Role of Financial Institutions in the Growth of Small and Medium Enterprises in Addis Ababa

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Addis Ababa University


This thesis examines the role of financial institutions, banks and microfinance institutions, in the growth of small and medium enterprises (SMEs). The study focuses on examining the contribution of financial institutions, assessing the accessibility and affordability of products and services, and identifying ways of addressing the problems in accessing and settling loans. The study adopts a mixed research approach to test the hypothesis and answer research questions. Specifically, the study uses survey of SMEs, documentary analysis (documents held by SMEs), and in-depth interviews with banks managers/officials. The study statistically analyses the results of survey and documentary analysis while descriptive research approach was employed for in-depth interviews. Results show that financial institutions were contributing to SMEs growth. Consequently, the relationship between loans from financial institutions and SMEs growth are positive and statistically significant. However, the extents of contribution were very low. Further, it identifies ways of addressing the problems that SMEs face in accessing and settling loans include: flexing terms and conditions, using alternative collateral and credit facilities, refinancing, and postponing maturity period. Finally, the thesis recommends a serious of measures which should be performed by the government and by financial institutions. These include: creation of a level playing field, lowering transactional costs, and commercial banks should reappraise their role. Key words: role, financial institutions, SMEs growth



Role; financial institutions; SMEs growth