The Effect Of Microfinance Institutions Servicies’ On The Growth Of Small And Micro Enterprises: The Case Of Sebata Town, Oromia, Ethiopia

Abstract

SMEs play significant role to the economic stability and development of emerging economies, and access to financial services is crucial to their growth and performance. This study seeks to ascertain whether MFIs’ services such as loans, savings, and training have significant effects on the growth of SMEs in Sebeta town Oromia surrounding special zone, Ethiopia. The study adopts descriptive and explanatory research designs. Both qualitative and quantitative research approaches were employed to conduct the study. The sample size of the study was 94 SMEs owners and managers selected using simple random sampling method from 1803 population. The participated respondent rate was 86.1%. Structured questionnaire and semi structured interview techniques were employed for the data collection purpose. Furthermore, both descriptive and inferential statistics were used for the data analysis purpose. Multiple regression analysis was used to determine the relationships between credit, savings, training and growth of SMEs. The study R 2 value is 0.88 (88%) which implies that 88 percent of the variance in growth of small businesses is explained by independent variables. The study results show that credit (β=0.607) and saving (β=0.424) contributed positively and significantly to SMEs growth. However, the effect of training (β=0.035) on the SMEs growth was not statistically significant. This could be attributed to training that is not based on the real needs of SMEs. The study found that amongst the MFIs’ services, MFIs loan (credit)service was the greatest influence, followed by saving. Therefore, Microfinance Institutions are suggested to provide relevant training to their clients on the entrepreneurial skills so as to enhance their skills as a large proportion of the respondents were found to be certificate holders of high school graduates, hence, they lacked the necessary business management skills. The MFIs are also recommended to look for cheap sources of funds and extend loans at reasonable interest rate as well, MFIs’ have to diversify the types of collateral request to embrace and address the problems of huge unemployment that hasn’t been addressed yet.