Small Scale Enterprise Finance Sources and Constraints in Ethiopia, Case Study of Addis Ababa

Abstract

The main objective of the study is to identify the finance source and constraints of small firms in Addis Ababa, Ethiopia. Both primary and secondary data is employed .To address the basic research objectives mainly primary data is collected using structured questionnaires from 250 small business owner-managers that are selected using stratified random sampling techniques. The collected data is analyzed using descriptive data analysis. The result of descriptive data analysis reveals that, own personal saving is most frequently used sources to raise startup capital for sample small business enterprises in Ethiopia. Borrowing from microfinance institution which is the second frequently used sources of finance to raise startup capital to sample small enterprises. Borrowings from friends, relatives and families are the third frequently used sources to raise start-up capitals to small scale enterprise in Ethiopia. Iquib and Idir are traditional informal financing options in Ethiopia and also used as means sources of startup capital. Borrowing from formal banks is least frequently used source of finance to raise start-up capital. The majority sample small firms are experiencing the difficulty of access to credit facilities due to various reasons such as underdeveloped financial institutions, high collateral to secure the bank loans, high interest on borrowed sum of money and complicated and tedious banks and other financial institution loan application procedures.