Global Journal of Management and Business Research: C

Finance
Volume 17 Issue 7 Version 1.0 Year 2017
Type: Double Blind Peer Reviewed International Research Journal
Publisher: Global Journals Inc. (USA)
Online ISSN: 2249-4588 & Print ISSN: 0975-5853

Challenges for Small and Micro Enterprises in Accessing

Finance (Case of Wolaita Soddo Town)
By Mesele Kebede Manaye & Mesifin Gebre Tigro
KIIT University
Abstract- Small-scale enterprises have become an important contributor to Ethiopia’s economy. The purpose of this
paper was to bring to light one of the major prerequisites, namely access to finance aspects, of the small scale
enterprises which are foundation in accelerating economic growth. The main objective of the paper is to identify the
challenges that small businesses in Wolaita soddo town face in accessing finance from financial institution through
identifying the dominant means of financing small businesses and factors influence the extent of accessing finance.
This study would have adopted descriptive statistics and econometric analysis. The target population would have
been drawn from all micro and small enterprises in Wolaita Sodo town. The data for this study would have been
gathered through the use of primary and secondary sources from 282 respondents. The study would have used
stratified random sampling technique to select the sample. Both quantitative and qualitative data analysis methods
were adopted. Besides, descriptive statistics, the linear regression model were used to determine the covariates of
the likelihood of having a loan from a formal financial institution. From the study findings, it can infer that, sources of
initial capital influences accessibility to credit facilities to a great extent followed by purchase of fixed assets financed
by and major obstacles of SMEs access to credit facilities. This study recommends that the credit giving institutions
come up with programs of educating the MSEs on how they can go about obtaining credit facilities.
Keywords: Access to Finance, SME’s, Challenges, Wolaita Sodo Town, Ethiopia.

GJMBR-C Classification: JEL Code: E59

ChallengesforSmallandMicroEnterprisesinAccessingFinanceCaseofWolaitaSoddoTown
Strictly as per the compliance and regulations of:

© 2017. Mesele Kebede Manaye & Mesifin Gebre Tigro. This is a research/review paper, distributed under the terms of the
Creative Commons Attribution-Noncommercial 3.0 Unported License http://creativecommons.org/licenses/by-nc/3.0/), permitting
all non-commercial use, distribution, and reproduction in any medium, provided the original work is properly cited.
 Challenges for Small and Micro Enterprises in
Accessing Finance (Case of Wolaita
Soddo Town)
Mesele Kebede Manaye α & Mesifin Gebre Tigro σ

Author α: Assist. Professor, Department of Accounting and Finance, Wolaita Sodo University, Ethiopia. Ph.D. Research Scholar in Accounting and
Finance, KIIT University, School of Management, India. e-mails: mesiyek2002@yahoo.com, 1781107@ksom.ac.in
Author σ: Msc in Accounting and Finance.

2017
Abstract- Small-scale enterprises have become an important data, this figure constitutes about 3.4% of the GDP, 33%

Year
contributor to Ethiopia’s economy. The purpose of this paper of the industrial sector’s contribution and 52% of the
was to bring to light one of the major prerequisites, namely manufacturing sector’s contribution to the GDP of the
access to finance aspects, of the small scale enterprises 65
same year (Gebrehiwot, 2006).
which are foundation in accelerating economic growth. The
The development of the sector in Ethiopia

