Determinant Factors of Finance for Petty Traders in the Informal Sectors: With References to Jimma Town, Oromia Region, Ethiopia

Abstract

This paper examines factors that constrain petty traders' access to finance. Just like other urban centers of the country, the urban poor petty traders in Jimma town are engaged in different informal activities. Their participation is particularly concentrated in such activities as: small cafés, fabricated shoes and cloths, vegetable and fruit vending. The research identified and analyzed the major sources of capital for informal businesses and the problems faced in accessing business funds. The purposes of this study is to assess and analyze determinant factors of finance among informal petty traders in Jimma town. In order to achieve the  intended objective, two types of sampling techniques i.e. (purposive and stratified sampling) were used and a sample of 182 informal petty traders were selected from three kebeles of the town. Namely, Bosakito,Hirmatamerkato and Ginjoguduru .The relevant data were gathered through questionnaire and observation and descriptive statistics were applied for the analysis purpose. The finding of the study revealed that most of the petty trade operators in Jimma town are in their productive age, having basic education, and came from out side of Jimma town (Specially from the nearest towns) in search of job opportunities. The study also came to detect that; the reasons for petty traders to be engaged in the informal activities were lack of alternatives to living, less start up capital and family problems. In addition to this, financial support from institutions and banks were not adequate enough for the petty traders due to various factors: like lack of collateral security, license requirement, bureaucratic process of financial institutions. In the study area no free loan service is granted, less awareness in the part of the petty traders how to acquire finance, and high interest rate are there. The researcher forwarded some constructive recommendations based on the findings detected to financial institutions and government authorities so as to provide better financial services for petty traders. Raising the awareness of large conventional commercial banks and also governments should adopt specific policies to bring  informal firms under formal regulation. And providing training and awareness creation with regard to financial access information and other trading activities. In addition to this, the financial institutions need to provide financial services with low/ fair interest rate and providing non-interest bearing loan for those petty traders who are not  volunteer to pay interest due to some religious  or traditional doctrines.

Keywords: Petty Traders, Informal sectors,  Financial Institutions

DOI: 10.7176/RJFA/10-3-02