Challenges and Prospects of Lease Financing Small and Medium Enterprises in Ethiopia: Evidence from Development Bank of Ethiopia

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Addis Ababa University


Lease financing is an alternative means of and sophisticated mechanism to fill gaps of finance accessing. The main target of this study is to examine the major challenges and prospects of lease financing Small And Medium Enterprises in Ethiopia particularly in Development Bank of Ethiopia assessing its current performance by focusing on some basic points like: challenges of lease financing that may affect lease financing practice and identify the nature of leasing and the opportunities or market potential currently exist on lease financing. The study used both qualitative and quantitative method. Both primarily and secondary data also used as an evidence for the study. In identifying the respondent from the study of the population, a purposive sampling method adopted. For the total population of 211 staffs of DBE in Addis Ababa used to take 138 sample respondents. The data analyzed through descriptive statistics by SPSS that involves tables, frequency distribution, and percentages were used for analysis. Based on the result, the study has identified challenges that the bank faces as, the bank’s Small and Medium Enterprise selection criteria, poor supply chain with absence of proper and sufficient suppliers of capital goods, macro-economic instability like inflation and currency fluctuation, poor quality of financial statements of Small and Medium Enterprises, lack of sufficient demand (absence of Small and Medium Enterprises), Lack of knowledge about Small and Medium Enterprise Lease financing, poor management of credit risk by the bank and lack of proper internal policy and procedures that minimizes the cost associated with Small and Medium Enterprise lease financing loans. The study recommends for the development of specific legal and administrative framework for SME lease financing and the bank should not rely only on the asset of the SMEs as selection criteria and have strong internal policies and procedures; the bank should also have good credit management unit that have flexible preventive indicators to detect possible deterioration of SME loans; intensive Awareness creation should have to done by stake holder about lease financing; the bank should also have experienced and dynamic credit analyst that have flexibility in reducing risk of SME loans. In contrary to its challenge, SME lease financing has a positive outlook and recently experiencing positive development. There is a growing interest by the government, as well as by private sector players, to integrate leasing as a crucial instrument to address the gap in access to finance and meet economic growth targets.


A thesis submitted to the school of graduate studies of Addis Ababa university college of business and economics in partial fulfillment of the requirement for the degree of master of science in accounting and finance


Challenge, Lease, Lease Finance, Small and Medium Enterprises