Global Journal of Management and Business Research ( C ) Volume XVII Issue VII Version I
main objective of the paper is to identify the challenges that
small businesses in Wolaita soddo town face in accessing believed to be the major source of employment and
finance from financial institution through identifying the income generation for a wider group of the society in
dominant means of financing small businesses and factors general and urban youth in particular. The five-year
influence the extent of accessing finance. This study would Growth and Transformation Plan (GTP) of Ethiopia
have adopted descriptive statistics and econometric analysis. envisages creating a total of three million micro and
The target population would have been drawn from all micro small-scale enterprises at the end of the plan period
and small enterprises in Wolaita Sodo town. The data for this (NBE, 2011). Citing the source from the Federal Micro
study would have been gathered through the use of primary
and Small Enterprise Development Agency (FMESDA),
and secondary sources from 282 respondents. The study
would have used stratified random sampling technique to
the EEA Research Brief noted that seventy thousand five
select the sample. Both quantitative and qualitative data hundred (70,500) new SMEs were established in
analysis methods were adopted. Besides, descriptive 2011/12 employing eight hundred six thousand three
statistics, the linear regression model were used to determine hundred (806,300) people across the country. The
the covariates of the likelihood of having a loan from a formal performance is below the target set in GTP (EEA, 2015).
financial institution. From the study findings, it can infer that, In this project, we analyze the financing gap of
sources of initial capital influences accessibility to credit SMEs in Ethiopia and recommend ways of addressing
facilities to a great extent followed by purchase of fixed assets the financing gap. Specifically, the study addresses a)
financed by and major obstacles of SMEs access to credit
the financing needs and financing options of SMEs in
facilities. This study recommends that the credit giving
institutions come up with programs of educating the MSEs on
Ethiopia, b) Key constraints of SMEs access to finance,
how they can go about obtaining credit facilities. c) extent of banks and MFIs involvement with SMEs, and
Keywords: Access to Finance, SME’s, Challenges, the drivers and obstacles of SME bank financing, and d)
Wolaita Sodo Town, Ethiopia. the impact of existing government policies and potential
areas of government involvement. Unlike many previous
I. Introduction studies that address either the demand side or the

S
supply side limitations of access to finance (see for e.g.,
mall and Micro Enterprises (SMEs) are the
Petersen and Rajan, 1994; Wiedmaier-Pfister et al, 2008;
lifeblood of developing economies. Finance is the
Ngoc et al., 2009; Ghimire and Abo, 2013) this study
backbone of SMEs and any other business
synthesizes the demand side constraints.
enterprise (McKernan & Chen, 2005). Both in the
developing and developed economies small firms have a) Statement of the Problem
little access to external finance and are thus constrained In almost all economies of the world, especially
in their operation and growth (Galindo & Schiantarelli, in developing countries in Africa, micro and small
2003). enterprises are crucial and are a key factor for sustained
The SME sector in Ethiopia is considered as an growth and development. SMEs play pivotal roles in
instrument in bringing about economic transition by creating dynamic, market oriented economic growth,
effectively using the skill and talent of the people employing the growing workforce in developing
particularly women and youth with least training, limited countries, alleviating poverty and promoting
capital and available technology. The Small and Medium democratization. (Obwocha, 2006).
Enterprises sector (SMEs) contributed nearly Birr 8.3
million in 1996 to the exchequer. Based on the 1992/93

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 Challenges for Small and Micro Enterprises in Accessing Finance (Case of Wolaita Soddo Town)

Africa’s SMEs have little access to finance, 3. What are the major challenges that hinder the Small
which thus hampers their emergence and eventual Business Enterprises access to finance in Sodo
growth. Their main sources of capital are their retained Town Administration?
earnings and informal savings and loan associations, 4. What is the mechanism to overcome the challenges
which are unpredictable, not very secure and have little of Small Business enterprise facing with access to
scope for risk sharing because of their regional or sector finance?
based focus. Access to formal finance is poor because
b) Objectives
of the high risk of default among SMEs and due to
inadequate financial facilities. Small businesses in Africa i. General Objective
can rarely meet the conditions set by financial The general objective of this study is to explore
institutions, which see SMEs as a risk because of poor the challenges of SMEs while mobilizing finances to
guarantees and lack of information about their ability to support the venture in Sodo Town and advise the
2017

repay loans. Administration through workable recommendations.

