The Influence of Micro Finance Institution on the Development and Performance of Micro and Small Business Enterprises in Addis Ababa (Ethiopia)

Abstract

Micro and Small Enterprises are engines for both developing and developed countries according to their SMEs definitions but many developing countries SMEs face major challenges in Africa and also in Ethiopia, is formulating appropriate development strategies that will capture the financial service requirement of Micro, Small and Medium Enterprises which will accounts 80% of the business sector .Delivery of credit for Small and Micro Enterprises for developing countries like Ethiopia is increasingly being viewed as a strategic means of assisting the working poor society. Over ten years a considerable amount of multi and by lateral support has been channeled in to micro finance in Ethiopia (Addis Ababa) with a varying degree of success. Like all development intervention evaluation and impact assessment studies to ascertain achievement and failures of this programs would help a lot for further programs design in Ethiopia(Addis Ababa), the SMEs sub-sectors has tremendous growth in terms of income, capital accumulation, employment opportunity, business diversifications, up grading capital goods e.t.c. The Small and Micro Enterprises has there for attracted great attention of financial services providers to extend a range of financial offer for this target groups. However, little isstill know of contribution of Micro Finance Institutions for the development and performance of the Small and Micro Enterprises. The study sought to establish the influence of Micro Finance Institution on the development and performance of Small and Micro Enterprises in Addis Ababa (Ethiopia). The study employed both qualitative and quantitative data analytical methods, and a multiple regression was run to estimate the effect of Financial Institutions on the development and performance of Small and Micro Enterprises to source of credit and contributed to their development and performance in terms of productivity, competitiveness, profitability, introducing new technology, up grading capital goods, in increasing their market share and diversifying their business. It is recommended that there is a need of institutionalized public-private partnership for crating conducive business working environment for SMEs operations this will reduce on the numerous constraints challenging Small and Micro Enterprises so as to make the national benefits from their overall contribution to poverty reduction and creating employment opportunity. Thus the government and MFIs should develop the quality and accessibility of the service of supporting institutions by assigning employees that have accurate knowledge in the specific area to identify the SMEs gaps and to provide continuous follow up of the development and performance of Small and Micro Enterprises.