The Challenges of Financing Growth Oriented Micro and Small Enterprises: The Case of Hawassa City MSEs, Ethiopia

Birhanu Alemu


This study investigates about the challenges of financing growth oriented Micro and Small enterprises (MSEs) in Hawassa city. The study has been conducted based on a survey covering 95 randomly selected MSEs from entire sub-cities. Interviews and questionnaires have been used as a tool to gather primary data. The responses were processed and analyzed with the help of Statistical Packages for Social Sciences (SPSS). It identifies the sector as the key to unlocking the economic potentials of the country. Nevertheless, these sectors are facing financial and other challenges. The study revealed that the major sources of finance for start up and expansion of MSEs are personal saving, microfinance, money from family or friends, iqub and very less from banks. Micro finance institutions attach high importance to collateral, guarantee and capital rather than financial information as criteria to extend loan. It is possible to point out that more than half of the surveyed MSEs had not received credit and from those who accessed credit majority complains loan size insufficiency. In addition the study showed that collateral, loan term, interest rate, disbursement of loans on time and other problems together are mainly challenging MSEs ’financing and growth. Lack of competition in financial institutions limits the access to finance. High risk and high transaction costs associated with creditors of MSEs likewise constrain access to finance. The survey showed that considerable efforts are made by the government to provide various support services in which few of them are accessed widely.

Keywords: MSEs, growth oriented, finance, Challenges, and MFIs.

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