FACTORS AFFECTING CREDIT ACCESSIBILITY OF SMALL AND MEDIUM ENTERPRISES IN SOUTH WEST SHOA ZONE

Abstract

The purpose of this study is to investigate factors affecting credit accessibility of small and medium enterprises in south-west shoa zone. The main research objectives addressed in this study were: - To identify the extent of collateral requirement, how credit facility non-awareness, structure of financial sector, and distances from financial institutions affect credit accessibility, and to what extent management competency and small business support influences credit accessibility of small and medium enterprises in South West Shoa Zone. The study adopted both descriptive and explanatory research design. The population of the study consists of 1,193 Small and medium enterprises registered on Enterprise and Industry Development office of south-west shoa zone and Woliso Town Enterprise and Industry Development office. Stratified sampling technique has been used by dividing the population into two geographical areas to determine the total sample size of 299 enterprises. Both quantitative and qualitative data were used in the study. Data was collected using research questionnaires from sample selected of SMEs based on sampling techniques and structured interviewees conducted with 9 Banks and 6 microfinance institutions operating in the zone. Descriptive statistics was used to analyze data including frequencies, percentages, mean, standard error and confidence interval. Quantitative data were entered; cleaned and analyzed using stata13 version statistical software and using econometrics model; correlation and multiple regressions were used to show the relationship between variables. The study was employed credit accessibility as a dependent variable; while collateral requirement, credit facility non-awareness, structure of financial sector, distance from financial institutions, management competency and small business support were used as independent variables. The findings of the study shows collateral requirement, credit facility non-awareness, and structure of financial sector and distance from financial institutions have significant negative relationship, and management competency and small business support have positive relationship with credit accessibility of small and medium enterprises. The study recommended; financial institutions needed to consider receivable, inventory, equipment, and personal guarantee can be pledged as collateral, small and medium enterprises themselves take time to search for other financial institutions than limiting themselves to government microfinance, the concerned government body needed to make small and medium enterprises exhaustive awareness about credit facility in order to minimize his burden on small and medium enterprises in the country, financial institutions were needed to make exhaustive advertisement about credit terms and types they were providing, financial institutions needed to recognize small and medium enterprises up on organization of their structure, setting cost of financing, credit risk mitigation, setting credit policies and procedures, and liquidity risk calculation, financial institutions were needed to open their branches near to small and medium enterprises location, small and medium enterprise owners or managers needs managerial training to make sure their businesses are stable, and government needed to support small and medium enterprises in giving resources, market linkage, legalization and leasing.