Does Access to Formal Financial Sources Leads to Growth of Micro and Small Enterprises? Evidence from West Oromia Region, Ethiopia

Abstract

Ethiopian MSEs are at early stage of development, and face various constraints. One of the most crucial problems is lack of access to formal financial sources for start-up and operational activities. However, the impact of access to finance on MSEs growth is still controversial. The main objective of this study is to investigate the contribution of access to formal financial sources on growth of MSEs in Ethiopia. 200 sample MSEs selected from three towns in west Oromia region are used for this study. The finding indicated that access to finance is not a fundamental factor for the growth of MSEs. Only entrepreneur capability and preparation of business plan before starting the business are found to be significantly contributing to the growth of MSEs. The researchers recommend that concerned parties including MSE agencies, TVET colleges and Universities should emphasis on capacitating graduates and MSE operators’ entrepreneurial and managerial capability.

Keywords: Access to Finance, Banks, Growth, Micro and Small Enterprises, Micro Finance Institutions.