GREAT LAND COLLEGE

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF BUSINESS MANAGEMENT

FACTORS AFFECTING THE GROWTH OF MICRO AND SMALL ENTERPRISES: IN THE

CASE OF NEKEMTE TOWN

BY: LEGESE DINKA OLJIRA

ADVISOR: TESFAYE EBA (Dr.)

MURCH, 2022

NEKEMTE, ETHIOPIA

I
 FACTORS AFFECT THE GROWTH OF MICRO AND SMALL ENTERPRISES .IN THE CASE
N E K E M T E TOWN

By

Legese Dinka
Under the Guidance of Tesfaye Eba (PhD)
A Thesis Submitted to the school of Graduate Studies of Great land University College in Partial
fulfillment of the Requirements for the Award of the Degree of Master of Business Administration (MBA)

Great land University College MBA PROGRAM

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 Board of Examination Thesis
Approval Sheet
Members of the Board of Examination

Student Name Signature Date

External Examiner Signature Date

Internal Examiner Signature Date

Advisor Signature Date

Co-advisor. Signature Date

__________________
Chairperson Signature Date

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 CERTIFICATE
This is to certify that the thesis entitles "Factors affect the growth of micro and small enterprises: A study
on selected Micro and Small Enterprises(MSEs)in Nekemte Town, Oromia Regional State", submitted to
Great Land University College for the award of the Degree of Master of Business Administration (MBA)
and is a record of bona fide research work carried out by Mr. Legese Dinka, under our guidance and
supervision.
Therefore, we hereby declare that no part of this thesis has been submitted to any other university or
institutions for the award of any degree or diploma.

Main Adviser’s Name Data Signature

Co-advisor's Name Date Signature

IV
 DECLARATION

I hereby declare that this is entitled "Factors affect the growth of micro and small enterprises: A study
on selected Micro and Small Enterprises (MSEs) in Nekemte Town, Oromia Regional State”, has
been carried out by me under the guidance and supervision of Tesfaye Eba (PhD)._
The thesis original and has not been submitted for the award of any degree or diploma to any university
or institutions.

Researcher's Name Date Signature

Tesfaye Eba (PhD) ___________________ _________________

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 Abstract
This research examined the factors affect the growth of Micro and Small Enterprises in Nekemte Town.
Also the study assessed how micro finance in situations delivers the services /products to improve the
expansion, endurance, productivity, and performance of MSEs. Micro a n d S m a l l Enterprises are best
known as the s t r u c t u r e block of both developed and emerging economy. Recognizing the expansion
behaviors of MSEs is quite heterogeneous. The basic aspire to comprise this research is to recognize and
examine factors that affect the growth of MSEs. In this survey growth of MSEs was measured with sale
and accessibility of external business environment. And major issues were recognized that control
growth of MSEs. Firm specific issue control variables and external business environment source as: size,
age, education level, credit of micro finance and business environment factor which include access to
finance, access to market, and infrastructure are realized as major factors for MSEs working in Nekemte
Town . In this study both quantitative and qualitative approach (mixed approach) was used. As well,
primary data was collected to achieve the purpose and Stratified sampling technique was applied to
select the sample from a selected inhabitants. Data were analyzed using both descriptive statistics with the
help of Statistical Packages for Social Science (SPSS). The findings revealed that the loan criteria inversely
related with growth of MSEs. Participation of female in enterprise is less than male and manufacturing
sector was growing faster than other economic sectors.

Keywords: Factors, Micro and small enterprise (MSEs), Micro finance institutions, Growth.

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Contents
CHAPTER ONE...........................................................................................................................1
INTRODUCTION.........................................................................................................................1
1. 1 BACKGROUND OF THE STUDY.....................................................................................................................................................1
1. 2. STATEMENT OF THE PROBLEM................................................................................................................................................2
1. 4. OBJECTIVE OF THE STUDY.......................................................................................................................................................4
1.4.1 General objective..................................................................................................................................................................4
1.4.2 Specific objectives.................................................................................................................................................................4
1. 5.SCOPE OF THE STUDY...............................................................................................................................................................4
1. 6. SIGNIFICANCE OF THE STUDY..................................................................................................................................................4
1. 7. LIMITATION OF THE STUDY.....................................................................................................................................................5
1.8. ORGANIZATION OF THE STUDY................................................................................................................................................ 5
CHAPTER TWO...........................................................................................................................6
REVIEW OF RELATED LITERATURE..................................................................................6
2.1 THEORETICAL LITERATURE.......................................................................................................................................................6
2.1.1 Importance of Micro and Small Scale Enterprises in Ethiopia (MSEs)...............................................................................6
2.1.2 Challenges of Micro and Small Scale Enterprises in Ethiopia............................................................................................6
2.1.3 Techniques of Developing Micro and Small Enterprises to Enhance in National economic Development in Ethiopia......7
2.1.4 Factors that affects the Growths of MSEs............................................................................................................................8
2.2 EMPIRICAL LITERATURE..........................................................................................................................................................10
CHAPTER THREE.....................................................................................................................13
RESEARCH METHODOLOGY...............................................................................................13
3. INTRODUCTION...................................................................................................................13
3.1. RESEARCH METHOD................................................................................................................................................................13
3.2. RESEARCH DESIGN.................................................................................................................................................................13
3.3. SOURCES OF DATA..................................................................................................................................................................13
3.4. TARGET POPULATION.............................................................................................................................................................14
3.5. SAMPLE TECHNIQUES AND SAMPLING SIZE............................................................................................................................14
3.6. SAMPLE SIZE DETERMINATION...............................................................................................................................................14
3.7. QUESTIONNAIRES ADMINISTERING PROCEDURE.....................................................................................................................15
3.8. DATA GATHERING PROCEDURE..............................................................................................................................................16
3.9. METHODS OF DATA ANALYSIS..............................................................................................................................................16
3.10. MODEL SPECIFICATION AND VARIABLES DESCRIPTIONS....................................................................................................16

VII
 CHAPTERFOUR........................................................................................................................18
DATA ANALYSIS AND PRESENTATION............................................................................18
4.1.RESPONDENTS’PROFILE_.............................................................................................18
4.1. Sex composition...................................................................................................................................................................18
TABLE 4.1 RESPONDENT SEX PROFILES..........................................................................................................................................18
TABLE4.2.RESPONDENT AGE GROUP.............................................................................................................................................19
TABLE 4.3 RESPONDENTS LEVELOFEDUCATIONS........................................................................................................................19
TABLE. 4.4 WORK EXPERIENCE OF THE R E S P O N D E N T ................................................................................................................20

TABLE 4.5.POSTION OF THE RESPONDENTS....................................................................................................................................20

TABLE 4.7 THE MAJOR OPERATING ACTIVITY OF THE FIRM...........................................................................................................21
TABLE 4.8. PATTERN OF GROWTH OF TH EFIRM............................................................................................................................21
TABLE 4.9 DIMENSIONS OF GROWING...........................................................................................................................................22
TABLE 4.10 SIGNIFICANT FACTOR IN FLUENCE ON ENTERPRISE GROWTH (MULTIPLE CHOICES) SIGNIFICANT FACTOR ON THE
GROWTH OF ENTERPRISE............................................................................................................................................................... 22

4.3 . ROLE OF M-ICRO FIN.ANCE INSTITUTIONS IN THE GROWTH OF MSES....23

4.3.1 SIMPLI CITY OF LOAN CRITERIA OF MICRO FINANCE INSTITUTIONS.....23
TABLE 4.11 SIMPLI CITY OF LOAN CRITERIA OF MFIS.................................................................................................................23
TABLE 4.12 IMPORTANCE OF TYPE OF PROPER TRAINING TO IMPROVE THE GROWTH ENTERPRISE...............................................23
4.3.3 Loan of MF is Sufficient and Reasonable to the Growth of Firms.....................................................................................23
TABLE 4.1 3MICRO FINANCE INSTITUTIONS LOAN SUFFICIENT AND REASONABLEIN THE GROWTH OF MSE.......................................24
4.3.4 MICRO FINANCE INSTITUTIONS LOAN IMPORTANCE......................................24
TABLE 4.14 IMPORTANCE OF MFI LOAN INTHEENTERPRISE GROWTH (MULTIPLE RESPONSEPOSSIBLE).......................................25
4.3.5 Microfinance Programs mostliked by Clients..................................................................................................................25
TABLE 4.15 MICRO FINANCE PROGRAMS MOSTLIKED BY CLIENTS...............................................................................................25
4.3.6 Micro finance Programs Least Liked by Clients............................................................................................................25
4.5.INTERVIEW RESULTS......................................ERROR! BOOKMARK NOT DEFINED.
4.6. DISCUSSIONS....................................................................................................................27
CHAPTER FIVE.........................................................................................................................31
5.SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS................31
5.1. OVERVIEW OF THE THESIS AND ITS MAJOR FINDINGS..........................................................................................................31
5.2. CONCLUSIONS..................................................................................................................34
5.3. RECOMMENDATIONS....................................................................................................34
5.4 LIMITATIONS AND FURTHER RESEARCH DIRECTIONS.....................................35

VIII
REFERENCE...............................................................................................................................36
APPENDIXES..............................................................................................................................39

IX
 CHAPTER ONE
INTRODUCTION

1. 1 Background of the Study

Almost in all developing countries, micro and small scale enterprises (SMEs) play worth mentioning roles to
economic development is by now widely recognized. Even though the countries are non-homogeneous in the
different regards, it is common for such businesses to provide job opportunity for greater number of the
working age population, generate local wealth, help to secure local resources and serve as an entrepreneurial
training ground in which tomorrow’s business leaders can find success and gain valuable experience and
economic growth at the large.
As the role of the MSE sector has become clearer, policy makers in developing countries, as well as donors
and others organizations have finished increasing amounts of scarce development resources on MSE support
and promotion. A tremendous and increasing amount of attention has been paid in recent years to the legal
and regulatory framework that may restrict MSE’s expansion and growth. Similar attention has been given to
programs promoting the training of entrepreneurs and workers that may enable MSEs to grow (McPherson
and Rous, 2012).
The number of SMEs set up in developing countries is high; however, keeping them going sustainably and
growth smooth is a major challenge. They face many problems such as insufficient business knowledge;
limited supply capacity and poor quality; lack of access to credit; market and technology information; weak
bargaining power; too much bureaucracy; unstable policies and regulations; insecure land rights and so on
(Phimmavong and Chanthavong, 2009).
To deal with these difficulties, many SMEs work together in associations to reduce transaction costs, adapt to
new market opportunities and shape the policy environment to their benefit. But in the least developed
countries, supporting structures for such associations do not exist or fail to reach those who mostly need help.
According to Phimmavong and Chanthavong (2009) survey in Lao, the SMEs’ competitive power and their
profit may erode due to great change in the prices of raw materials, unavailability of energy and economic
growth slowdowns.
The Federal Democratic Republic of Ethiopia has recognized and paid due attention to the promotion and
development of SMEs for they are important vehicles to realize the role of income generation, creating
employment, entrepreneurial experience and economic growth in the country as whole. To this effect, the
government has formulated a National MSEs’ Development and Promotion Strategy, which enlighten a
systematic approach to alleviate the problems and promote the growth of SMEs (HabtamuTezera, 2009).
In Ethiopia, the definition of SMEs also varies from time to time and according to the institutions. The
Ethiopian Government has used various definitions and criteria in identifying what is referred to as micro and
small sized enterprises.

