Micro and Small Enterprises (MSEs) Finance in Ethiopia: Empirical Evidence

Ageba, Gebrehiwot; Amha, Wolday

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Title:	Micro and Small Enterprises (MSEs) Finance in Ethiopia: Empirical Evidence
Authors:	Ageba, Gebrehiwot Amha, Wolday
Year:	2006
Periodical:	Eastern Africa Social Science Research Review (ISSN 1027-1775)
Volume:	22
Issue:	1
Period:	January
Pages:	63-86
Language:	English
Notes:	biblio. refs.
Geographic terms:	Ethiopia Northeast Africa
Subjects:	small enterprises commercial credit Development and Technology Economics and Trade Economics, Commerce Small business microfinance Economic surveys credit
External link:	http://muse.jhu.edu/journals/eastern_africa_social_science_research_review/v022/22.1ageba.pdf
Abstract:	This paper presents evidence on the state of micro and small enterprises (MSE) finance in Ethiopia from a survey of 1000 MSEs in six major towns - Addis Ababa, Nazret, Awassa, Baher Dar, Jimma and Mekele - conducted by the authors in 2003. The paper suggests a new venue to channel funds to MSEs by linking support to MSEs, suppliers credit and bank lending. It shows that friends/relatives, suppliers credit, and 'Iqub' (rotating savings and credit associations) are the most important sources of finance in that order, with moneylenders used very rarely. Default on informal loans, contrary to the common view, is high. Participation (i.e. receiving and/or extending) in trade credit is widespread. The amount involved (in both stock and flow terms) is also relatively high. Trade credit appears to be used as a substitute for bank loans. Contrary to the common belief that trade credit occurs between people with strong social ties, most MSEs that granted trade credit and those that received suppliers credit characterized their relation as 'business only'. More than half of the MSEs that granted trade credit also received suppliers credit whose amount exceeded what they received, suggesting that suppliers credit is being passed on to customers. Suppliers credit thus avails itself as a potential instrument for banks to channel finance to MSEs to improve their access to modern machinery, equipment and tools. This established practice could be extended to equipment supplier credit and/or equipment leasing. Bibliogr., notes, ref., sum. [Journal abstract]

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