DETERMINANT OF ACCESS TO FORMAL FINANCE IN SMALL AND MEDIUM MANUFACTURING ENTERPRISES’ IN ADDIS ABABA ADMINISTRATIVE CITY

Abstract

Access to formal finance is fundamental and still remains a challenge for the growth and survival of SME’s. 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 Small and Medium Scale Manufacturing Enterprise’s access to formal finance in Addis Ababa administrative city. Although the financial determining variables in obtaining formal finance are studied by different researchers around the world and locally studied by few researchers in different regions outside of the capital city Addis Ababa, no study has been conducted on the matter and no solution on these obstacles have been recommended in Addis Ababa. The study is designed as explanatory and employed the quantitative approach, in which stratified sampling was employed to select 180 small and medium scale manufacturing enterprises from the overall enterprises in Addis Ababa. In order to find out major determinants the study use Statistical Package for Social Science version 20 to run Binary Logistic Regression Model. The major findings of the study shows that there exist significantly, positive relation between certain attributes of a firm and owner-manager including; educational level of owner-manager, bank relation with credit provider and age of owner manager. The findings of this study will be beneficial for SMMEs to overcome their drawbacks concerning their highest educational level and intimacy with bank. However, this study is limited to the demand side factors only and future researches recommended to study including the supply side at national level