Determinants of Financial Inclusion in Small and Medium Sized Enterprises: Evidence from Wolkite Town

Abstract

Financial inclusion is a process of promoting or ensuring access to appropriate financial products and services needed by all sections of the society and the vulnerable groups such as the lower income groups and Small and Medium Enterprises at an affordable cost. How to build an inclusive financial system is a challenging subject on the agendas of researchers, policymakers, regulators and financial institutions. Thus, the purpose of this study was to investigate the determinant factors that affect financial inclusion of Small and Medium Enterprises in Wolkite town. The study is designed as explanatory and employed quantitative research approach. Stratified and simple random sampling technique was employed to select 280 Small and Medium enterprises from those enterprises operating in Wolkite town. In order to find out major determinants the study used Statistical Package for Social Science version 20 to run Binary Logistic Regression Model. The finding of the study revealed that; Educational level of owner-manager, owner-manager Awareness towards formal finance, Owner-manager attitude towards formal finance, and Maintaining of formal accounting record found positive and statistically significant effect over Small and Medium Enterprises financial inclusion. On the other hand, Religion of owner-manager, Availability of informal financing source and Cost of using financial products and services has a negative and statistically significant effect over Small and Medium Enterprises financial inclusion. The findings from the current study suggested that financial institutions in Ethiopia and particularly in the study area should create continuous awareness to Small and Medium Enterprises about financial services and also should find ways of reducing the costs of participating in the formal financial system especially for Small and Medium Enterprises.