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According to the new Small & Micro Enterprises Development Strategy of Ethiopia (published 2011) the
working definition of MSEs is based on capital and labor. Accordingly, micro enterprise is those hired labor
of ≤ five people and capital amount of ≤ Birr 100,000 for industry sector, while services sectors also hire ≤
five individuals but capital amount of ≤ Birr 50,000. Furthermore, industry sectors small enterprise defined
as hired labor 6 to 30 people and with capital amount of ≤ Birr 1,500,000, while service sector small
enterprise hired 6 to 30 with capital amount of ≤ Birr 500,000 (Konjit Debela, 2012).
Ethiopian Growth and Transformation Plan (GTP) described two-pronged approach to ensuring faster and
sustained development of the industrial sector. The main strategic direction is to support expansion and
development of micro and small enterprises (MSEs), as well as to promote the establishment of medium and
large scale firms. Secondly, a special focus will be given to five sectors which capitalize on the country’s
endowment and comparative advantage: textiles and garments; leather and leather products; sugar and related
products; cement; and the metal and engineering industry (World Bank Report, 2012).
According to World Bank’s (2012) suggestion for Ethiopia to rapidly job creation in the manufacturing
sector, government of Ethiopia should work to tackle several structural and regulatory challenges via light
manufacturing and labor-intensive industries. Accordingly, the availability and quality of inputs, access to
finance and land seem are the most critical constraints to improving competitiveness and accelerating growth
in selected light manufacturing sectors in Ethiopia. Moreover, both access to finance and land seem to be
more acute problem for small and medium size firms’ growth. Hence, to promote the micro, small and
medium enterprise (MSME) sector, Ethiopian government intends to facilitate development of industrial
clusters, which would connect firms in a particular field with links to related institutions such as financial
providers, educational institutions, and various levels of government. These initiatives aim to enable firms to
overcome constraints in the areas of capital, skills, technology, and logistics as well as to grow and compete
by fostering production value chains and achieving efficiency gains.

1. 2. Statement of the Problem

The study was mainly focused on factors affecting the growth of micro and small enterprises in Nekemte
town. Because MSEs play dynamic role on the growth of country and where base of medium and large firms.
Therefore, the study was focused on factors affecting the growth of micro and small enterprises. Different
researches have been done on MSEs. Nevertheless, the previous studies intensively based on the role on the
growth of micro, small and medium enterprise and the finance source in various financial
institutions(AgebaandAmha, 2006; Gebreeyesus, 2007; Nigussie, 2012;Eshetu and Mammo,2009;
MoUDC,2013). There were also a number of studies on factors affecting the growth of medium enterprises.
However, the policy is supply as rule to all enterprises and consequently motivates new enterprises to be
launched and accessible ones to grow and become more competitive.

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Micro and small Enterprise caught the attention of development practitioners and police makers recently not
only because of its importance in terms of generating employment also because of various other attributes.
Some of these are: Micro and small Enterprises breeding ground for entrepreneurs, the sector has high
generating capacity, is less capital intensive, flexible, and innovative (Endalkachew Mulugeta, 2008).
Even though, the number of MSE increasing in an increasing rate, the status of their operation is the basic
questions to be asked by the policy makers and the researchers. Due to the change in business environment
and economic situation of the world, it is at fast step to affect or be affected by the global economic settings.
There are also internal environmental factors such as the entrepreneurial characteristics, finance and market
skills that cause the success/failure of them.
It is natural to say that every small business owners starts with high hope of success, but it is a usual
phenomenon that every year firms go of business. Although failure is not the only reason for enterprises to
leave the business, many enterprises do fail each year (Abebe, 2011)
This study claims that the success is a complex process and that a combination of both internal and external
factors together would better explain the success or failure of microenterprises. On this point Belay File
(2012) argued that a multi-dimensional analysis, where a number of external and internal factors are taken
into account would view a clear understanding of success.
Shonesy and Gulbro(2004) cited in Tirunesh Abebe(2011),reported from their review of literature on small
business success studies, there have been several studies, which seek to identify the crucial success factors
for small business. However, there appears a problem to develop a common list of the factors which
contribute for success of small business performance operating in various business environments and areas. It
is important to define these factors for any new business, as the owner should be concerned about the chances
for success.
Understanding of why some firms succeed and others do not is crucial to stability and health of economy.
Despite this fact, however, which factors are the most important to the success of MSEs in Ethiopia has not
been adequately studied empirically.
So, this study tries to assess factors affecting identified from literature with the growth of micro and small
business Enterprises in Nekemte Town.
Basic research questions:
1. What function do MF is play in enhancing the growth of MSEs in Nekemte Town?
2. To what extent is the expansion of micro and small enterprises influenced by the financing ability of
micro finance institutions?
3. Do MF is supplying sufficient and reasonable financial as well as non-financial services for the growth
of MSEs?
4. What makes micro and small enterprises prefer sources of finance from micro finance institutions?

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1. 4. Objective of the Study

1.4.1 General objective

The general objective of this study was to assess the major factors affecting the growth of micro and small
enterprises’ growth in Nekemte town of Oromia national regional state, Ethiopia.

1.4.2 Specific objectives

Within the above general objective, MSEs’ growth was slowed down by a number of factors, including
finance, regulatory issues, lack of infrastructure, lack of managerial skills, equipment and technology
would have been specific objectives expected from this study:
1. To examine the impact of access to finance on the growth enterprises'
2. To test the" association between loan criteria and growth of enterprises.
3. To examine the effect of proper training on enterprises' growth.
4. To investigate the contributions of market access on the enterprises’ growth and the impact average
sales on the enterprises' growth

1. 5.Scope of the Study

As the main purpose of the study was to scrutinize the determinants of micro and small scale enterprises’
growth in Nekemte City, it mainly deals with the sampled MSEs in the six sub-cites. This study only
investigated the sector specific determinants of MSE’s growth. It does not examine the macro factors that
affecting growth of MSEs. The researchers proposed to deals with this study by using enterprise’s growth as
dependent variable and independent variables such as finance, technology, entrepreneurial skills related
factors will be considered. The targeted population of this research is delimited to sampled micro and small
enterprises in Nekemte town with sample size of 231 MSEs, however, medium and large enterprises would
have been not incorporated in this study.

1. 6. Significance of the Study

In view of the fact that this study would have been aimed to investigate the major determinants of micro and
small scale enterprises’ growth in Nekemte City, Oromia national regional state, the findings of this study
may aware owners the enterprises and government regarding the factors affecting the growth of MSEs and
put a base to undertake an appropriate arrangement boost up their growth. The recommendation to be
forwarded from the result of the study will shows the major direction to the government body, owners the
enterprises and other stakeholders to enhance the growth of MSEs to achieve their expected roles.
The study would have also added a piece of empirical evidence on the determinants of micro and small scale
enterprises’ growth Ethiopian context. This study also serve as a reference or guideline to the other
researcher who is interested to undertake further investigation on related topics.
Lastly, but not least, the finding of this study also would have been helpful to fill the gap in the knowledge
about the factors affecting the growth of MSEs in the Nekemte City.

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1. 7. Limitation of the Study
Despite the fact that the researcher tries all the best to maximize the fruitfulness of this study, the study
would have been not free from any limitations that may emanate from its scope and methodology. Since this
study only focuses on the factors affecting the growth of MSEs in Nekemte City, it would be difficult to
generalize the findings of this study to the Ethiopia as whole.
Moreover, due to difficulty of data collection, the result from the sampled micro and small enterprises may
not represent the medium enterprises.

1.8. Organization of the Study

The study consists of five major chapters. The first part was an introductory part which consists of
background of the study, statement of the problem, objectives of the study, significance of the study and
scope. The second part contains literature review presented in to theoretical and empirical section. The
theoretical section contains definition and importance of MSEs The empirical literature section contains
relationship between MSEs’ growth and its determinants. The third part consists of the research methodology
which includes the research design, data source and type, sampling design, methods of data analysis
(econometric model and specification). The fourth part will deals with results and discussion through tests of
OLS assumptions, descriptive analysis, correlation analysis, regression analysis and testing of the
hypotheses. The last part would have been dealt with conclusion, recommendation, and suggestions for
further study.

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 CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1 Theoretical Literature
2.1.1 Importance of Micro and Small Scale Enterprises in Ethiopia (MSEs)
Small firms are backbone of national development. For a country to reach its full potential in terms of
economic and social development, it cannot afford to ignore the importance of its indigenous micro and small
scale enterprises (MSEs) and the contributions that they make to the country’s economy. In this wise trade
liberalization and the encouragement of foreign directive investment has to go hand in hand with a through
and concentrated effort to help the growth and development of small business to enhance development.
Fabayo (1989) observed that one major claim for focus on SMEs is that they are large employers of labour
and this makes them vital in coping with the problems of unemployment and poverty. According to him,
strong evidences based on country and regional experiences exist to show that small firms are major source
of employment opportunities for a wide cross-section of the workforce: the young, old part-time workers and
the cyclically unemployed. Meyana than (1994); Ukpabio (2004) and the World Bank (2001), agreed that it
is micro and small scale enterprises (MSEs) that play intermediate role in the development of large scale
enterprises. They reduce regional disparities through the creation of employment opportunities in the rural
areas and mobilize local resources more readily than large-scale industries. Uzor (2004) opined that micro
and small scale enterprises (MSEs) contribute to national development by positively influencing the
distribution of income both in functional terms, wages and profits in nominal terms.
Focus on SMEs help to decentralize industries thereby not only accelerating rural development but also
stemming urban immigration and the consequent problems of congestion in the cities. Another rationale for
focus on micro and small scale enterprises (MSEs) is its contribution to value added in the manufacturing
sector and to the Gross Domestic Product (GDP) of the economy. Numerous country studies have shown that
the value-added contribution of SMEs can be quite substantial for example small firms in the U.S. economy
in 1978 accounted for 37% of the GDP, SMEs have also the potentials for contributing to export promotion
as is the case in some developed countries where industrial exports are drawn from the small firms producing
textiles, electrical goods, clothing, leather and ceramic products etc. Micro and small scale enterprises
(MSEs) have been found to have location flexibility. From the study conducted by Uzor (2004), he noted that
MSEs could be more readily used to achieve industrial dispersal and regional balance in economic
development. Of particular importance is small firms’ usefulness in the diversification of the industrial
structure and for the transformation of the rural economy.

