ASSESSMENT OF BANKS LENDING PRACTICE TO SMALL AND MEDIUM ENTERPRISE (SME) CASE OF SELECTED BANKS OPERATING IN ADDIS ABABA

Abstract

The study's major goal was to evaluate bank-lending practice to small and medium-sized businesses in Addis Ababa. In this investigation, a descriptive survey used. The study conducted on randomly selected employees from each of the banks that ranked by NBE as the most profitable and lending institutions in 2019-2020. Structured questionnaires used to acquire primary data from respondents. The descriptive data analysed and presented in the report as tables, bar charts, and graphs using the Statistical Package for Social Sciences (SPSS) Version 20.0. The findings show that financial institutions, particularly banks, have a poor level of involvement with SMEs. The banks did not offer any specific lending packages that tailored to SMEs demand. The elements that influence bank lending discovered and classified as SME, Government, and Bank specific factors. The study indicated that banks are not providing enough loan to meet the needs of SMEs based on its results. On the SMEs' side, a lack of formality and collateral that qualifies them for financing has an impact on banks' lending to SMEs. There is no government intervention to compel banks to lend to small businesses. Finally, the report proposes that the government not impose loan quotas on public and private banks, which known as a "mandated credit extension system." The government should provide practical assistance and advice to banks and financial institutions in order to build an effective mechanism that lowers the cost and risk of lending to small businesses.