The financial system in most of Africa is under- ii. Specific Objectives
Year

developed however and so provides few financial The study would have the following specific objectives:
instruments. Capital markets are in their infancy,
66 1. Explore access to finance to run the business in
shareholding is rare and no long-term financing is
Sodo Town administration.
available for SMEs. Non-bank financial intermediaries,
Global Journal of Management and Business Research ( C ) Volume XVII Issue VII Version I

2. To identify the means to finance Small Business

such as microcredit institutions, could be a big help in
Enterprises in Sodo Town.
lending money to the smallest SMEs but they do not
3. To dig out the major challenges that hinder the
have the resources to follow up their customers when
Small Business Enterprises in accessing the related
they expand (Kauffmann, 2005).
financial support vis-à-vis Sodo Town
According to the World Bank recent report of
4. To formulate the intervention mechanisms in
Ethiopia, small-scale enterprises are the most
overcoming the challenges of Small Business
marginalized in getting access to financial institutions.
Enterprises and mobilize sufficient financial support
As to the report, the private sector plays a crucial role as
in the study area.
a catalyst for economic change through offering
financing options, which allow firms to expand and c) Significance of the Study
innovate. Despite the role of SMEs in the Ethiopian Considering the significance of SMEs in
economy, the financial constraints they face in their Ethiopia, it is important to understand the challenges
operations are daunting and this has had a negative facing SMEs in accessing credit facilities in Wolaita
impact on their development and limited their potential Sodo Town. The research expected to benefit various
to drive the national economy as expected. This is groups of stakeholders as follows:
worrying for a developing economy without the requisite  The research would have enable the policy makers
infrastructure and technology to attract big businesses to come up with a viable and focused
in large numbers. entrepreneurship strategy that can help SMEs
Thus, this research is attempted to analyze the access to credit facilities. The study would have
gaps in accessing the finances by SMEs in Ethiopia and help develop a University and SME interface to
recommend measures to bridge those gaps. boost the sector by encouraging young graduates
Specifically, the study aims to address the financing in exploring employment potential.
needs, key constraints in accessing finance, and the  The study would have be a source of reference for
extent of involvement of banks and MFIs in driving away future research
the obstacles thereby creating a room for reforms in  The research would have come up with products,
Government policies. Moreover, unlike many previous which are tailor made to fit into entrepreneurship
studies that address either the demand side or the financial needs.
supply side limitations of access to finance (see for e.g.,  To stakeholders like financial institutions, investors,
Petersen and Rajan, 1994; Wiedmaier-Pfister et al, 2008; shareholders, employees, pressure groups, etc., the
Ngoc et al., 2009; Ghimire and Abo, 2013) this study research provides information for suggesting
synthesizes both the demand side and supply side improvement in service delivery of the respective
constraints. Hence, this research guided by the credit facilities providers in Wolaita Sodo Town.
following basic research questions.
1. To what extent Small Business Enterprises have an II. Literature Review
access to finance to run the business in Sodo Town Access to external sources of finance may
administration? increase growth possibilities since it facilitates the
2. What are the means to finance the Small Business development and improvement of firm’s products and
Enterprises in Sodo Town? services or hire new employees. In transition economies,

© 2017
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 Challenges for Small and Micro Enterprises in Accessing Finance (Case of Wolaita Soddo Town)

the development that financial markets experience may Gitari, (2012) in her study on factors affecting
create barriers linked to the access to finance. Hence, women entrepreneurs’ financial performance in Kenya: a
academic research considers financial constraints as an case of Ngara Market found out that lack of information
important obstacle for entrepreneurship and firm growth. on who is offering what and the cost of obtaining such
Empirical evidence supporting the importance of access services limit them and that high inventory costing are
to external finance for business growth can be found in some of the major drawbacks for success in women
Brown, Earlem & Lup, (2005), who examines firm growth entrepreneurship. The high cost of running the
determinants. Conversely, Johnson, McMillan and entrepreneurs is a big threat to the women development
Woodruff (2000) evaluate institutional reforms in five due to lack of adequate capital and on the other hand
Eastern European countries (including Romania), and lack of information on how to access funds to boost the
they conclude that access to bank finance does not business also is a major threat. At Wolaita Sodo town
prevent business growth. (2017), did a study on factors affecting the performance