2.1.2 Challenges of Micro and Small Scale Enterprises in Ethiopia

There are various challenges facing micro and small scale enterprises in Ethiopia; while some are financial
others are non-financial. The financial constraints include those factors that prevent micro and small scale
enterprises (MSEs) from accessing funds easily, inadequate sources and supply of funds has been a major

6
setback to the realization of many brilliant business ideas and outward expansion of existing business. The
inability of the small business owners to raise funds expand their business has been linked to poor business
history, high risks, associated with starting new business, which banks tend to avoid, insufficient collaterals,
inadequate record keeping and knowledge of the risks facing their business. Record keeping is particularly
important to the integrity of the business. Many entrepreneurs avoid paying tax into the relevant authorities.
Poor governance structure is another factor preventing micro and small enterprise to access to credit easily
from banks and other specialized financial institution. An industrial analysis recently observed that one of the
reasons why micro and small scale enterprises (MSEs) funds has not been invested, is the operator prefer to
get the funds as loan, rather than as equity contribution. To gain access to finance, micro and small scale
enterprises (MSEs) owner should learn to put up realistic business plan supported with financial projections,
which highlight the profitability of the enterprises before they seek for funds. Such companies should be duly
and legally registered with appropriate authorities maintain financial records and put in place strong internal
control mechanism. Above all, the operators should be knowledgeable about the kind of business they want
to venture into.

2.1.3 Techniques of Developing Micro and Small Enterprises to Enhance in National economic
Development in Ethiopia
Micro and small enterprise play dispensable role in national development and to reflect its acceptance and
recognition of this, the federal government must has small business policy at the top of its agenda; it has to
put concrete steps in place to ensure they are able to grow and prosper. In for instance one of the ways of
doing this, will be set up a national small business (NSBO) along the line of the small business agency in the
United State and Medium Business Services. The national small business office (NSBO) will be an
independent body and will have overall responsibility nationwide for all policies and programmed relating to
small and medium business including micro business, will have its own budget, and will be closely
monitored by and answerable to the National Assembly. The national small business office (NSBO) can be
replicated at the state level. The state small and medium office will have responsibility for running national
policies and programmed set up by national small business office (NSBO) at the state level and will also be
directly answerable to state Assemblies. The task which will be appropriate to national small business office
(NSBO) will be the promotion of exporting activities amongst small businesses to make them more outward
looking and more able to participate in the global market place. Another important way of developing micro
and small scale enterprise is by establishment of a small Business Development Bank (SBDB) to concentrate
solely on the funding to indigenous businesses. The small Business Development Bank (SBDB) will help to
combat the problem of undercapitalization by providing the necessary cost effective and easily accessible
funding for business. Moreover, it should not be the sole responsibility of government to provide financial
assistance to business. The national small business office (NEBO) will then have to seriously took into how it
can is largely practiced in both the U.S and U.K equity funding, or venture capitals as it is widely known, has

7
been the secret behind the growth of silicon valley, and the mass number of fast growing high technology
companies that abound in developed countries. With high number of billionaires originated from developing
countries like Nigeria, the national small business office (NSBO) has to find a way of encouraging them to
invest their wealth in small and medium enterprise, thereby helping them and the country to grow. Lastly,
micro and small scale enterprises should from time to time organize training programmed for their employees
on how to use some modern equipment like computer and other machines to tenable them cope with the
changing technology. Employees should equally times be granted study leaves by their employers; this will
go a long way producing skilled workers in small and medium enterprise.

2.1.4 Factors that affects the Growths of MSEs

MSEs’ growth is hampered by a number of factors, including finance, regulatory issues, lack of
Infrastructure, lack of managerial skills, equipment and technology, and access to international markets.
Funding Constraints: According to Picardie’s (1999), the barrier of funding is defined as one of the eternal
problems for small-sized enterprises and it is related to the difficulty of access to credit. One important
problem that MSEs often face is access to capital (Lader, 1996). Lack of adequate financial resources
places significant constraints on MSEs’ growth. Despite the recognition of the role of MSEs in the
development process in many developing countries, MSEs development is always constrained by the limited
availability of financial resources to meet a variety of operational and investment needs (Cook and Nixson,
2000).
A World Bank study found that about 90% of small enterprises surveyed stated that credit was a major
constraint to new investment (Parker, Riopelle and Steel, 1995). Levy, Berry, and Nugent (1999) also
found that there is limited access to financial resources available to smaller enterprises compared to larger
organizations and the consequences for their growth and development. The role of finance has been viewed
as a critical element for the development of MSEs (Cook and Nixson, 2000). A large portion of the MSE
sector does not have access to adequate and appropriate forms of credit and equity, or indeed to financial
services more generally (Parker et al., 1995).
Lack of short, medium and long term capital, inadequate access to financial resources and credit facilities
affect the growth of micro and small scale enterprises (MSEs).Different researchers observed that MSEs have
serious financial problem in at least three respect of: a) Securing funds in small amount at rates comparable
with those paid by large industries. b) Building and manufacturing adequate financial reserves c) Securing
long term equity capital. Despite the fact that cost of capital is higher for the small scale manufacturer, the
effect is even compounded by raising inflation rate.
Institutional Problem: Shi & Li (2006) and Baron and Shane (2007) defined the institutional barrier as the
policies and regulations that can affect the growth of the micro and small enterprises. Regulatory constraints
also cause serious challenges to MSE development and although wide-ranging structural reforms have led to
some improvements, prospects for enterprise development remain to be addressed at the firm-level. The

8
high start-up costs for firms, including licensing and registration requirements, can impose excessive and
unnecessary burdens on MSEs. The high cost of settling legal claims, and excessive delays in court
proceedings adversely affect MSEs’ growths. Meanwhile, the absence of antitrust legislation favors larger
firms, while the lack of protection for property rights limits MSEs’ access to foreign technologies
(Kayanula and Quarter, 2000). Previously insulated from international competition, many MSEs are now
faced with greater external competition and the need to expand market share. However, their limited
international marketing experience, poor quality control and product standardization, and little access to
international partners, continue to hamper MSEs’ growth into international markets (Aryeetey, Baah-Nuakoh,
Duggleby, Hettige, and Steel, 1994). They also lack the necessary information about foreign markets.
Infrastructure Problem: Infrastructure is viewed as the factors affecting the growth of MSEs, as the quality of
this can hinders the growth prospects of MSEs, especially in developing countries, because many of these
countries suffer from a shocking lack of basic infrastructure, such as transport, telecommunications and
electricity (Olawale and Garwe, 2010).
The micro and small scale enterprises (MSEs) sector in Ethiopia operates in an environment with very poor
infrastructure which constitutes a barrier to entry and hinders international competitiveness. In many states in
the country, nonexistent of infrastructure, inability to access market, communication, power, water etc.
prevents the growth of MSEs.
Management Problem: The management barrier refers to the ability of owner-managers to administer their
own business with a vision of the effect this will have on their businesses (Fumo and Jabbour, 2011). Prior
studies have been conducted to explore the managerial characteristics and enterprise growth. For example,
Lucas (1978) assumed individuals have certain business or management ability which will influence their
success in business. Schmitz (1982) also highlighted that the small scale producers in developing countries
fail to expand primarily because they lack managerial ability.
The lack of managerial know-how places significant constraints on MSEs’ growth. Even though MSEs tend
to attract motivated managers, they can hardly compete with medium and larger firms. The scarcity of
management talent, prevalent in most countries in the region, has a magnified impact on MSEs’ growth.
The lack of support services or their relatively higher unit cost can hamper MSEs’ efforts to improve their
management, because consulting firms are often not equipped with appropriate cost-effective management
solutions for MSEs (Abor and Quartey, 2010).
Human Resource Problem: Smith & Smith (2007) states that the human resource barrier is viewed as the
personnel who are employed by the MSEs and the quality of the same. Regarding factors pertaining to
human capital, studies indicate that the majority of workers in micro and small scale enterprises are of low
educated. Most of the operators acquired the skills through on-the-job training within the informal way or, as
in the case of Africa, through informal apprenticeship systems; it is rare to see those who obtained their skills
through a formal training institution (Sethuraman, 1997).

9
Training in most cases tends to be supply-driven from external body and they are rarely sensitive to the needs
and circumstances of those in this sector. The cost in terms of money and time may be too high. Sethuraman,
1997 further emphasis that resources in the form of training or other similar inputs, if allocated at all for the
micro and small scale enterprises, tend to be so meager that they are subject to rationing which means that
many of those needing assistance are disqualified through a process of screening based on different criteria.
(e.g., minimum schooling required for training).
Lack of Awareness: Baron and Shane (2007) defined awareness as the competitive force; the most important
force that an enterprise can have. The acquisition, promulgation and transference within MSEs are
contributing factors that causes it to become a barrier in itself, for small enterprises.

2.2 Empirical Literature

Firm performance refers to the firm’s success in the market, which may have different outcomes. Firm
performance is a focal phenomenon in business studies. However, it is also a complex and multidimensional
phenomenon. Performance can be characterized as the firm’s ability to create acceptable outcomes and
actions toward growth.
In general, growth relates to the achievement of goals and objectives in whatever sector of human life. In
business life, growth (firm financial performance) is a key term in the field of management, although it is not
always explicitly stated. Success and failure can be interpreted as measures of good or indifferent
management. The concept of success is often used to refer to a firm’s financial performance. However, there
is no universally accepted definition of success, and business success has been interpreted in many ways
(Foley & Green 1989). There are at least two important dimensions of success: 1) financial vs. other success;
and 2) short- vs. long-term success. Hence, success can have different forms, e.g. survival, profit; return on
investment, sales growth, number of employed, happiness, reputation, and so on. In other words, success can
be seen to have different meanings by different people.
In spite of these differences, people generally seem to have a similar idea of the phenomenon, i.e. of what
kind of business is successful and what factor hinder the growth. There are many evidences that MSEs relate
positively to the economic growth of countries and regions (Stel et al., 2005; Acs et al., 2008b).
Entrepreneurial activity, led by MSEs, is considered to be an important mechanism for economic
development, through employment, innovation, and the effects that it has on local welfare (Acs et al., 2008a).
For example, Beck et al. (2005), using a sample of 45 countries, discovered a strong and positive relationship
between the importance of those smaller enterprises and the GDP per capita growth of the country.
Therefore, MSEs are recognized as contributing to the distribution of wealth, as they allow the middle class
to emerge and contribute. on the other hand, they avoided regional imbalances, given their greater flexibility
in terms of location, thus promoting economic development and improving people’s lives (Chen, 2006;
Picardie’s, 1999). Many scientific advances were originated by micro and small organizations, such as the
photocopier, the helicopter, insulin, the zipper, stenographic pen, etc. (Longenecker et al., 1997). Micro and

