Finance as Success or Failure Factor for Micro and Small Enterprises in Addis Ababa: The Case of Arada Sub-City

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Addis Ababa University


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



Success or failure factor for micro and small enterprises