Financing Practices of Micro and Small Enterprises in West Oromia Region, Ethiopia

Abstract

Ethiopian government has given due emphasis to MSEs though they are facing various constraints. One of the crucial problems is financial constraint for start-up and operational activities. In order to promote MSEs as engines of growth, it is essential to understand the bottlenecks surrounding MSEs' access to finance. The main objective of this study is therefore to examine the barriers confronting Ethiopian MSEs’ access to finance. 200 sample MSEs selected from three towns in west Oromia region, Ethiopia are used for this study. The finding indicated that only a small portion of MSEs are able to access finance from Banks and MFIs as a result of lack of collateral, complex Loan procedures, high interest rate charged, difficulty to form group and forced saving required by MFIs. The researchers recommend that banks and MFIs should work on the bottlenecks surrounding loan provision.