2017
Lack of access to credit facilities is almost of SMEs traders at Wolaita Sodo town, Ethiopia. The
universally indicated as key problem for small and micro study concluded that access to finance affected

Year
enterprises. In most cases, even where credit is performance of SME’s largely because it limited the
available mainly through banks, the entrepreneurs may entrepreneurs’ ability to take advantage of opportunity
lack freedom of choice because the banks’ lending as and when they arose. 67
conditions may force the purchase of heavy, immovable

Global Journal of Management and Business Research ( C ) Volume XVII Issue VII Version I
equipment that can serve as collateral for the bank. III. Conceptual Framework
Credit constraints operate in variety of ways in Kenya  A conceptual framework is a product of qualitative
where undeveloped capital market forces entrepreneurs process of theorization, which interlinks concept that
to rely on self-financing or borrowing from friends and together provides a comprehensive understanding
relatives. Lack of access to long-term credit for micro, of a phenomenon or phenomena (Jabareen, 2009).
small and medium enterprise forces them to rely on high  The concepts that constitute a conceptual
cost short term finance (Wanjohi & Mugure, 2008). framework support one another, articulate their
Matavire et al., (2013), in their study on respective phenomena, and establish a framework-
challenges facing SMEs in accessing finance from specific philosophy that defines relationships. The
financial institutions: The case of Belaway, Zimbabwe conceptual framework of this study relates to
found out that SMEs fail to secure loans because of independent variables; collateral requirements, cost
restrictive requirements of the financial institutions, top of credit, availability of information on finance,
among them being collateral security. Among their business risks and the dependent variable; access
recommendations is that the government should play its to credit facilities by micro and small enterprises in
role of enabling SMEs to obtain finance from financial Wolaita Sodo
institutions. Makena, et al., (2014), in their study on
challenges facing women entrepreneurs in accessing IV. Research Methodology
business finance in Kenya: Case of Ruiru Township, a) Research Design
Kiambu County, lack of collateral was one of the This study would have adopted descriptive
objectives. However, the study found out that lack of statistics and econometric analysis. The target
collateral was a greater hindrance to credit accessibility population would have been drawn from all micro and
by women entrepreneurs. This is due to lack of tangible small enterprises in Wolaita Sodo town. Currently the
assets like land, which used as an asset to secure total micro and small enterprises registered with Wolaita
credits. Among their recommendations is that the Sodo Town is 957. The businesses in operation are
government should play its role of enabling SMEs to mainly in manufacturing, construction, trade, service
obtain finance from financial institutions. and urban agriculture.

Table 3.1: Shows Population and sample of the study

Type of business Population Sample size(n)
Manufacturing 135 40
Construction 230 68
Trade 223 65
Service 295 87
Urban Agriculture 74 22
Total 957 282
Source: Field Survey, 2017

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 Challenges for Small and Micro Enterprises in Accessing Finance (Case of Wolaita Soddo Town)

H1: Sources of initial capital are not due to challenges of

b) Data Type
Small and Micro Enterprises in accessing the required
The data for this study would have been
finances.
gathered through the use of primary and secondary
H2: Availability of information on finance is not a serious
sources. The primary data source for this study involves
challenge for Small and Micro Enterprises in accessing
the use of questionnaire. The questionnaires would have
the required finances
been distributed to SME operators and/or owners for
H3: The major constraints to SMEs are not a serious
first hand information for processing towards answering
challenge for Small and Micro Enterprises in accessing
the research questions. The questionnaire would have
the required finances.
been divided into three sections.
f) Data Analysis and Interpretation
c) Sampling and Sampling Techniques
i. Data Analysis
i. Sample Size
2017

