Finance as Success or Failure Factor for Micro and Small Enterprises in Addis Ababa: The Case of Arada Sub-City
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Date
2011-06
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Addis Ababa University
Abstract
The role of micro and small enterprises (MSEs) in employment and income generation is
increasingly recognized and has become a major playing field for policy makers with the
purpose of enhancing growth and alleviating poverty. This study investigates about
finance as success or failure factor for micro and small enterprises. The study has
conducted based on a survey covering 49 randomly selected MSEs in Addis Ababa Arada
Sub-City. Interviews and questionnaires have used as a tool to gather the information.
The main objective of this study is to examine whether firms have continued access to
finance or not. Moreover, the study emphasized about loan size, interest rate, terms of
loans and timely disbursement of the loans.
From the study, the most problems identified are lack access to finance and
inappropriate delivery of the loans. Moreover, MSEs are facing difficulties to bring
collateral, disbursement of loans on time, interest rate, loan size and other availability of
financial instruments. These problems are hampering MSEs in their expansion,
diversification, promotion and growth in some extent. The success of MSEs is measured
in terms of their capital, number of employees, revenue, expansion and diversification of
the work. From the analysis and discussions, it was possible to identify that finance was
the major problem of MSEs. On top of this, the relationship between lack of access to
finance and success of MSEs was negative. This was consistent with the theories; and it
implies that finance is determinant to MSEs.
Most of MSEs stated that lack of access to finance constrains their growth, expansion,
diversification, promotion and competitiveness. Indeed, financial sector policies often
work against the ability of financial institutions to serve MSEs, though often
unintentionally. Lack of competition in financial institutions limits MSEs to access
finance. High risk and high transaction costs (real or perceived) associated with bank
lending to MSEs likewise constrain access to finance
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Success or failure factor for micro and small enterprises