Access to Finance and its Challenge for Small Business Enterprises Case of Addis Ababa City
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Date
2010-06
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Addis Ababa University
Abstract
Small-scale enterprises have become an important contributor to Ethiopia’s economy. The sector
contributes to the national objective of creating employment opportunities, training
entrepreneurs, generating income and providing a source of livelihood for the majority of low-
income households in the country, accounting for material amount of GDP (Eshetu and Mammo,
2009). Improving access to finance for small business is an important devilment tool, because it
helps these business sectors, in addition to strengthening the forward and backward integration to
and from different sectors, to create employment for the unemployed and increases their income
and consumption.
The purpose of this paper was to bring to light one of the major prerequisites, namely access to
finance aspects, of the small scale enterprises which are foundation in accelerating economic
growth. The main objective of the paper is to identify the challenges that small businesses in
Addis Ababa (selected sub cities) face in accessing finance from financial institution through
identifying the dominant means of financing small businesses and factors influence the extent of
accessing finance. The study was conducted by taking into account the demand side aspect.
The most pressing problem identified, from response of small businesses and from responsible
officers interviewed, was accessing fund to finance working capital and in fixed investment. The
basic factors aggravated the problem for small business are loan covenants need by financial
institution, lack of collateral, level of cost of financing and availability of other financing
instruments. In addition; as it was confirmed from the research, luck of credit history with the
financial institutions, willingness of banks and suppliers to provide credit and the firm’s specific
outlook about sales and profitability have contributed to the problem.
Key words: Access to finance, Small business enterprises
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Keywords
Access to finance; small business enterprises