The Influence of Informal Finance Institution on the performance of SME Case study in Addis Ababa, Addis Ketema and Arada Sub city

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Date

2018-12

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Addis Ababa University

Abstract

Formal financial sectors are not encouraging low income peoples in order to access credit, Due to their strong regulation when they lend money .The general objective of this research is to assess the influence of informal finance institutions on the performance of SMEs in Addis Ababa, Addis Ketema and Arada Sub city. The specific objectives were; To examine the influence of “EQQUB”, as a source of finance, on the performance of SMEs; To examine the influence of “TRADE CREDIT”, as a source of finance, on the performance of SMEs; To examine the influence of “USURY”, as source of finance, on the performance of SMEs; To examine the influence of “SELF – HELP GROUP” as source of finance, on the performance of SMEs; To examine the influence “FAMILY AND FRIEND SUPPORT” as source of finance, on the performance of SMEs. The study engaged descriptive research design. The population of the study was 4227 SMEs. A sample size of 200 was selected using random sampling. This study used primary data which was collected through use of a questionnaire. SPSS was used to produce frequencies, descriptive and inferential statistics which was used to derive conclusions and recommendation regarding the population. In particular, correlation and multiple regression analysis were conducted. The study found out that Eqqub, self -help group finance, family and friends finance, trade credit finance and Usury finance sources influence the performance of SMEs. Eqqub, Self-help group finance, family and friends finance and trade credit finance has a positive influence on the performance of SMEs while Usury finance sources have a negative influence on the performance of SMEs. The study recommended that SMEs need to put more emphasis on informal form of finance (Eqqub, self-help group finance, family and friends finance and trade credit finance). Informal finance sources Usury need to be avoided by SMEs if possible since it charges high interests and it terms and conditions are more stringent.

Description

A research project submitted to Addis Ababa University College of Business and economics in partial fulfillment of the requirements for The degree of master of business administration (Specialization of Financial Services)

Keywords

Eqqub finance, Family and Friends finance, Trade credit finance

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