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Financial Access to Micro and Small Enterprise Operators: the Case of Youth-Owned Firms in Ethiopiat

Abstract: 

The government of Ethiopia has been providing financial access to micro and small enterprises through microfinance institutions. Despite the financial services support given to MSEs, lack of access to finance remains the main usiness challenge limiting the expansion of the self-employment sector in Ethiopia. This paper aims to study what financial sources are available to MSE operators and examine what factors drive access to credit. Quantitative information was collected from a sample of 909 youth MSE operators and a descriptive and econometric model was applied to examine sources of finance, factors influencing access to loan, and constraints of accessing financial services. Only very few operators (about 8.7%) used borrowing from the formal sector as a source of funding their investment. The result of the study shows that inadequate collateral and difficulties in proving their credit worthiness or absence of credit history were by far the main reasons that discouraged youth MSE operators from submitting applications for bank loans, followed by difficulties in processing loans and the high cost of borrowing. The regression results indicate that age, type of enterprise, and possession of a business plan by the youth MSE owners are significant variables influencing the likelihood of taking a loan. In other words, as age increases, the probability of the MSE operator to take a loan tends to increase. Type of enterprise was found to have a negative effect, indicating that operators in microenterprises have lower probability of taking credits than those engaged in small enterprises. The finding of the study also reveals that the age of the owner, the type of the enterprise, migration status, the location of the business, and the presence of a business plan were statistically significant variables influencing the size of credit accessed by the operators. There is a need for a deliberate intervention and a tailored support program by government and development partners, on the basis of size and gender, to improve financial access to the youth MSE operators without distorting the financial market and ensuring the sustainability of the finance providers.

Corporate Author: 
Ethiopian Economics Association (EEA)
Publisher: 
Ethiopian Economics Association (EEA)
ISBN/ISSN: 
1993-3681
Primary Descriptors: 

Micro and Small Enterprise

Secondary Descriptor: 

Youth owned firms

Geographic Descriptors: 
Ethiopia
Cataloge Date: 
06/21/2018
Broad Subject heading: 
Microfinance institution - Ethiopia
Call Number: 
330.5 ETH JOU 2018
Serial Key Title: 
Ethiopian Journal Of Economics
Publication catagory: 
Content type: 
Volume: 
XXVI
Year: 
April 2017
Publication date: 
2018-04-02 00:00:00
Number: 
1
Place of publication: 
Addis Ababa
Type of material: 
Book
Current frequency: 
Semiannual