Under this section, the process by which

Sample sizes for survey data would have been
outputs are generated through three steps: preparing
calculated using simplified formula for determining
Year

data for analysis, analyzing the data, and interpreting

proportional sample sizes survey (Gay et al., 2009). The
the output data, i.e. testing the research hypothesis and
formula used to calculate the sample sizes, where a
68 drawing valid inferences. Qualitative analysis consisted
95% confidence level and P = 0.5 are assumed in the
of examining, categorizing, tabulating and recombining
calculation. Described by Yemane (1967), a simplified
Global Journal of Management and Business Research ( C ) Volume XVII Issue VII Version I

evidences to address the research questions.

formula for calculating sample size of a population
Qualitative data grouped into meaningful patterns and
proportion is unknown that is given.
themes that observed to help in the summarizing and
N = the population size organization of the data.
n = the sample size Quantitative data analyzed with statistical
= is the level of precision techniques such as frequency counts, percentages,
N = 282 arithmetic means, standard deviations, bar charts and
ii. Sampling Techniques tabulation to show differences in frequencies. Qualitative
The study would have used stratified random data would have been analyzed descriptively with
sampling technique to select the sample. The study questionnaires. Statistical Package for Social Sciences
would grouped the population into strata. From each (SPSS) version 20 was used to aid in coding, entry and
stratum, the study used simple random sampling to analysis of quantitative data obtained from the closed
select 282 respondents. This sampling design would ended questions.
have been used because the population of study would Besides, descriptive statistics, the linear
have not homogenous and was to be sub-divided into regression model would be used to determine the
sub-units namely manufacturing, construction, trade covariates of the likelihood of having a loan from a
service and urban agriculture. Kothari (2004) formal financial institution. The linear regression model is
recommends stratified random sampling because it is extremely flexible and widely used function, and leads
accurate, easily accessible, divisible into relevant strata itself to meaningful interpretations when the dependent
and it enhances better comparison; hence variable is dichotomous outcome. It is a powerful tool in
representation across strata. Another advantage of its ability to estimate the individual effects of the
stratified random sampling is its ability to ensure continuous or categorical variables on the qualitative
inclusion of sub-groups, which would otherwise be dichotomous dependent variable (Wright, 1995). The
omitted entirely by other sampling methods because of dependent variable in model is whether SME’s benefit
their small number in the population. from banking facilities or not. It is a categorical variable
with a value of 1 when a SME’s benefits from banking
d) Data Collection Instruments facilities and 0 otherwise. This is regressed against
The study would have used questionnaire to factors that possibly limit a firm’s access to bank loan.
collect data. Questionnaires would have been The model specified as follows:
constructed based on the research objectives. The
questionnaire contained closed-ended questions using Formula: Zi = β0 + xji + µi
a Likert scale (ranging from 1 = highly disagree;
2 = disagree; 3 = neutral 4 = agree; 5 = highly agree). Where Zi is the dependent variable with a value
of 1 when firm i benefits from micro finance facilities and
e) Hypothesis Testing 0 other wise. Xji are a vector of explanatory variables
Research statements are tested using the Z-test which include major obstacle of SME’s, availability of
statistical tool. The tests are measured within 95% financial information, sources of initial capital, working
confidence interval having 0.05 significance levels. The capital financed by firm size and purchase of fixed
following are the hypothesis drawn: assets financed by. Finally, µi is the discrepancy term.

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 Challenges for Small and Micro Enterprises in Accessing Finance (Case of Wolaita Soddo Town)

V. Findings and Discussion population thus the designed questionnaire was tested
on 12 potential respondents (Mugenda and Mugenda,
a) Introduction 2003). To test the internal consistency of the Likert scale
This chapter presents the analysis of data used in this study, reliability analysis was done using
collected from respondents. The collected data was Cronbach’s Alpha as the measure. A reliability co-
edited and cleaned for completeness and consistency efficient of α ≥ 0.7 was considered adequate. A co-
in preparation for coding. Once coded, the data was efficient of 0.761 was registered indicating that the scale
keyed into the Statistical Package for Social Sciences used had a high level of internal consistency. This
(SPSS-20) for analysis. indicated that the scale was reliable enough to test the
b) Results of the Pilot Study extent to which micro and small enterprises faced
challenges in accessing finance facilities. The results of
i. Data Reliability
the reliability analysis are shown in Table 4.1;
A pre-test of 5% of the population size was

