This study examines the role of microfinance in financing small and medium enterprises (SMEs) in the city of Gorodola Harakallo. Due to financial and time constraints, the scope of the study is limited to small and medium enterprises in the city.
Source of Finance for SMEs
Development of SMEs
The contribution of SMEs has created jobs and thus reduced unemployment in the country. These companies are typically accepted in the world, especially in developing countries to reduce unemployment and create jobs. Burns continued “the small number of entrepreneurs who started small businesses, grew them and perhaps became millionaires in the process.
Initially, they contributed to increasing production, providing value-added activities in the industrialized sector, providing jobs in the service sector, and helping to expand the countries export item. Most of the productive poor and unemployed become self-employed in order to improve their lives and the lives of their families, this measure later contributed to a rapid and better reduction of unemployment. Unemployment in the country is falling again due to the fact that young people are being forced to start their own businesses.
Developments and Policy of SMEs in Ethiopia
Small and medium enterprises (SMEs) as academically known over the years have had a great influence on the lives of individuals of the world's economy, especially developing economies such as African countries. The GTP has placed the development of MSMEs as one of the seven identified growth pillars of the country. The excursion made in the MSE strategy of Ethiopia briefly shows how big the role of MSEs is in the whole economy.
The release of the White Paper shows recognition of the SME sector's importance to the overall economy by the government (MTI, 1997). Some of the MFIs are growing into large banks, thereby mobilizing large deposits and giving larger loans to the bulk of SMEs.
Role SMEs in Economic Developments
According to various authors, SME policy is based on inadequate information about the diversity, size, role and main constraints of the sector. In addition, there is a disparity between policy and practice regarding the implementation of the White Paper, which demonstrated that the level of national government commitment to support SMEs in terms of tangible measures such as access to finance, skills development. This approach to combating poverty through the development of small businesses is based on the promotion of four elements of work, namely productive and paid employment;
To improve the quality of life of the poor by providing access to financial and support services. The offer of credit is much lower than that requested by SMEs, because the lending capacity of most MFIs was small.
Linkage between Microfinance and SMEs
According to a report released by the World Bank (World Bank, 2015), small firms face greater challenges in obtaining formal financing than large firms; they are much more likely to be turned down for loans and are less likely to have external financing due to a lack of security and credit history. Critical issues identified in MSEs were: a poor repayment culture, their inappropriate use of credit and a lack of experience in using credit to improve competitiveness. In addition, the limited efforts made by ULGs to achieve better repayment rates further complicated the problem, such as lack of a system for prior identification, and assessment of creditworthy borrowers, and lack of capacity to engage at raising awareness, training.
Many were built using poor building designs on sites that lacked title deeds, many did not have access to basic infrastructure and services (water and electricity), had inadequate land supplies, and built structures were not designed for industry-specific requirements. Microfinance has consistently proven to be one of the most effective strategies for the growth of SMEs in developing countries.
Research Design
Without financial services to boost their productivity, the poor can never develop their microenterprises into businesses that help them escape poverty. Therefore, by providing small loans to very poor families to invest in their micro-enterprises, poverty can be lifted. They use these loans to establish, establish, maintain or expand very small, self-sustaining businesses. This chapter focuses on the researcher in implementing the research methodology used for the study and also discusses the methods the researchers used to collect data for the study.
Deals with the research design, sample size, sampling techniques, data collection tools, data analysis and presentation.
Source of Data
Sampling size
Sampling technique
Cluster sampling technique
Data collection tools
Questionnaires
Data Analysis and presentation
It is also from this point that the researcher looked for meaning in the data and often related findings to previous studies to see if they supported existing research.
Data analysis and presentation 1 Introduction
General characteristics of the Respondents
- Age of Respondents
- Gender of the respondents
- Marital status of the respondents
- Level of Education of Respondents
- Source of capital to start the business
- Sources of fund to run the business
The characteristics of the respondents by gender showed that 54% of the SME members were male and 46% were female. Respondents had to indicate their marital status. The question was intended to give the status of the business owner who runs the SMEs in Harakallo town. Education level is important because it helps researchers determine the expertise and specialization of most of the business owners and managers in this field.
The researcher had to investigate that role of the microfinance accessibility on the financing of the SMEs' growth. The question was intended to ascertain how most of the SMEs finance their operation and expansion as they do.
Level of education
Year to Start Business
The results show that the majority of the respondents in this study were involved in small and medium enterprises in 2008/16. Another respondent involved in this small business was in 2009/17 and remaining was 2010/18 tend to run their own business starting in 2010/18. The. It is estimated that the life span of survival for small business is at least one to three years and after that this type of small business starts to grow rapidly.