10
Smaller enterprises complement the work of larger enterprises, serving as suppliers of materials, and
operating in areas incompatible with these larger enterprises, as well as stimulating economic competitively.
Previous literature has studied factors hindering the growth of MSE in connection with access to finance and
shown that MSEs have different capital structures than large firms because MSE have no initial finance to
start business, For example, Cressy and Olofsson (1997) found that smaller businesses have lower fixed-to-
total assets ratios, higher ratios of current liabilities to total assets and are financially more risky. Scherr, et
al. (1990) and Hamilton and Fox (1998) suggested that smaller companies limit their issuance of outside
equity in order not to reduce control of their firms. The literature has also discussed reasons why it is harder
for SMEs to access debt financing. For example, Berger and Udell (1995) found that small and young firms -
with generally shorter banking relationships - pay higher interest rates and are more likely to be required to
pledge collateral. Satio and Villanueva (1981). Previous researchers compared different enterprise such as
Peel and Wilson (1996) showed SMEs have higher costs and reduced access to financing because of the
information asymmetries associated with newer, smaller firms. Furthermore, Levy (1993) concluded that
restricted access to financial services slows the growth of SMEs. In comparison to these previous studies, the
summary statistics for our sample of Eastern European countries show that finds in transition countries often
behave in a different way. Previous studies also show the unique challenges to SMEs to access outside
borrowing and suggest country-specific environmental factors - such as creditor rights and legal efficiency
that affect SME access to financing.
In general, this literature suggests that any formal or informal financial institution should be able to make
more loans to smaller, riskier firms in countries that offer stronger creditor rights - such as the priority of
secured creditors in the case of default. For example, Brush and Chaganti (1998) found that ownership
structure and creditors’ rights protection have significant positive influence on the size and performance of
MSE. Furthermore, Beck Demirguc-Kunt, and Maksivmovic (2002) showed that small firms are most credit
constrained as a result of underdeveloped financial and legal systems and many people in Ethiopia are
unemployed. Some unemployed residents and some residents who had been retrenched (mainly from farmer
in the zone.) started their own businesses in the hope of earning an income in the state. However, many of
these micro and small businesses did not succeed in getting off the ground.
There is considerable variation in the criteria for growth (success) used in previous studies. Empirical studies
of factors affecting MSE success can be roughly divided into two groups according to whether they focus on
a quite limited set of variables or try to capture more holistic profiles of successful SMEs. Previous empirical
research has used both surveys and case studies.
There are also some compilations of the results of previous studies of the factors contributing to firm success.
For instance, Storey (1994) has compiled the results of previous studies focused on the birth, growth and
death of small firms, on the basis of which he presents some normative “dos and don’ts” lessons for small
firms. Ezazmian and Muhammad Hasmat Ali (2008) in their study of SMEs in Bangladesh found those
products and services, the way of doing business, management know-how and, external environment are

11
most significant factors in determining the business success of SMEs. The following recent studies based on
surveys have dealt with the factors affecting SME success. NurulIndarti and MarjaLangenberg (2005)
identified key components to be important in analyzing the growth of SMEs which includes the
characteristics of the entrepreneurs; the characteristics of the SMEs; and the contextual elements of SME
development. As Westhead, (1995), studied factors influencing the survival of 227 high-technology small
firms. Manufacturing firms in Finland and studied the determinants of the future success of the firm in the
short term and in the long term. Yusuf (1995) explored critical success factors for small firms in several
industry sectors based on the perceptions of 220 South Pacific entrepreneurs. Wijewardena and Cooray
(1996) explored the importance of a set of success factors by studying a sample of 300 small manufacturing
firms in Japan.
Gadenne (1998) investigated the effect of various management practices on small firm performance by
studying 369 small businesses in the retail, service, and manufacturing industry in Australia. Bracker and
Pearson (1986) studied planning and financial performance of small mature firms in the dry cleaning
business. Baker et al. (1993) studied planning in successful high-growth small firms. Pelham (2000) explored
the relationship between market orientation and the performance of manufacturing SMEs in eight industry
sectors.
In generally, based on the findings of earlier research, the factors affecting SME business success/growth
were classified into the following categories: (1) an entrepreneur characteristics (Kristiansen, Furuholt, &
Wahid, 2003; and Rutherford & Oswald, 2000), (2) characteristic of SME (Kristiansen, Furuholt, & Wahid;
2003), (3) management and know-how (Swierczek& Ha, 2003), (4) products and services (Wiklund 1998;
and Hitt& Ireland 2000) (5) customers and markets (William, James, & Susan; 2005), (6) the way of doing
business and cooperation (Hitt&Ireland 2000; and Jarillo 1988) (7) resources and finance (Swierczek& Ha,
2003; and Kristiansen, Furuholt& Wahid, 2003). (8) Strategy (McMahon, 2001), (9) external environment
(Huggins, 2000; and NurulIndarti&MarjaLangenberg,2005);and (10) internet (Henriette Hesselmann,
Comcare, and Peter Bangs; 2002).
However, only 6 factors namely characteristics of SMEs, Management and know-how, Products and
Services, The Way of Doing Business and Cooperation, Resources and Finance and External Environment
were considered for the theoretical framework of this study based on suitability with the Malaysian context.
Therefore, Business growth is the dependent variable and independent variables are: characteristic of
entrepreneur and SMEs, management and know-how, products and services, the way of doing business and
cooperation, resources and finance, and external environment.

12
 CHAPTER THREE
RESEARCH METHODOLOGY
3. INTRODUCTION
The main purpose of this chapter would be to provide an overview of the basic research design and method
that will be used to carry out the study. It would have been comprised research method, research design,
sources of data, population, sample and sampling techniques, instruments of data collection, procedures of
data collection, method of data analysis and ethical considerations in research would be treated in detail.

3.1. Research method

The objective of this study would have been assessed the factors affecting the growth of micro and small
enterprises in Nekemte town, sub-towns known as Darge, Keso, chalalek, Bake Jama, Sorga and Bekenisa
kese sub towns. According to the sub-town administration offices, they have an average of 1,200 household
each. To carry out the study, descriptive survey method will be employed. This method would have been
preferred on the ground that is to assess the factors affecting the growth of micro and small enterprises in
Oromia regional state east Wollega zone Nekemte town.

3.2. Research Design

This thesis would have been designed to assess factors affecting Growth of SMEs’ growth. Since the nature
of the study is descriptive so that it will utilize a cross-sectional survey. This approach was selected based on
its privilege for the study in several aspects, such as it assumes the situating for each year that would have
been affected the SMEs in the industry in a similar fashion, cross sectional data consider that all enterprises
in sub-sample are affected equally in the period and the number of enterprises will not decrease due to lack of
long year data as of time series approach. Unlike time series approach, cross sectional survey considers new
companies that have one year data and does not only focus on companies those having a long series of data.
For these reasons, for this study, cross sectional approach is preferred than time series approach. Since this
study was about growth of medium and small enterprises it cannot be done using cross-sectional data. Rather
it needs some years of data on medium and small enterprises. You have to get data on the income,
investment, expenses, production, employment, profit, etc. of medium and small enterprises to complete this
research.

3.3. Sources of data

To obtain relevant data, the researcher would have been used primary sources of data from Darge, Keso,
chalalek, Bake Jama, Sorga and Bekenisa kese Nekemte town sub towns’ households. The reason behind
selecting these as sources of primary data would have been gotten firsthand information about research
problem since the respondents would have a direct and experience about the factors affecting the growth of
micro and small enterprises in Nekemte town. Primary data would have been gathered through structured
questionnaires. Open-ended and close-ended questionnaires would have been designed and directly

13
distributed to the sampled owner-managers of MSEs. Furthermore, in order to ensure a reduced possibility of
misunderstanding of the questionnaire by respondents, enumerators will be hired to collect the primary data.
Secondary data such as published material and written documents will be obtained from MSEs Nekemte
town and sub towns trade & industry offices.
These mean that, the study would have been utilized the mixed approach of data collection. A mixed
approach is one in which the researcher tends to base knowledge claims on pragmatic grounds (Creswell,
2003). According to this writer the benefits of the mixed approach it permits collecting of diverse types of
data which provides better understanding of a research problem by the researcher. In this study, therefore, the
sequential type of mixed strategy with much higher weight was given to quantitative approach supported by
the qualitative approach.

3.4. Target population

The determination of the target population and sample MSEs would have been undertaken based descriptive
research method uses large number of sample. In this study register would have been used as a population to
select the sample and have the total populations in the selected sub cities would have been547those are from
different SME that conduct different business type includes service (209)construction (95) urban agriculture
(81), trade (162).

3.5. Sample Techniques and Sampling Size

This study covered SMEs located in Nekemte, Ethiopia as the target population. The study concerned on
registered small and medium enterprises. It also excluded micro enterprises due to the following reasons: -
(1) Some of the independent variables may not exist like human capital, experienced manager and (2) most
of micro enterprise may not keep proper record. In Nekemte administration there are seven (7) sub-towns.
From those sub-towns two sub-towns (Keso and Bakanisa Kase sub –towns) selected based on their suitable.
In the selected sub towns there were SME that bearing different business type and a stratified
random sampling will be used. In this technique the investigator must group the sample frame in to
analogous group often called strata before selecting the element for the sample and the
business type taken as criteria to create strata.

3.6. Sample size determination

According to Adams et.al, (2007) descriptive research method uses large number of sample.
Sometimes it uses 10 or 20 % of total population. In this study registered SMEs were used as a
population to select the sample and the total populations in the selected sub cities were 547
those are from different SME that conduct different business type includes service (209)
construction (95) urban agriculture (81), trade (162).
Then to determine the sample size and representative of the target population, the study used statistical
instrument formula. The mathematical formula developed by Taro Yamane (1967). N=total target population

14
n= sample size e= margin error the study assumes that the margin of error 5% and confidence level or error
free of 95%. Using the above portrayed statistical formula, the sample size of the study computed as follows.
N
n=
1+ N ¿ ¿
Consequently, in order to assign sample respondents in each sample areas, proportional sampling had been
employed.
The following table shows the two strata and their total proportion of the sample in each group. Sample
proportion is sample size (n) by the percent % of total population of each group/strata.
Table 3.1: Strata and total population of the sample
T/L Sub-towns Population Sample
1 Kaso 179 179*231/547= 75
2 Bakkanisa Kasee 368 368*231/547= 156
Total 547 231
The two strata of Expert of sub-cities and sub-sectors or clusters have different stratum under each strata
based on their responsibility
Table.3.2: Sample Determination
No Clusters Population Samples
1 Service 209 209*231/547= 122
2 Constriction 95 95*231/547=40
3 Urban Agriculture 81 81*231/547=34
4 Trade 162 162*131/547= 68
Total 547 321

3.7. Questionnaires Administering Procedure

The questionnaires to be administered based on the determinants of MSEs’ growth as its intent was to
measure the access to Credit. Prior researches suggest comprehensive measurement of determinants access to
credit. Following (Cavalluzzo and Cavalluzzo, 1998: Biggs et al 2002), we set two equation of access to
credit. Basically, questionnaires are subject to various concerns that adversely affect the validity and
reliability of the results. Accordingly, the questions will be designed to accommodate the principles of proper
questionnaire design, such as reduction of question bias through proper wording, confidentiality requirement,
technical error, and the use of unambiguous and concise language. In addition, the items pre- tested by
different advisor and colleagues to ensure item completeness, efficiency, relevancy and format, and non-
response rate.