2017
conducted to give a representation of the selected

Year
Table 4.1: Results of the Pilot Study Reliability Statistics
Cronbach's Alpha Cronbach's Alpha No. of Items
0.761 0.780 280
69
Source: Field Survey, 2017

Global Journal of Management and Business Research ( C ) Volume XVII Issue VII Version I
The researchers administered 282 that 62.5% of the respondents’ were male while 37.5%
questionnaires and 280 were completed and returned were female. This implied that the male participants
successfully. This represents a response rate of 99.3%. dominated the businesses at Wolaita Soddo town. The
This response rate was adequate to allow the findings also indicated that the researchers observed
researchers to continue with the analysis. The gender balance during the administration of
questionnaires were composed of questions that questionnaires. It reveals that, the SME is largely
addressed the objectives of the study. The study sought dominated by the male participants. Thus, it needs
to establish the influence of major obstacles of SMEs, attention to increase the number of women entrepreneur
sources of initial capital, working capital financed by firm in the SMEs to sustained their economic independence
size, availability of information on accessibility of credit and improve the level of employment of women.
facilities by MSEs in Wolaita Soddo town.

VI. Sex of the Respondents

The study sought to know the distribution of the
respondents by gender. The study findings indicated

Table 4.1: Sex of Respondents

Sex Frequency Percent Cumulative Percent
Female 105 37.5 37.5
Male 175 62.5 100.0
Total 280 100.0
Source: Field survey, 2017

VII. Level of Education then BA 13.6%. This implies that the respondents were
educated enough to understand the issues being
The study also sought the distribution of the sought by the researchers.
respondents by their level of education. The study The results of the study are as shown in
established that most (48.9%) of the respondents’ were Table 4.2.
TVET levels followed by diploma levels at 37.5% and

Table 4.2: Education Level of Respondents

Qualification Frequency Percent Cumulative Percent
BA 38 13.6 13.6
Diploma 105 37.5 51.1
TVET 137 48.9 100.0
Total 280 100.0
Source: Field survey, 2017

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 Challenges for Small and Micro Enterprises in Accessing Finance (Case of Wolaita Soddo Town)

VIII. Age of Respondent the researchers-sought opinions from respondents who

had the age of respondents were enough to understand
The survey result shows that about 66.4% of the challenges faced when trying to access credit
the sampled respondents were under the age of 25-35 facilities. The study findings are as shown in Table 4.3.
followed and 31.1%, 2.5% of respondents were under
the age of <25 and 35-45 respectively. This implies that
Table 4.3: Age of Respondents
Age Frequency Percent Cumulative Percent
<25 87 31.1 31.1
25-35 186 66.4 97.5
35-45 7 2.5 100.0
2017

Total 280 100.0

Source: Field Data of 2017
Year

70 IX. Age of the Company 7.1% of the businesses had less than 6-10 years’
existence. This implies that the researchers-sought
The study further sought to know the duration opinions from respondents who had been in business
Global Journal of Management and Business Research ( C ) Volume XVII Issue VII Version I

the businesses had been in existence. The study found long enough to understand the challenges faced when
out that most (49.3%) of the businesses had been in trying to access credit facilities. The study findings are
existence for below two years followed by 43.6% of the as shown in Table 4.4.
businesses that had been existence for 2-5 years. Only
Table 4.4: Age of the Company
Frequency Percent Cumulative Percent
2-5 years 122 43.6 43.6
6-10 years 20 7.1 50.7
Below 2 Years 138 49.3 100.0
Total 280 100.0
Source: Field Survey 2017

