Factors Affecting Access to Finance for Small and Medium Size Enterprises (SMEs) in Nifas-Silk Lafto Sub-city, Addis Ababa

Abstract

This thesis aims at investigating the factors influencing of access to finance & its availability for Small and Medium Size Enterprises (SMEs) in Nifas-Silk Lafto sub-city, Addis Ababa by using both survey questionnaire & selected interview methods. The study employs mixed methods research approach. The quantitative & qualitative aspect of the study is based on survey of 200 SMEs owner, shareholders & employee/managers collected using Yamane Taro’s, 1967 sampling formula & interviewing senior officers from purposively selected five banks & five MFIs employee at the head office level and the districts located in Nifas-Silk Lafto sub-city, Addis Ababa; as well as reviewing relevant documents related to accesses to finance in Ethiopia. The study adopted an explanatory research design. Primary & secondary data source were used. The research was analyzed using simple correlation & regression analysis, ANOVA & Descriptive statistics such as frequency, percentage, table & graph. The data gathered via questionnaire was processed via Statistical Package for Social Sciences (SPSS). The outcome of a study reveal that firm’s age, manager’s business experience, collateral requirements, firm’s business planning & accessibility of information on fund opportunity have a significant relationship with the accesses to finance & its availability which was supported by different scholars who were conducted study on the same topic & sub-topics, on the other hand firm’s size in the contrary to the study hypothesis, the result became it had no relationship with SME’s access to finance from formal institutions. Furthermore, the result from descriptive statistics confirmed that except firm’s size, all factors in this research have impact on the accesses to finance & its availability. It also revealed that SMEs use their own savings & profit as well as “equib” as a major source of finance beside banks & MFIs contribution. Having inadequate collateral, being new/ infant in age of the firm, less experienced manager, weak information access, & poor business plan were discovered as major obstacles to have loan from Banks & MFIs. These findings expected to help both parties SMEs as well as financial source providers in the development of appropriate strategies in filling the gap towards certain mutual benefit on collateral requirement, business planning & strong information access on finance opportunity for SMEs that contributes in growth of the nation as well to the economy.