As shown in the table above, most of the respondents in this study started their business in
Sources of fund to Run the Business
Type of business operated by Respondents
This study wanted to understand the types of business operated by the respondents in order to get better income to support their family and then a question was asked to gather information on this matter. Business which is clearly defined based on the distribution of respondents regarding their types of economic activities in which they are engaged.
Start- up Capital of the business
Types of business operated
In this regard, the survey results show that the minimum start-up capital of the respondents was only 4 (8%) of the respondents. The main objective of this venture is to create employment by increasing the income level of the respondents participating in small and medium enterprises. From the survey result, the table above shows that out of 50 respondents, 14 (28%) of the respondents in the enterprises were engaged in daily labor before joining their enterprise.
Overall, the figures show that SMEs are an important instrument for the absorption of the unemployed labor force and for those who have completed or are unable to complete their education in secondary schools or colleges/universities, as well as for those who do not have permanent jobs such as day laborers. workers. .
Start-up capital of the business
Motivation to engage respondents in this enterprise in this study, researcher attempt has been made to get some information which may throw some light on the reasons as
Most of the operators entered their current business activities because they were unemployed, 10 (20%) of the respondents were engaged in their current business activities. Thus, unemployment turns out to be the main factor underlying the motivation to engage in small and medium enterprises in the study area. Moreover, 24 (48%) and 16 (32%) of the respondents are engaged in this sector to have a better income and because of family poverty respectively.
Most of the respondents cited better income and family poverty as the reason for joining this company.
Respondent’s revenue or productivity earned
Motivation to engage respondents in this enterprise
Income of respondent before getting loan
Respondents had to provide the average income of their business before receiving a loan. 34% of the respondents stated that they had an income between 401-700 per month, 22% of their income had no income and the remaining 14% and 12% of them had monthly income was less than 400 and greater than 1000 respectively. As a researcher to find the result, to see the contribution of SMEs that change the income of the respondents, it is very important to assess the income of the respondents before they get loans. While 7 (14%) of the respondents reported that their monthly income was less than 400 birr and 6 (12%) of the respondents earned more than 900 birr.
The remaining 9 (18%) of respondents had no income at all because they were students and unemployed.
Income of Respondent after loan
- Reason for Income of Respondent decrease after loan
- Reasons for income of respondents increase after loan
- Gross sale volume per month
From all the respondents, they answered that this happened because of their personal problem, because they did not take SMEs seriously as a basic means of their life, that the factor for reducing their income was the respondents who said that the reason was the lack of funds and because of low of income or The remaining respondents explained that the loss of capital had a negative impact on their monthly income. In this study, of all respondents whose incomes increased or greatly increased, several percent indicated that the reason for the increase in income was income from small businesses/enterprises, and only a few others indicated that they had additional income as an SME.
In this study, the researcher finds that 40% of them indicated that 12-16 of their annual profit was contributed by the use of credit. Another 36% of them indicated that over 16% of their annual profit was contributed by the use of microcredits in their business.
Income of respondent after loan
The Role of SMEs in the Operators and members of the Enterprises
- The Role of SMEs in Improving the Living Conditions of Operators and Members of the Enterprises
- Respondent is sufficient to support the living condition
- Respondent saving habits
- Respondents’ Source of money of saving
- Respondents’ were saving
- Respondents for what purpose to use save?
This study attempts to explain the role of SMEs in improving the living conditions of the respondents. In this part, the influence of income from companies on the living conditions of Operators and members of the companies is assessed based on the actual data collected from the collected data survey companies. On the other hand, only 3 (6%) of managers/operators and members of the companies do not save.
In general, it can be concluded that the highest share of savings indicates that the respondents want to start their own business or shift to other SME sectors. On the other hand, this indicates an improvement in their incomes and shows the potential of SMEs to reduce poverty.
Summary of Chapter Four
It aims to improve the saving culture of operators and enables them to transfer to other sectors of the economy such as manufacturing, construction, textile etc. This part also describes the conclusions and recommendations of the study with the designed research objectives and the analysis done. On the other hand, SMEs have improved the savings of the respondents through the increase of the operator's income and moreover they can also save a part of their income.
In case of embezzlement, they should compensate the amount spent for other purposes in time to adhere to the purpose of the loan. 10] Cowling, M (2003), The contribution of the self-employed to employment in the European Union: a report for the Small Business Service.