X. Nature of Organization accounted for 23.9% respectively. Manufacturing and

Urban agriculture (14.3% and 8.6%) accounted only.
In this section, the study sought to know the This indicates that the researchers sought views from
distribution of respondents by the nature of business people of diverse businesses to avoid any bias. The
they were engaged in. According to the study findings, findings are shown in Table 4.5.
most (29.6%) of the respondents were engaged in the
service followed by 23.6% of construction and Traders
Table 4.5: Nature of the Organization
Frequency Percent Cumulative Percent
Construction 67 23.9 23.9
Manufacturing 40 14.3 38.2
Service 83 29.6 67.9
Trade 66 23.6 91.4
Urban Agriculture 24 8.6 100.0
Total 280 100.0
Source: Field Survey, 2017

XI. Current Position in the According to the study findings, most (74.3%) of the
respondents were mangers in the organization, 13.6% of
Organization
the respondents were cashier and accountants and
In this section, the study sought to know the secretary were accounted for 2.1% and 10%
distribution of respondents by their position in the respectively. This implies that the researchers-sought
organization. The respondents position within the opinions from respondents who had been in business
organization was categorized in to four categories were mangers and this helped the researchers to get
namely accountants, cashiers, mangers and secretary. their feelings regarding the challenges they faced when

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 Challenges for Small and Micro Enterprises in Accessing Finance (Case of Wolaita Soddo Town)

trying to access credit facilities. The findings are shown

in Table 4.6
Table 4.6: Current position of respondents
Frequency Percent Cumulative Percent
Accountant 6 2.1 2.1
Cashier 38 13.6 15.7
Manger 208 74.3 90.0
Secretary 28 10.0 100.0
Total 280 100.0
Source: Field Survey, 2017

2017
c) Descriptive Analysis of access to finance of Small The study sought to know the extent to which
and Micro Enterprise various factors influenced access to credit facilities for

Year
This part explains the descriptive statistics micro and small enterprises in Wolaita Sodo town. The
based on the factors that affect the access to finance of extent to which the factors influenced access to credit
SME’s. The results for measures of central tendency and was measured on a Likert scale of 1-5 where 1- highly 71
dispersion were obtained from the sample of disagree, 2- disagree, 3- neutral, 4- agree and 5- highly

Global Journal of Management and Business Research ( C ) Volume XVII Issue VII Version I
respondents of manufacturing, construction; trade, agree.
service and urban agriculture are shown in the
following tables.
Table 4.7: Access to Finance SME’s
N Mean Std. Deviation Variance
Y 280 2.088 .7310 .534
X1 280 3.5205 .61876 .383
X2 280 2.41652 .552472 .305
X3 280 2.833333 .6392200 .409
X4 280 3.436 .9595 .921
X5 280 3.800 .6259 .392
Source: Field Survey, 2017

The study found out that the extent of major secure loans because of measure obstacles to access
obstacles influence of access to credit facilities to a to finance, top among them being collateral security.
moderate extent (M = 3.52, SD= 0.731) while source of
initial capital influenced access to financing to a
moderate extent also (M= 3.5205, SD= 0.618). The
influence of working capital financed by firm size was to
a moderate extent (M= 2.41, SD= 0.552) and so did
purchase of fixed assets finance such as internal fund,
owners contribution (M= 2.83, SD= 0.639). Availability
of information like limited information on financial
management and limited training /experience had the
least influence but still it was to a moderate extent (M=
3.8, SD= 0.625). The standard deviations indicated the
extent to which the responses were dispersed from the
mean. Overall, measure obstacles influenced access to
credit facilities only to a moderate extent (M= 3.52,
SD= 0.731. This implies that access to credit was highly
limited by measure obstacles such as lack of skilled
manpower, lack of good telecommunication services,
high interest rate and group guarantee. The results are
as shown in Table 4.6.
These findings are in line with those of Matavire
et al (2013) who their study on challenges facing SMEs
in accessing finance from financial institutions, the case
of Belaway, Zimbabwe found out that SMEs fail to