15
3.8. Data Gathering Procedure
This study pragmatic both primary and secondary types of data and they have qualitative and quantitative
nature. Primary data collected using structured questionnaire which will be filled with firm owners or
managers since they were aware of the trend of the firm. Besides this the study used secondary data which
were mostly qualitative data referred from similar case studies done on the topic particularly in the study
area, books, articles, and some policy documents used. Moreover, in this work the researcher would have
been reviewed previous literature, books and developed research questions and concepts.

3.9. Methods of Data Analysis

After the collection of raw data and before analyzing it the researchers would have been edited and coded.
Editing and coding would have been made to detect errors that maybe committed during completing the
questionnaires and to make it easy for analysis. The quantitative method of data analysis would have been e
employed to analyze the data collected through structured questionnaires. Therefore, the variables would
have been analyzed by employing two statistical analysis techniques. These are: Descriptive statistics such
as; mean value, percentage values of variables. These descriptive statistical tools were useful to investigate
the effect of the variables incorporated in the study.
Regression analysis would have been also used to identify the factors that affecting the growth of MSEs
significantly. Specifically, regression model would have been employed to identify the relationship between
dependent variable and independent variables. Since all variables are continuous, the appropriate
econometric model for such variables is linear regression model.

Normally, the researcher could be clear about the types of data they are going to collect before go to analyze
it. It is also an important to segregate the data obtained to run on statistical software. In view of this, the type
of the data will be collected for this study tends to fall in ordinary and ratio. The data relate to firms’ growth
is continuous. Data are screened for error, and an appropriate statistical method will be used based on the
type of the data, since different statistical method applies for different types of data.
The ordinary data need to be analyzed first to determine the extent of access to credit and assist as input data.
This analysis method will have descriptive and inferential statistics. Second the value of determinants of
MSEs and some variables was computed on the financial statements and inserted in the model, so that it
would have been operated on statistical software. The output (results) would have been organized in tables or
graphs.

3.10. Model Specification and Variables Descriptions

As it would have been e determined in the data collection tool for this study, data would have been collected
in both questionnaire and interview. After successful gathering of the data, the data collected would have
been analyzed by using both descriptive statistics (tables, mean and standard deviation) and inferential
statistics with a computer program called the statistical package for social science (SPSS). In addition, linear

16
regressions would have been employed to estimate the effects of each independent variables on a single
dependent variable for purposes of prediction as it used Yorgon, Kosgei & Lagat (2015).
The regression model was derived as follows from the composition of the independent–dependent variables;
Y= β0 + β1x1 + β2x2 + β3x3 + β4x4 +Ԑ
Where; β0 represents Constant Term
Y= determinants of MSE ,β1, β2, β3, β4represent coefficients of the respective variables
X1represent States of MSEX2represents access to finance ,X3represents market access,X4represents
Entrepreneurial skill,Ԑ Error margin

17
 CHAPTER FOUR

DATA ANALYSIS AND PRESENTATION

This chapter clarifies the socio economic and demographic characteristics of MSEs, kinds of supports
and like regulator surroundings, employment created and their sartorial distribution, beside confronts
and potential predictions of MSE growth would be examined.
4.1. Respondents’ Profile_
The data were collected from231owners/managers of micro and small sized firms out of a sample
sizeof267 ‘ MSEs which were operating in Nekemte town. These owners /managers and their
businesses were stratified and selected from the register of Nekemte Town Investment Agency and
Nekemte Town Trade and Industry office. Are sponse rate of 85.6 percent was attained and all of the
study respondents were found in Nekemte town .Therefore, the demographic characteristics of
respondents were discussed in the following ways.

4.1. Sex composition

The table 4.1 below indicates that 28 (12.1%) and 203 (87.9%) of the respondents were female and male
respectively. From this it was possible to say that the participation of women in small and
microenterprises is insignificant.

Table 4.1 Respondent Sex Profiles

Sex Frequency Percent

Female 28 12.1

Male 203 87.9

Total 231 100.0

18
Table 4.2.respondent age group

Age group Frequency Percent

<20 43 18.6
21-30 108 46.8
31-40 52 22.5
>41 28 12.1
Total 231 100.0
From the table above 4.2 it can be deduced that 18.7% of the respondent age group 20,
108 (46.8%) of the age group 21-30, 52 (22.5%) of the respondents are the age group between 31-40 and 28
(12.1%) of the respondents are age group above 41 year old respectively. Most owners/ manager (46.8%),
of sample micro and small enterprises surveyed have aged between 21-30 years and it was shown that
majority of MSEs in the town young group that have been important to growth of the firm.

Table 4.3Respondents level of educations

No Alternatives Frequency Percent

1 Certificate 60 26
2 Diploma 81 35.1
3 Vocational Training 59 25.5
4 Bachelor Degree and masters 31 13.4

Total 231 100.0

Tablee4.3 shows most 60(26%) of owners/ managers/sale person were certificate holder, about 81(35.1%)
of respondents were diploma holder, 59(25.5%) of respondents were Vocational training holder the rest
two respectively 31(13.4%) and 2(9.5%) of respondents are degree /master: holder and other. The level
education in fluencies the growth of the firm positively. Therefore, education is estimated to increase the
skill of the enterprises to cope up with problems and confiscate opportunities for firm growth and
innovation.

19
Table. 4.4Workexperienceoftherespondent

No Alternatives of work experience Frequency Percent

1 1-3 29 12.6
2 3-6 84 36.4
3 6-10 61 26.4
4 10+ 57 24.7
Total 231 100.0

Table 4.4 reveals the work experience of respondents from 1upto3yearexperience have29(12.6%), work
·-
experience year between 3 to 6 year were about 84(36.4%), work experience from·
6to10yearemployees ratedabout61(26.4%),and the work experience group above tenyearrated57 (24.7%).
Thus, the more experienced employees help to the enterprises success and expansions in the town as well
as in the country.

Table 4.5.postion of the respondents

no Position frequency Percent
1 Manager 106 45.9
2 Owner 18 7.8
3 Sales person 78 33.8
4 Other 29 12.6
5 Total 231 100.00
The table 4.5 above shows that the respondents about 106 (45.9%) were manager, 18 (7.8%) were owners
78 (33.8%) respondents were sales person and the remains 29 (12.6%) of the respondents were
combinations of others). Hence, the enterprise in the town administration leads by manager.
Characteristics of Firms
This section indicated that the survey from micro and small enterprises collected data revealed that the
firms characteristics. The level of frequency which was evaluated by response variables (growth pattern)
involved two labeling like growing and declining of the micro and small enterprises and various firms
characteristics variables included form of business, type of business /major economic sector, work
conditions, access to market competition, maximum sale volume of the year and average sale volume of
pervious year reported of micro and small enterprise. Thus, v a r i a b l e s from d e s c r i p t i v e results
w e r e described details below.Table 4.6 Form of business

Table 4.6 above shows that most of the businesses were sole proprietorship 139 (60.2%), followed by share
company 71(30.7%), partnership 14(6.1%) and cooperative organized by government 7(3%). The 60.1%
20
forms of business in the area were the sole proprietorship with in micro and small enterprise growth. It
Table4.9belowindicatesthatthegrowthdimensionoftheenterprisefromtherespondents
demonstrated that micro and small enterprises especially sole proprietorship was target to create job for
responseportrayedthatabout33(14.3%)saidtogrowingintermsoffirmssize,34(14.7%t) growing in terms of
labor force which seek job opportunity and the back bone economic growth as well as the base for industrial
volumeofassetsandwealth,131(56.7%) were respond to growing in terms of profitability, and the rest
expansion in the country.
growing in terms number of employees 14.3%. It as shown that the MSEs were growing in profitability
followedThe
Table4.7 by volume of assets and
major operating wealth
activity ofand
the size
firmof enterprise in the town.
No 4.9 Dimensions
Table Alternatives of major operating activity
of growing Frequency Percent
1 Manufacturing_ 111 48.1
No 2 Trade Alternatives Frequency
-57 Percent
24.7
.1 3 Agriculture
Size 33 4 14.3
1.7
24 Service
Volume of assets and wealth 34 32 14.7
13.9-
35 Construction
Profitability 13127 56.7
11.7
4Total
-· Number of employees 33231 14.3
100.0
Total 231 100.00
As indicated
Table in the figure
4.7demonstrated 4.1 below
that the working
111(48.1%) condition
involved adequacy the
in manufacturing, firms were
especially woodthose
and respondents
metal work,
responded
waving and about86.15%
candle, the yes
nextwe are of
form adequate in 43(lS.6%)were
business the present workengaged
condition
onoftrading
the enterprise,
activity, the remaining
particular retail
about 13.85%
trading, of respondents
the third revealswere
activity 32(13.9%) that involved
inversely onserv1ce
adequate in the work condition.Therefore,the several
that were the recent action which include
participants in the town who were the member of enterprise that we’re manager, owner, sale person and
hotel truism, restraints and hairCleaning/barber. At the end of construction special cobblestone way
other interested in the work condition which was hopeful for the future survival and continue of MSEs
contained 27 (11.7%) in the Nekemte t o w n engage different types of business. Thus, the manufacturing
growth.
sector has been consists of majority enterprise in the town administration as well as these sector growing
faster4.10
Table thanSignificant
a factor influence on enterprise growth (multiple choices) significant factor on the
growth of enterprise
Table 4.8. Pattern
- of -growth of the firm
Access to finance available working are and sufficient Frequency Percent

Growth dimension Frequency Percent

Access to finance sufficient inputs and lobar force 59 25.5
Declining 64 27.7
Growing
Access to fiancé sufficient inputs lobar force 72
167
31.2 ·-72.3
Total 231 100.0
-·-
As ·indicated
access in the
to finance, table 4.8
availability of above
workingthe growth
area, of micro
sufficient 60 and small enterprise
26 into two dimensions about
64(27.7%) respond to declining and 167(72.3%) respond the enterprise were growing in the town. These
Access tothat
indicate finance, availability
the micro of enterprise
and small and 59 town were growing
working a riena Nekemte 25.5 from time to time.

sufficient .inputs

A c c e s s to finance, availability of working a r e a and 40 17.3

sufficient .inputs

Total 321 100

Table 4.10 indicates the significant factors which were the key parameter from the growth of MSEs f i e l d
s u r v e y . The analysis results were revealed that majority of respondent of enterprise rated in the table 4.10
above shown that72/31.2% (access to finance, sufficient in puts and labor force), 60/26% (access to finance,
21
availability of working area ,sufficient inputs, labor force & innovative technology), 59/25.5% (access to
finance, availability of working area and sufficient .inputs),40/17.3% ((access to finance, availability of
working area and sufficient .inputs count and percentage wereresponseshowninthetable4.10.With respect to
this idea World Bank (2008) confirmed that response from firms' owner and manager to access to and -
external finance represents barrier to their action and expansion and as stated by Yoshino(2011) clustering
trend is a factor.

