Factors Affecting Micro and Small Enterprises in Accessing Credit Facilities: A Study in Hadeya Zone, Hosanna Town Southern Ethiopia

Abstract

In developing countries, micro and small enterprises (MSEs) have a vibrant role and serve as engines through which the growth objectives of developing countries can be achieved. The MSE sector has been instrumental in bringing about economic transition by providing goods and services, which are of adequate quality and are reasonably priced, to a large number of people, and by effectively using the skills and talents of a large number of people without requiring high level training, large sums of capital or complicated technology. However access to finance remains to be a major problem hampering MSEs from playing their productive role in the economy. The main objective of this study was to assess the major factors affecting access to credit by using proportionate stratified random sampling study selected 244 MSEs in hosanna towns. Interviews and semi structured questionnaire have been used as a tool to gather the information. Binary logistic regression and descriptive analysis were used to identify major factors affecting access to credit from formal financial institutions and test the hypotheses. The result of the study revealed that age of operator, educational level, and possession of fixed asset, employment size, lending procedure and loan repayment period are significant factors that affect MSEs’ access to credit. MSEs run by operators of greater than 40 years of age, that have reached TVET/College and above, which possess fixed asset, with greater than 5 employees are more likely to access credit from formal financial institutions than MSEs run by operators of less than 40 years of age, with no formal education, do not have fixed asset and with less than 5 employees. In addition, MSEs run by operators who have negative attitude towards lending procedure and loan repayment period of formal financial institutions are less likely to access credit than those which do not. The government in collaboration with financial institutions should therefore work to solve this problem.

Keywords: Credit Access, Education, Fixed asset, lending procedure, MSEs