Challenges Of Small And Medium Enterprises Lease Financing In Ethiopia: Evidence From Development Bank Of Ethiopia

Abstract

Lease financing is an alternative means of and sophisticated mechanism to fill gaps of finance accessing. The aim of this study was to examine the major challenges of lease financing of small and Medium Enterprises in Ethiopia particularly from Development Bank of Ethiopia. The research focused to assess the overall challenges related to adequacy of leasing laws that challenges the Small and Medium Enterprise leasing business from Development Bank of Ethiopia. In this research, mixed approach; both quantitative and qualitative methods was used. Both primarily and secondary data were used as evidence for the research. Primary data was collected by questionnaire and interview; whereas secondary data was collected by document analysis. 125 respondents were selected as sample size of the research. Out of the sample size of 125 questionnaires were distributed for the respondents of the research, 108 questionnaires were returned for analysis only 17 questionnaires were not returned for analysis. To select the sample respondent’s purposive sampling techniques was used due to it’s an essential for the research objectives. The data would be analyzed through descriptive statistics by using the statistical software for social science (SPSS). Since Development Bank of Ethiopia is the only bank which implement Small and Medium Enterprise lease financing program the supply side population was development bank of Ethiopia its own and the Small and Medium Enterprise lease financing directorate of the bank have been identified as target sample based on purposive sample design. Based on the result, the study has identified challenges that the bank faces as, the bank’s Small and Medium Enterprise selection criteria, poor supply chain with the absence of proper and excess suppliers of capital goods, macro-economic instability like inflation, unemployment and currency fluctuation, poor quality of financial statements of Small and Medium Enterprises, lack of enough demand of Small and Medium Enterprises, lack of know-how about Small and Medium Enterprise Lease financing, poor management of credit risk by the bank and lack of proper internal policy and procedures that minimizes the cost associated with Small and Medium Enterprise lease financing loans. The study has given that recommendation to parties who were directly concerned with small and medium Enterprise lease financing based on the nature of identified problems they were used the research as input to give solution on the focused problems.