An Assessment of Factors Affecting Access to Finance for Micro and Small Enterprises in the Case of Hossana Town

Abstract

This study empirically investigated factors affecting access to finance for MSEs in Hosanna town. Micro and Small Scale Enterprises (MSEs) are lifeblood of most economies. To be successful this and other business sectors actually require finance which plays a major role in any aspect of business operation. As far as micro and small enterprises (MSEs) are concerned as part of business enterprises, they need finance to start up, expand, diversify, and for working capital of the business firms. Without finance, no business enterprise can achieve its objectives. Finance is the backbone of any business enterprise (McKiernan and Chen, 2005).The general objective of the study was to find out the factors affecting access to finance of MSEs in the study area. The research design was cross sectional survey which included a structured and unstructured questionnaire. Moreover, the questionnaire was distributed to MSEs Managers to be filled by them accordingly. From the total population of 169 MSEs, 117 of them were selected by using random sampling technique. The access to finance was measured in two items (access firms and none access firms to loan).These variables were described by using descriptive statistics such as mean, standard deviation, frequency distribution, tables, pie chart, chi-square test and t-test. However, lack of access to finance is one among the other obstacles of MSEs to grow and expand. In accordance with this study results, those MSEs which were preparing financial statements and business plan have access to finance from micro financial institutions. Availability of collateral is major problems for MSEs to has access to finance.The other basic finding of this study is MSEs were extremely faced challenges in accessing finance from the study, it is investigated that many MSEs have obtained their capital from microfinance, families, personal savings, and from Equib. This indicates that access to finance from bank is very difficult for MSEs due to lack of collaterals. Moreover, long time of loan process and bureaucracy; requirement of large amount of advance saving; short term loan repayment period; high collateral; high interest rate; absence of interest free loan providing institutions have been hindering MSEs from access to finance. Therefore, based on the finding the researcher recommended that MSEs have to prepare financial statement and business plan to get loans. Furthermore, MFI have to improve long time for loan process and other bureaucracies.

Key words: Access to Finance, MSEs and MFI