Challenges of Small and Medium Enterprise Lease Financing: The Experience of Development Bank of Ethiopia
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Date
2019-02
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Addis Ababa University
Abstract
This paper was aimed at assessing and identifying the challenges that Development Bank of
Ethiopia faces in Small and Medium Enterprise lease financing. The factor of commencement
of the study is the fact that the Small and Medium Enterprise play a vital role in development
of our country and at the same time Small and Medium Enterprise lease financing is the new
and infant mode of financing in the country as well as in the specific company which is
Development Bank of Ethiopia. Due to this fact the bank was perceived to face challenges in
financing Small and Medium Enterprises through lease. The population of the study was
Development Bank of Ethiopia and Purposive sampling design has been used. Since
Development Bank of Ethiopia is the only bank who implement Small and Medium Enterprise
lease financing program the supply side population was Development Bank of Ethiopia itself
and the Small and Medium Enterprise Lease financing directorate of the bank have been
identified as target sample based on purposive sample design . Questionnaire, key informant
interview and document review were used as data collection instrument. Summary statistics
from Statistical package for social science have been used as analyzing tool for the data
collected through questionnaire from Development Bank of Ethiopia staffs. 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. Even though previous research works have boldly identified
legal, regulatory and directives of governing Small and Medium Enterprise lease financing
was inconsistent, in this specific study it is not identified as challenge. The study has given
recommendation to three parties who are directly concerned with Small and Medium
Enterprise lease financing based on the nature of identified problems so that they can use the
research as input to give solution or pave way to solution of the underlined problems. These
parties are Development bank, government of Ethiopia and existing and potential Small and
Medium Enterprises. Since Small and Medium Enterprise lease financing is government
development program launched through Development Bank of Ethiopia, most of the challenges
have highly recommended that they should catch eyes of government while the remaining two
parties have also recommended for their own issues to take into consideration.
Description
A Thesis to be Submitted to the Department of Accounting and
Finance College of Business and Economics, Addis Ababa
University in Partial Fulfilment of the Requirements for the
Degree of Masters of Science (MSC) in Accounting and
Finance
Keywords
Capital goods finance, Lease finance, Small & Medium Enterprise