4.3. Role of M-microfinance Institutions in the Growth of MSEs

4.3.1 Simplicity of Loan Criteria of Micro finance Institutions

The table 4.11below indicates that about 66 (28.6%) of respondents responded that the loan criteria of MF
is we’re not simple to receive loan. This idea supported by the respondents who wereabout158
(68.4%).They were responded to the loan criteria of MF is simply to receive loan and the rest 7(3%) don’t
know the loan criteria of MF is of simplicity. It was explained that the loan criteria of MF is simple to
receive the loan from the institutions.

Table 4.11 Simplicity of loan criteria of MF is

No Alternative of loan criteria Simplicity Frequency Percent

1 No 66 28.6
2 Yes 158 68.4
3 Don't know 7 3.0
Total 231 100.0

Table- 4.12 shows that training to MSEs provided by MF is were about 74(32%) of respondents were
responded as it is important to improve production skills, 54(23.8%) of respondents were responded as it
is provided to improve financial management skills,28(12.1%) o_(respond Qts were responded as it is
proffered to capacitate management skills and 8(3.5%) of respondents were responded as it is offered to
help to reduce illiteracy. It indicates that the importance of MF is training is to enhance the MSEs
Production skills, financial skills and management skill.

Table 4.12 Importance of type of proper training to improve the growth enterprise
Training -- Frequency Percent
Reduce illiteracy 8 3.5
Production skills 74 32.0
Management skills 28 12.1
Financial skills 54 23.8
Total .. 165 71.4

22
4.3.3 Loan of MF is Sufficient and Reasonable to the Growth of Firms
The table4.13belowdemonstratedt h a t about 61%of respondents w as responded as the loan size or amount
provided was not sufficient and reasonable to the growth of enterprise. Correspondingly, about 30.7% of
respondents responded as they believe the loan size is enough and sufficient toworkandtherest8.1% couldn't
know about the issue. Therefore, the loan or financial / non-financial services provided by MF is we’re not
sufficient /reasonable to MSEs that hinder the growth of their in the town administration.

Table4.13Microfinanceinstitutionsloansufficientandreasonableinthegrowthof MSE

Loan of MF is Sufficient & reasonable Frequency Percent

Yes ,.
71 30.7
._

No 141 61.0
Don't know 19 8.1
,,
Total 231 100.0

4.3.4 Micro finance Institutions Loan Importance

The table 4.14 below illustrated that the significant level of microfinance loan as data revealedby83 (35.9
%)of respondents responded also an users were building family assets, improving group property and
enhancing enterprise profit. Moreover, 45 (19.5%) respondents responded as of loan users replied that
building family assets, improving group property, enhancing the enterprise profits and developing saving
habits. Furthermore, 39(16.9%) were building assets, improving group property and developing saving
habits. Besides 38 (16%) respondents
- responded as i m p r o v i n g group p r o p e r t i e s , enhancing
enterprise profit and develop saving habits. The loan of MF is significance
ratedby204usersfromtotalof231 ranging the use of loan create saving habits, enhance firms profitability,
increase_ group property and build family asset.
In this part the analysis were carried out through narration in paragraph form based on the ideas themes
through their similarities. These were the data obtained from eight respondents interviewed in Bekenessa

Kesse micro finance institutions..The result s of the interviews regarding the especially with Bekenessa
..
Kesse microfinance institutions products and services show that MF is also supply financial as well as non-
financial services.
Therefore, the interviews results discuss in the following ways below:-
The product/services that supplied by Bekenessa Kesse microfinance institutions were financial services
such as loans, savings, and payment facilities and non-financial services like enterprise growth services and
social services (training and counseling)

23
Table 4.14 Importance of MFI loan in the enterprise growth (Multiple response possible)

.
MF is importance Frequency
Percent
Assets, property and profit 83 35.9 ...

Assets, property, profit and saving 45 19.5

Assets, property and saving 39 16.9
Property ,profit and saving 37 16.0
Total 204 88.3

4.3.5 Microfinance Programs most liked by Clients.

The table 4.15shows below that the participant in the study selected most likely three things rated in the·
following way. About 84 (36.40%) rated to most likely three thing like interest rate, rearranging amount
loan sizeandtraining,52(22.5%) ranged to three things rearranging the amount of loan size, training and
family consumption, 48(20.8%) rated rearrange loan size, low interest rate and individual loan supply,
47(20.3%) rated to low interest rate and training. There fore, from response of respondents it can be
generalized that this low interest rate, rearrange amount of loan and training before provide loan and after
work serve as the best program of micro finance institution.

Table 4.15 Micro finance programs most liked by clients

Micro finance programs most liked by clients Frequency Percent
Low interest rate, rearranging loan size & training 84 36.4
Low interest rate, rearranging loan size & individual loan 48 20.8
Low interest rate and training 47 - 20.3
Rearranging loan size, training and family consumption 55 22 .5
-
Total 231 100.0

4.3.6 Microfinance Programs Least Liked by Clients

It is clearly indicated in the table 4.17 below that the respondents were rated least likely three
thingsas128(55.4 %)of respondents responded three least likely things are long process of loan supply, .high
interest rate and low amount ofloansize,59 (25.5%) are choosing long process of loan supply
andhighinterestrate,44(19.1%) are replied high interest rate ,loan supply by individual and loan low amount
of credit size. Accordingly the least likely three things of microfinance analysis results interpreted

24
underandonthe-table4.17 below are to generalize as least likely three programs are long process of loan
supply, low amount of loan size and high interest rate.
Pattern ,the respondents with proper training of MF is where about 9.943 times likely respond to the pattern
of growth of MSEs as growing as compared to declining the pattern of growth. Furthermore, access to
market about1.542 times likely respond to the pattern of growth of MSEs as growing as compared to
declining of growth, average sale volume of the firms about3.764 times likely respond to the growth pattern
of MSEs as growing as compared to declining the growth of MSEs and profit of firms about 56.927 time
likely respond to pattern of growth as growing as compared to declining the growth of MSEs (Annex5).
Meanwhile, respondents with loan criteria of MF is collaterals were about 0.470 times un likely respond to
the pattern of growth of MSEs as growing to declining the pattern of growth (as criteria increase by one unit
the growth of MSEs growing was decreased by0.47unit)in this case the relationship of both were inversely.
When compared with the critical Chi squareat5% ,p-valueis0.191 is greater than 0.05. In this case model of
goodness of fit is good model 'then to reject the null hypothesis and accept the alternative hypothesis.
Because the Chi-Square computed is higher than the critical Chi- square, to conclude that the predict or six
variables are significantly associated to the growth of MSEs(FIELD,2009).
The criteria using to finance MSEs from interviewed results based on response of microfinance institutions
especially Bekenessa Kesse microfinance institutions office.
The response from the Bekenessa Kesse microfinance institutions revealed that our institutions utilized two
types of criteria which were to finance micro and small enterprise in the town administration. These were
collateral and compulsory/20percent pre-loan saving methods. Collateral criteria were used by the
institutions to finance micro and small enterprises first the firms formed by the group and provided
business plan after that each firm member make his/her collateral then the MF is bring the loan. Compulsory
(20%pre-loan) saving method is the latest way which was MF is supplied loan for MSEs that need loan
from microfinance i n s t i t u t i o n s . The micro and small enterprises members before getting
loantosave20%pre-loan amount in microfinance institutions and provide the business plan then the MF is
bring the loan to the enterprise.
The response from the microfinance institutions revealed that the 'institutions were finance the MSEs
depended on the various situation of the firms like compulsory (20% pre-loan saving), business plan and
capacity of each enterprise. Generally the products/ services of MF is where riot sufficient and as effective
for working conditions of MSEs on recent time.
The challenges that me by MSEs based on these modalities the institutions were provide the way they
address to solve the challenge of access to finance the MSEs by making each enterprise used in MF is
products /services linkage with government MF is, addressed some of the constraints that MSEs face in
accessing funds. The modalities to resolution of the challenges met b y MSEs to accessing microfinance
institutions products/services. First, MF is attempted to overcome these two constraints in m a n y ways:

25
cluster lending, cooperative, and i n d i v i d u a l based l e n d i n g s y s t e m s . These were enhancing
reimburse men tin centives and transactional costs, and also build support net works and educate
borrowers.). Second, to mitigate financial distress that comes from the mismatching of cash inflows
and .out flows ( loan. maturity p e r i o d ), m i c r o f i n a n c e i n s t i t u t i o n s w e r e contracting loan
conditions and situation /requirements and delay the payment date. The more time a firms get, the less
likely the firm is to experience problems of meeting short-term obligations. Thus, the probability that a firm
will avoid financial distress can been hanced through flexing and post pone payment date (Water field and
Duval,1999).

4.5. Discussions
The response from the microfinance institutions reveals MF is utilized two types of criteria employed to
finance micro and small enterprises. These are collateral and compulsory (20% pre -loan s a v i n g )
m e t h o d s . The plan places a means to support the MSEs such as, infrastructure, financial facilities,
supply of raw materials, and training (Age band Ameha,2004).
The use fullness of such interventions, however, base on identifying the key problems and
targeting the potentially successful firms. Therefore, Micro finance institutions were established efficient
in supplying services to MSEs. Securing f i n a n c i a l services i s the k e y objective for t h e
f o u n d i n g MF is. MF is doing not simply contribute financial services but also offered t h e m w i t h
s o me n o n -financial s e r v i c e s .
These non-financial services are intended to support the MSE with the essential business abilities to
improved run the venture (Ledger wood, 1999). Microfinance i n s t i t u t i o n s are assets t o t h e
e m e r g i n g and t r a n s i t i o n countries ( Lidgerwood, 1999). The services they provide are modified to
address the needs and goals of the local population and stress are towards the poor.

