Role of Financial Institutions in the Growth of Micro and Small Enterprises in Assosa Zone

Abstract

The study aimed to assess the role of financial institutions in the growth of Micro and Small enterprises in Assosa zone. The study carried through descriptive design in which stratified random sampling method was used to collect data from the selected woredas from 140 populations and 57 respondents were selected from financial institutions and Micro and Small enterprises employees. Questionnaires and interview tools of data collection were used in the study. The data was analyzed using descriptive statistics and regression analysis. The empirical study elicited four major measuring scales which seem to assess the role of financial institutions in the growth of micro and small enterprises in Assosa zone and these are external financing, size of firms, firms age and current capital. The result shows that financial institutions were contributing to Micro and Small enterprises growth. Consequently, the relationship between loans from financial institutions and Micro and Small enterprises growth are positive and statistically significant. However, the extents of contribution were very low. Further, it identified ways of addressing the problems that Micro and Small enterprises face in accessing and settling loans include: flexing terms and conditions, using alternative collateral and credit facilities, refinancing, and postponing maturity period. Finally, the study recommends a serious of measures which are to be performed by the government and by financial institutions. These include: creation of a level playing field, lowering transactional costs, and commercial banks should reappraise their role. The regression result shows that, the SMEs size (Beta Coefficient 0.228) significantly explain at 99% confidence level determines the sales growth of the SMEs; whereas loan form financial institutions indicated by (beta value of 0.162) and SMEs age (beta value of 0.101) are the least predictors of sales growth of SMEs.

Keywords: Role, Financial Institutions, SMEs, Growth, Banks, MFIs