Determinant of Lease Financing service: In Case of Jimma Zone

Abstract

This paper was aimed at identifying determinants of lease financing service in case of Jimma zone and also assessing the opportunities & challenges that DBE Jimma branch faces in SME lease financing. DBE, Jimma branch mainly provides lease financing services to SME s found under Jimma zone. This study is mainly based on primary data gathered through structured questionnaires. The population of the study for the supply side analysis was employees under Development Bank of Ethiopia Jimma branch & District and Purposive sampling design has been used on the other hand for the demand side, SMEs found under Jimma zone were used, they are stratified based on their sector and simple random sampling lottery method was used. Questionnaire, key informant interview and document review were used as data collection instrument. Summary statistics from SPSS have been used as analyzing tool for the data collected through questionnaire from SMEs exist under Jimma zone. Based on the result, the study has identified that firm size of SME, Infrastructure and Industry found positive determinant of lease financing service of the bank whereas Banks lease financing requirements are found negatively determine lease finance. major challenges of lease financing service are also found as dearth in banks capital, some banks lease finance requirements have not taken real situation of SMEs into consideration, Lengthy in service cycle time, lack of market for SMEs product and working capital from SMEs side are the challenges of lease financing service in the study area. And opportunity of LFS are found as Hire purchase of lease modality, high market opportunity of lease finance, government support and sector selected by the bank, enhance SMEs development in terms of technology transfer, quality production, and creates employment opportunity, improves export & import substation, helps in resource utilization, creates market opportunity for local machinery producer. Based on these result the institution is suggested to pay attention to the concerned factors and thus propose an efficient lending policy emphasizing on undertaking sample study on SMEs general existing situation on the ground and amending lease financing policy accordingly that numbers o SMEs accessing lease finance will get increased. Moreover, DBE should also put emphasis on solving those indentified challenges & exploiting the existing opportunities optimally as it intensifying of its services by contributing to the enhancement of the access of SMEs for lease finances.