Access to Finance for Micro and Small Enterprises (MSE); the case study on Jimma Town

Abstract

Access to the source of initial capital is fundamental and still remains a challenge for the startup business. Especially it is challenging for those developing countries in Sub-Saharan African countries including Ethiopia. Thus, the purpose of this study is to investigate what factors explain micro and small Enterprise’s access to initial financial sources in Jimma town. Although the financial determining variables in obtaining a source of finance are studied by different researchers around the world and locally studied by few researchers in different regions, to my knowledge, no study has been conducted on the matter and no solution on these obstacles has been recommended in Jimma town. The study is designed as explanatory and employed the quantitative approach, in which stratified sampling was employed to select 343 micro and small enterprises from the overall enterprises in Jimma town. In order to find out major determinants, the study uses the Statistical Package for Social Science version 20 to run Binary Logistic Regression Model. The major findings of the study show that there exists significantly, the positive relation between certain attributes of institutions and owner-manager including; a legal form of business, lending procedure, educational level of the owner, gender, marital status, religion, and age of the owner-manager. The study further found that distance from financial institutions can negatively and significantly affect access to finance. Lastly, the findings have the following major recommendations’. It is required more effort from the micro and small Enterprises side to overcome their drawbacks by extending the highest educational level for themselves and starting a business with their maturity age. Also forming their business as a partnership is highly recommended to have access to initial financial sources. On the other hand microfinance institutions have to facilitate the supply of finance by improving a long time for the loan process and other bureaucracies. And Policymakers of government bodies have to minimize a large amount of advance savings to supply loans to MSE.