The products and services put on wards to the society are not solutions by themselves to the several
problems influencing the poor. That is never supplied by formal institutions especially _so that micro
finance institutions are towards linking the gap. Micro finance is merely a segment of what is wanted
to increase firms which are unable of receiving the needed contribute from commercial banks. They
expand new markets, raises income, generate and collect assets and encourage accustoms of
entrepreneurship (Albaladejo, 2012).
Microfinance institutions/ Bekenessa Kesse microfinance in the growth of MSEs in Nekemte town
confirmed the subsequent outcomes. Firstly, 88.7 percent of MSEs had access to and received financial
services from MF is (Annex6). It is supposed that access to loan facilitates MSEs to overcome their
liquidity limitations and accept some investments s such as the-improvement of technological in puts
thus chief to a boost in production (Robinson,2003).The financial services distributed by micro finance
institutions/ Bekenessa Kesse microfinance were lending and savings. The kinds of credit supplied
26
 by Bekenessa Kesse microfinance take two forms such as term loans and repayment loans. Loan term or
maturity period and size were depending on the purpose of the loan, the ability of the borrower to pay the
loan, and the lending capability of the institution. It is consideration that credit enhances growth of MSEs.
Bekenessa Kesse micro finance als o brings voluntary and compulsory saving activities.
Compulsory/especially 20% pre-loan saving may have a merit of rising saving habits between MSEs.
Microfinance institutions also attempts to bring demand-driven pecuniary products that address the require
of customers in different activities.
Secondly, apart from financial services, microfinance institutions also offered non financial services to
MSEs. The major non-financial services supplied by microfinance institutions were training about71.4% of
respondents trainee, setting up business plan and m o n i t o r ing and supervisions, consulting services, and
experience sharing gathering (table4.12).

Finally, the delivery of microfinance institutions products and services had transaction cost results in order to
have larger out each (Christabell, 2009). Microfinance institutions visit their customers instead of them to
approach to the institution thus declining the cost that customers may excperience from. Microfinance
customers confess that expediency is more significant to them than return. From the above discussion, one
can assume that microfinance institutions played various roles in different phase of MSEs growth. At the
establishing phase, they were supplied establish assets and consulting in starting events. In the
growth stage microfinance institutions supplied important services in consultancy in financial
supervision operation, lending short term working capital for mass production and inventory
management, and long term capital for expansion of business.
Thegrowthofmicroandsmallenterpriseinfluencedbyvariousfactoroffinancingabilityof microfinance
institutions especially Bekenessa Kesse microfinance in Nekemte >town such as access to loan, access to
proper training and long process of loan supply and low amount of loan size. Based on this information the
respondent revealed that the influencing factor of some important on analysis result about in table 4.10
shown that the respondent rate and rearrange the factors of most significant to growth access to finance,
sufficient input, labor force, working area and innovative technology respectively. From this the financing
ability of microfinance institutions provided is like access to finance sufficient input that is loan size, and
innovative technology about 231outof267 respond to access to finance. The idea supported by empirical
evidence, World Bank(2008)access to finance to growth outcomes, and enterprise improve men tin
particular.
The next influencing finance ability of MF is where the financing program which the respondent least
likely thing in table4.16 discussabout128/55.4% respond to long process of loan, high interest rate and low
amount of loan size among this specifically long process of loan supply and low amount of loan size
influence the micro and small enterprise in the area. Generally for the discussion the financing ability of

27
microfinance institutions were one of key determinants which was access to finance, sufficient inputs and
innovative technology and the financing program that contribute in growth of MSEs.
Numerous factors were used in this survey to evaluate the sufficient and reasonable of micro finance
institutions, specifically Bekenessa Kesse micro finance funds.
These in clued criteria employed to offer the loan, simplicity of loan criteria, adequacy of loan amount
being supplied, and suitability of payment.
According to Ledger wood, (1999), the transaction costs also affect the sufficient and
reasonableoffundssuchascostofformingagroup,costofnegotiatingwiththelender,cost of satisfying investigate
work, transportation to and from the microfinance institution, cost of times pen ton project assessment and
cost of attending meetings.
Examination of consequences in esteem to sufficient and reason able exposed the subsequent
results.Firstly,about62.4%ofMSEs study respondents indicate that the microfinance loans were no sufficient
and reasonable(table4.13).
Second it may be considered as un in formed i.e. not aware of the facility, or where and how to apply within
criteria of collateral about (63.3percent)respondents response on it, based on this those who needed them
the available and affordable infrastructure form to starting entrepreneur without capable collateral never
received sufficient /reasonable base of loan. Other causes were also including high borrowing cost and
fears of in ability to repay, and difficulty of the process to be given a loan. Lastly selecting financial
resources were also determined bythephaseorlevelofventuregrowth.Enterprisethatissightedasgrowinghad it
simple to obtain a loan.
Many parameters were used in this study to assess the micro and small enterprise to prefer source of
finance from microfinance institutions, specifically Bekenessa Kesse microfinance funds. These include
low interest rate to offer the loan, loan provided to poor who have no access to finance from formal
especially bank, loan provided for base capital, loan supplied by formed cluster and developing small
amount size saving habits etc.Alsothissupported by new approach to micro finance has taken basis in
Ethiopia as could be seen from the inside of the proclamation passed to govern micro finance activities in
Ethiopia (Proclamation No.40/1996).

Microfinance institutions
. (mf is) are growing subsequent the proclamation, in the last six years, the
microfinance industry showed remarkable growth in terms of outreach and performance.Examination o f

result sin respect to prefer source of finance from micro finance institutions
Exposed in the following results. Firstly, about accessible to finance from mf is which have with low
interest and long term maturity date. Next, the respond entre revealed to prefer the source of finance from
micro and small enterprise because of two reasons that based on social service like pre-source training and
post loan training provided for enterprise growth and survival, about71.4% of trained clients said to 61%

28
growing micro and small enterprise. Therefore, those training provided by MF is help to run business,
recording system and monitoring management operations.

To this end, the economic sector is the key one in the growth of MSEs among those sector manufacturing
sector-which-was account about 47.2 % respond to growing, the rest respectively trade, service,
construction and agriculture (table4.7).Firms in manufacturing
And service sectors, located at traditional market and those male-headed grow rapidly than their
counterparts Gebreeyesus (2007).
Generally the binary logistic regression explained the predictor variables association with response variables.
Hence, credits, loan criteria, training, access to market, average sale volume and profits are significant to
growth as well as loan criteria were rejected because of the results and assumptions unrelated.

29
 CHAPTERFIVE

5. SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

The main purpose of this study is to examine the factors that affect the growth of micro and small
enterprise in Nekemte town. This chapter sums up the main findings of the study.
Inacorecase,thestudyofferednumerousimportantissuesonhowtheMSEsoperateinthe town, socioeconomic
characteristics of owners/manager, ages of the respondents, number or distributions of MSEs within
sectors and initial current capital, challenges they have been facing and many other important variables.
The arrangement for the presentation is directed by the hypotheses confirmed for discussion.

5.1. Overview of the Thesis and Its Major Findings

The thesis starts through an explanation of micro finance institutions role in total and to MSEs in
particular.
It was distinguished that access to microfinance institutions products and services is a fundamental element
for the growth of MSEs. Therefore their sustainable expansion was mainly depend on the ability of micro
finance institutions to mobilize resources from small valued to high valued and spend in MSEs activities.
The research reviewed literature on the theoretical ac know lodgment and empirical evidence of the role
of microfinance institutions in enterprises growth, particularly in _MSEs growth. The review
highlighted i n general role of microfinance institutions. This confirms the different roles that micro
finance institution , particularly, Bekenessa Kesse microfinance institutions, play in the growth of MSEs.
In esteem of microfinance institutions, the literature review explained that microfinance were funded to fill
the gap lived among commercial banks and poor or tiny business venture and then improved the
amount of undertaken productive projects. Separately from this the review exposed MF is products
and Services package available to enterprises such as pecuniary services, social intermediation
or non-financial services and firms expansion services.
Further, the literature review illustrated the character and significance of MSEs in economic
g r o w t h . And MSE se x p e n s i o n . The review specified t h e various d e f i n i t i o n a n d meaning of
MSEs across country and venture group. About the meaning it was pointed out that there is single
separation line to classify ventures as micro, small, medium and large. Even though every country has
various descriptions, MSEs assist imperative function in its economic actions.

Since the dimensions and parameters of MSEs Expansion are large and difficult. The growth of MSEs has
acknowledged consequence on job lessens decrease and poverty mitigation as MSEs have. Enormous
contribution in job creation and income generation than large ventures but alter in employment size in

30
MSEs were issue to various limitation suchas financial, working area and other socio-economic
circumstances.
Hence,· appropriate considerate of these issues and situation composes a necessary initial point and
is a means to the formulation of policies, designing of suitable involve men tan drealistic
steps by the government, non-government organizations and others take holders in order to decrease
poverty, joblessness and income disparity as well as to endorse continuing development at micro and
macro levels. Moreover, one of millennium growth goals is mitigate of poverty.

The study of empirical evidence indicated that in spite of the limitedness, MF is essentially firm vital
futures of firm dynamics, like size and development, .and then economic growth. Further, i n t h e
practical fa ct s it was specified that the preceding scurvies any focused on entrance to finance and
hindrance of MSEs, but other than financing function emerged to be in de finite. Finally, in the context of
Ethiopia, especially in Nekemte there is some survey not reliable and compressive study to evaluate the
contribution of MF is particularly Bekenessa Kesse microfinance in MSEs. Based on this gap intend to their gently
research questions’. It was recommended that focusing on the mission for solution of a problem and
research philosophy, a research method could be depend on quantitative, qualitative or mixed approach.
In general, it was famous that the use of particular approach in evaluating a given event is possible to yield
restricted outcomes. Thus, the recent study composed both qualitative and quantitative research
approaches to obtain the advantage of a mixed method approach. Whereas the quantitative feature were
survey (quantitative data), the qualitative feature utilized semi-structure interviews with MF is
managers/officials. With respect to survey, semi-structured questionnaire was circulated between
stratified sample selected MSEs in Nekemte town and a response rate 86.5 percent was accomplished.
On the other .hand, semi-structure interviews with Bekenessa Kesse momicro finance institutions
managers officials were performed at various times in their home office in order to have some
explanations on the subjects that were raised.
As the results of the study joined within formation gathered from MSEs and semi-structure interviews
with micro finance/ Bekenessa Kesse micro finance manager/officials were together utilized in analyzing
the role of microfinance institutions in MSEs growth. Finally, the consequences and investigation reflect
the subsequentma in findings.
Micro finance institution has confirmed an encouraging growth init e x p a n s i o n and outreach. The
number of borrowers, average credit amount has risen in a no table approach. Though, MSEs have an
obstacle in obtaining access to product and service from microfinance institutions specifically Bekenessa
Kesse micro finance incapable collateral and long process of supply. Thus, MF is. Played important
function in development procedure. In the context Ethiopia specifically in Nekemte town, Bekenessa
Kesse microfinance was founded to enlarge access to financial product to lo win come level of people and
small ventures. It also supplied both term loans and repayment loans .It was illustrated that Bekenessa
31
 Kesse microfinance assisted MSEs, specifically small venture that are not accessed from formal source
especially banks, to overcome financing limitations and thus accelerating their growth rate.
More oversupplying financial services, microfinance institutions also supplying social intermediation,
non-financial services, and venture growth services. The mainly often s t a t e causes are low lending
ability, business size was be yond the target and in sufficient funds.
Although, micro and small enterprise growth also examined by internal environment factors; age of
respondent, sex, level of education, work experience and economic sector. Therefore, male owned grew
relatively high rate growth as compared to the female owned MSEs. The MSEs with education level have
higher and higher business experience grew faster.
Finally,the economics sector that manufacturing activities grew faster than the rest economics sector.
Finally, the-association between MSEs growth and the explanatory variables regression analysis
explained seven predictor variables were significant and market competition and average sale volume were
in significant to growth. Mean while, loan criteria and market competition were negatively associated,
whereas the rest were positively associated to growth.

