DETERMINANTS OF ACCESS TO FINANCE IN SMALL AND MEDIUM ENTERPRISES: EVIDENCE FROM ADDIS ABABA CITY ADMINISTRATION, ETHIOPIA

Abstract

The main objective of this study was to assess the major determinants of access to finance in small and medium enterprises in Addis Ababa city administration, Ethiopia. The study was designed as explanatory and employed the quantitative approach, in which stratified sampling was employed to select 368 samples of enterprises from the overall target population of manufacturing, construction and trade enterprises in Addis Ababa. To collect the necessary data primary sources of data were utilized. More specifically, in order to find out major determinants the study uses Statistical Package for Social Science version 26 to run Binary Logistic Regression Model. The major finding of the study shows that there exist positive and significant relation between attitudes of owner manager to loan, firm relation with fund providers and maintaining a book of records. On the other hand, collateral and documentation has a negative significance on access to finance. Finally, this study suggests that SMEs shall be strengthen their relationship with fund providers starting from the easiest one, making payments and receipts using checking accounts up to the difficult one creating long term relationships with credit providers. Moreover, this study suggests that the requirement of collateral and documentation by financial institutions shall be considered for harmonization to make inclusiveness among small and medium enterprises access to finance. And to be effective this government should work in collaboration with financial institutions to solve this problem and ease lending procedures.