The Role of Microfinance Institutions in the Growth of Micro and Small Enterprises (A Case Study of Woliso Town)

Abstract

Agricultural led Industrialization is an alternative economic policy that Ethiopia pursues. Micro and Small Enterprises occupy a prominent position in the development agenda of many developing countries like Ethiopia. MSEs are long recognized as important vehicle of economic diversification, employment creation, income generation and distribution, and poverty alleviation. Although the number of MSEs in Ethiopia is growing, it is not much more than their number; their stage and pace of growth and development are constrained by different challenges. Lack of access to finance is the most from among all adverse factors hindering the growth and development of the MSE sector in the country in general and in Woliso Town in particular. The Federal Democratic Republic Government of Ethiopia has been promoting the development of MSEs through the formulation and implementation of Microfinance Institutions’ and supporting strategic policies. The purpose of this study is to assess the Role of Microfinance Institutions in the growth of Micro and Small Enterprises with special emphasis on Oromia Credit and Saving Share Company Woliso branch and its clients MSEs in the town. The information was collected using census data collection technique from the total population of twenty five MSEs operators/owner managers. Face-to-face interviews were conducted with selected MSE operators and MFI officials (OCSSCo’s branch manager). Ten MSE operators were selected from the twenty five MSEs’ owner managers for interview on the basis of their experience in the enterprises. For the sake of achieving the objective of the study, the questionnaires were analyzed using descriptive analysis technique. The contribution of OCSSCo to its client MSEs growth was analyzed based on the changes on some growth indicators like MSEs’ productivity, profits, accumulation of business assets, and employment. The finding revealed that the OCSSCos’ financial service delivered plaid a significant role in the growth and development of clients Micro and Small Enterprises in the town. But the study did not consider other factors than financial and non-financial services of OCSSCo that can influence the growth of the MSE sector. The study also identified the potential effects of some major challenges of MSEs in accessing micro credit of OCSSCo. Based on the findings, recommendations and suggestions were forwarded.