number of financial institutions, Interest rates.