32
 5.2. Conclusions

Micro and .small enterprise has previously been observed from the above mentioned discussions that the
role MSEs play in the economy has extensive recognitions both in the developed and developing countries.
Mainly MSEs contribute towards both job opportunities for labor force and profits generation for the large
parts of unqualified and semi-skilled Labor force. The developing countries have encouraged important
attention between policy makers and practitioners similar.
Eventhoughfinancialfactorsareimperativetoallenterprises, consequences from this survey confirm that both
financial and non-financial services acquired from MFI especially Bekenessa Kesse microfinance has
extremely helped MSEs in Nekemte town and has assisted the allocation of business skills and
innovative ideas, as well as improved the sensitive scarcity of financed amount.
The policy suggestion of this survey is that, microfinance supplies extensively to an improved enterprise
setting by building the business situation more favorable and constricted the resource gap for tiny
venture. Therefore, i t is not hard to letter different helpful policies and strategies beside with
complicated involvement systems now and present in different part of the globe.

5.3. Recommendations
The purpose of micro finance i n s t i t u t i o n to aid the competitiveness a n d durable
development of ventures, and the economic growth of the nation. This helped to attained f or increasing the
private render of services. In this manner the subsequent m a j o r to the MF is and controller of MSEs
sector.
Access to financial and non-financial services has been the key factor to the growth of MSEs. Regarding
to these MFis should provide available and reasonable loan/credits as well as provide the participator loan
criteria for micro and small enterprise in the town.”The analysis results confirms that they were the gap of
gender participation in several of the performance and participation of female was very less in various
economic activities/ sector compared to male controlled MSEs in town. Therefore, the government and
responsible sectors hold enhance female break in the habitually male dominated sector.
The government should undertake the immediately problem of infrastructure growth and maintenance,
found significant well accepted and appropriately organized institutions to make support for micro and
small enterprises in such esteem as; procurement, deliver and distribution of inputs, donate of
domestic/imported machines for utilize on concessional terms, training in many mechanical positions and
generate constructive market situations.

33
 5.4Limitations and Further Research Directions
The downside of this study is in sufficiency of time constraints and short age of money thus as to take out
a careful investigate containing all MSEs growth factors and another economic activities MSEs. The center
of the study also on particular part of the economy that is MSE is another drawback.
Further, the Thesis also overlooks the importance of MF is for medium and large enterprise and
economic development. Among this it is obvious such factors as role of micro finance institutions
Bekenessa Kesse micro finance/ on other parts of economy were not assessed. Lastly this study was not
being the detailed about MSEs instead, it merely examine the contribution of micro finance especially
Bekenessa Kesse micro finance institutions for development of MSEs.
These draw backs l e a d to potential prospect study information. Generally this thesis merely stressed on
the factors affect the growth of MSEs. Consequently, almost all finding arrangement for Micro and small
enterprises sector in the town is remains unknown. Therefore, it is better to assess deeply the factors affect
the growth of micro and small enterprise and economic growth supplies in Nekemte town for future
research.

34
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small firms”, International Journal of Production Economics, Vol. 106 No. 2, pp. 393-408.
The Economist, (2005). The Hidden Wealth of the Poor: A Survey of Microfinance November 15
2005: p. 6

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 Appendixes

Appendix-A
Great Land College
College Of Business and Economics
Department of Business management
Masters of business administration (MBA)
Questionnaire to be filled by the Owners of the enterprises
Dear respondent
This is an MBA research project. The purpose of this study will to conclusive factors affecting the growth of
micro and small enterprises in the case of Nekemte town, East Wollega Zone. This questionnaire is designed
to obtain your perceptions and views on varies aspects of factors affecting the growth of micro and small
enterprises. The information provided in the questionnaire will be handled confidentially and used for
academic purpose only. Hence, you’re genuine and professional contribution will be enabling the research
project to be a successful one.
Please, give your response after reading the instruction carefully for each section and answer every question.
Note that no need of writing your name anywhere.
Thank you in advance for your genuine opinion.

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 Great land University
College of Business and Economics
Department of Management

Micro and Small Enterprise s (MSEs) Survey questionnaire

Dear Respondent

This project is entitled "The factors that affect the growth of micro and small enterprises in
Nekemte town". The researcher is Legese Dinka who is currently MBA student at Great Land University
College
The purpose of this study 1s to examine the factors that affect the growth of micro and small enterprises
long run relationship among microfinance institutions ,trade and industry offices and Micro and Small
Enterprises growth in Ethiopia, particularly in Nekemte town. To supplement the information obtained
from microfinance institutions by means office-to face interviews, the researcher aspires to collect
important data from Mses Operator’s m Nekemte town using a self-administered questionnaire.

Participation in this study is totally voluntary. The i n f o r m a t i o n you provide was kept confidential
andusedonlyforresearchpurpose.Personalanswerswerenotbeingrecognized in the researcher's thesis.
Part I. Background information of respondents
1. Academicstatus:A. Certificate B .Diploma C. vocational training
D Bachelor degree & master E. Other.
2. Sex: A . Male B. Female
3. Age: A. below20 B. 20-30 C.30-40D 4 1 -50E.above50
4. How many years have you been operating in this enterprise?
A. 1-3 B. 3-6 C. 6-10 D. above10years
5. What is your present position in the enterprise? . A . Manager B. Owner C. Sales person D
Other E . please specify..................................... ...........................
6. What is the major operating activity of your enterprise? A . Agriculture B .Manufacturing
C. Trade D Service E. Construction.
7. Form of business: A . Partnership B sole proprietorship C. Cooperative organized by
Government D share company E. other F. specify..............................

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8. How do you label the pattern of growth of the firms? Growing D Remain the same D. Deteriorating
0other 0, please specify......................................................
9.If your answer is 'Growing',toquestion#8,in what dimensions your business is growing? D Growth in
terms of enterprise size D Growth in terms of volume of assets and wealth0 Growth in terms of
profitability 0 Growth with respect to number of employees 0.
10.Ifyouransweris'Declining',to question#8,in what dimensions your business is declining? D Declining in
terms of enterprise size 0 Declining in terms of volume of assets and wealth D Declining in terms of
profitability D Declining with respect to number of employmees D.
11.Does the working condition of the enterprise adequate for you?Yes D No D Don't Know D.
12.Which of the following factors have the most significant impact on your business growth?
(Multiple responses possible, arrange in order of importance) Access to finance D Available
working area D sufficient input D Lack of skilled labor D Lack of Innovative skills D Access to
market D others D (If any), mention it...............
13.Can you access credit from any micro finance institutions? Yes D, No D Don't know D.
14.If your answer to# 13 is yes, is the loan of micro finance institutions provide for your enterprise
is sufficient? Ye sD No D Don't know D.
15.What are the criteria that microfinance institutions employ to give credits?(Multiple responses
possible) Collateral Business plan D Permanent job area D other D(if any) please mention
it..................................................................................................
16.Loan obtained from micro finance institutions are most usually utilized for ,Procurement Of inputs/raw
materials D Acquire fixed assets(like machinery, business building) D Payment of loans D For family
consumption D.
17. Did you ever get any type of proper training in your organization related to your
Working? Yes D No D.
18.If your answer to#20is'yes',what type of proper training important to improve the growth of your
enterprise?(Multiple responses possible) Education on illiteracy Production skills D Management
Skills D Financial skills especially bookkeeping Financial management D e)other (if
any).........................................................
19. How do you rate the level of market competition in past seasons in the area which your firm
engaged in? Very strong D Strong D Fair/Moderate D Wekly D Very Weak D.
20.What was the maximum sale volume that you rent enterprise reported during the last fiscal year?
less than or equaltoBr.10,000 D Br.10,001-50,000 D Br.50,001-100,000D above Birr100,001 D.

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21. On average the sales volume that your enterprise reported during the last fiscal year sales?
Increased greatly increased stayed the same decreased De creased greatly.
22.Does your enterprise during last year per for me high profit? Yes D No D Don't know
23.Can MFI loan is important in your enterprise growth? (Multiple response possible) Building family
assets, (health and education) increasing group property Enhancing enterprise profit ability proving
saving habits of members Other (if any), specify....................................................::.·..
24. Name three things you like most about the Micro finance program: Low in tersest rate
Rearrange loan size Provide proper training Provide individual loan Make loan for family
consumption
25. Name three things you like least about the Micro finance program: Loan supply by group Long
process of loan supply High interest rate Low amount of credit
26. Why does your organization prefer to finance its operations from micro finance
Institutions?...............................................................
27. Does micro finance institution have special resource sin tended for your enterprise Expansion which
was not specified in above questions?........................
28. What is the contribution of the micro finance institution sin your enterprises expansion?
29...What is the impact of micro finance institutions financing ability on the growth of micro and small
enterprises? ...............................................................................................

Thank you!!!

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 Semi-structure Interviews questions prepared for micro finance institutions
1.Does your organization have special products /services designed for MSEs?

2. What are the instrument; mechanisms or criteria using in your organizations for financing to
MSEs?................................................................................................
3. Does your financial/non-financial services really as sufficient and as effective in making for the exact
wants of MSEs?..............................................................................................·
4.Do you believe modalities for their solution of the challenge met by MSEs in accessing Micro finance
institutions products /services...........................................................