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 Challenges for Small and Micro Enterprises in Accessing Finance (Case of Wolaita Soddo Town)

XII. Econometric Result

Table 4.8: Result of Linear Regression
Unstandardized Coefficients Standardized Coefficients Collinearity Statistics
Model t Sig.
B Std. Error Beta Tolerance VIF
1 (Constant) 3.456 .421 8.214 .000
X1 -.034 .079 -.029 -.431 .667 .768 1.303
X2 -.190 .089 -.143 -2.132 .034** .754 1.325
X3 -.106 .073 -.092 -1.454 .147 .847 1.181
X4 -.100 .047 -.132 -2.154 .032** .911 1.098
X5 -.038 .073 -.033 -.525 .600 .868 1.152
a) Dependent Variable: Y where as X1, X2, X3, X4 and X5 were independent variables
2017

b) Note: B=regression coefficient, Exp (B) = odds ratio Overall, correct prediction = 95% Sig. = significance S.E = standard
error
Year

Source: Field Survey, 2017

72 NB: X1 = major obstacle of SMEs
X2 = Source of initial capital
Global Journal of Management and Business Research ( C ) Volume XVII Issue VII Version I

X3 = Working capital finance

X4 = Purchasing of fixed asset
X5 = Availability of Information that affects access to finance

In accordance with the above table, it can be i. Recommendations

inferred that the researchers rejects the H1 and H2 as The study findings yielded the following
there is an indication that a strong and significant recommendations in view of the challenges faced by
relationship exists between sources of capital X2 and MSEs when accessing credit facilities for the expansion
major obstacles faced by SMEs X1, as well as the of their businesses.
obstacles faced by SMEs X1 is not due to availability of  The management of banks should stretch further to
information to access finance X5. The scores p = 0.147 more business people so as to be able to serve
and p = 0.6 reveal their significant association and their banking needs. This will serve in increasing
hence we fail to reject the hypothesis. Further, working their chance of securing credit facilities.
capital finance X3 and purchasing of fixed assets X4  Credit provider institutions should come up with
having p values less than 0.05 shows no significant products for MSEs where collateral requirements
association with major obstacle of SMEs X1 and hence are lenient.
alternate hypothesis gets accepted by rejecting the null.  The credit giving institutions come up with programs
of educating the MSEs on how they can go about
XIII. conclusion and recomendation obtaining credit facilities. The study therefore
recommends that the management of these
a) Conclusions businesses should put in place proper accounting
The study sought to establish the extent to practices and adequate internal control systems,
which major obstacles of SMEs, sources of initial which will counter problems of information
capital, working capital financed by firm size, availability asymmetry that make MSEs risky for credit giving
of information on accessibility of credit facilities by MSEs institutions.
in Wolaita soddo town. From the study findings, it can  The management of the institutions should increase
infer that, sources of initial capital influences their product portfolios they offered to MSEs.
accessibility to credit facilities to a great extent followed  The marketing departments should endeavor to
by purchase of fixed assets financed by and major research on the clients' desired options and be able
obstacles of SMEs which influenced access to credit to include the probable and realistic ones onto the
facilities to a moderate extent and then availability of list. This will help to reach out to the MSEs that
information on finance which has an influence in cannot access to credit facilities.
accessing credit facilities for micro and small
enterprises only to a small extent. The study also XIV. Areas for Further Research
concludes further that the respondents preferred to get
their start-up capital from personal savings, relatives The study recommends further research in the
and friends because the collateral requirements and following areas; the effect of initial capital to start up and
high repayment costs by financial institutions. on the profitability of micro and small enterprises; the

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1 Global Journals Inc. (US)
 Challenges for Small and Micro Enterprises in Accessing Finance (Case of Wolaita Soddo Town)

effect of finance to acquire fixed assets on MSEs access 15. International Finance Corporation (2000). China’s
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