ROLE OF MICROFINANCE INSTITUTIONS IN FINANCING MICRO AND SMALL ENTERPRISES IN ETHIOPIA

Abstract

Micro and Small Enterprises (MSEs) understood as a means to attain the United Nations 2030 agenda particularly its contribution in reducing the massive unemployment and deep-rooted poverty. Hence, the main aim of this paper is to examine the role of Microfinance Institutions (MFIs) to the survival, value creation and growth of MSEs. For this study purpose, secondary data were collected from the National Bank of Ethiopia (NBE) and triangulated with systematic review of empirical evidences. Principal Component Analysis (PCA) was used to examine the relationships and significance in and between the data emerge. The empirical evidences result reveals that unlike banks, MFIs provide diverse micro credit services to address the diverse socio-economic needs of the poor who cannot afford collateral requirement and besides the result from PCA reveals that the economic growth and access to microcredit service by itself is not enough to create more jobs as they are uncorrelated. However, the empirical evidences shows that, the poorest and most vulnerable people are being left behind due to lack of access to finance, poor market linkage and inadequate skill training among many other factors. Therefore, policy-makers have to develop regulatory frameworks that build sound financial institutions and encourage competition among one another.