i

CHAPTER ONE

1. INTRODUCTION
Under this chapter background of the study, statement of problem, research objectives, research
question, scope of the study, limitation of the study, significance of the study and organization of
the study were identified.

1.1 Background of the Study

In many countries, nowadays there is a varied recognition of the contribution of Micro and Small
Enterprises (MSEs) to economic growth. Recently the role of MSE in economic growth, urban
poverty reduction and employment creation have engaged most of the discussion among
government, policy makers and academicians. In most fast developing countries MSE by virtue
of their size, location, and capacity to contribute for urban poverty reduction and generate greater
employment have proved their powerful effect for rapid economic growth. The MSE sector is
identified as a tool in bringing about economic transition efficiently using the skill and talent of
the people without requesting high level training, much capital and sophisticated technology. The
sector is also described as the national home of entrepreneurship, they are the primary vehicles
by which new entrepreneurs provide the economy with continuous supply of ideas, skills, and
innovations.It provides the ideal setting, enabling entrepreneurs to exercise their talents to the
full and attain their goals(Katua, 2014)

In a cross section of both developed and developing economies, the contribution of the MSE
sector to total employment, entrepreneurships, and innovation cannot be undervalued. The likely
advantages of vibrant MSE sector have made high expectations in many emerging countries
about the contribution of this sector to job creation and poverty reduction. Add to this confidence
that the full development of the MSE sector can foster competitiveness in the economy and attain
a more equitable distribution of the benefit of the economic growth in both developed and
developing economies. From the standing point of developing countries, MSE have a number of
rewards that make them attractive in hastening economic development. Because MSE are fairly
labor intensive, employment opportunities generated with a relatively low cost, a factor with
limited supply in many developing nations. Manageable production capacity and their flexibility
make them suitable to respond to current national demand and the limited size of the market in
many developing nations (Fasika and Daniel 1997).

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Within the Ethiopia context, despite the potential contribution of the MSE to poverty reduction
and employment creation is widely recognized, the government until very recently had not
extended adequate support to the development of the sector Admasu Abera(2012). In ambo
town there is also other problem with respect of finance, marketing techniques, knowledge of
manager, and government action. Thus, study were focused on the assessing of factors that
affecting the performance of MSEs in Ambo town with respect of finance, marketing, legal and
political environment, management, entrepreneurial, workplace, technology, and infrastructure.

2
1.2 Statement of the problem
Innovation is the ground base for operation activities of small business enterprises and
managerial skill of the owner of such essential to promote the business growth and profitability.
Lack of smooth supply of raw materials and working premise were reported to be the major
bottlenecks facing small scale manufacturing industrial, while lack of sufficient capital and
working premise were the leading problems of informal sector operators to start their
business(CarolinoReeg, 2015).

In most developing countries, MSEs face constraints both at start up phases and after their
establishment. In Africa, for example, the failure rate of MSEs is 85% due to lack of skills and
access to capital (Fedahunsi, 2007). It is typical of MSEs in Africa to be lacking in business
skills and collateral to meet the existing lending criteria of financial institutions (World Bank,
2004). Thus, according to World Bank, this has created finance gap in most markets. The MSEs
are able to source and obtain finance mostly from informal sectors like friends and relatives
while medium or large enterprises obtain funds from banks. This unequal access to finance by
MSEs and medium and large enterprises has undermined the role of MSEs in the economic
development in African countries (World Bank, 2014)

In Ethiopia’s situation since there have not been any organized policy and support systems that
provide for the sector, MSEs have been confronted by various problem which are of policy
structural and institutional in nature. According to the study conducted in Addis Ababa
University by Admasu (2012) particularly in Arada and Lideta sub cities concluded that
marketing, infrastructural and entrepreneurial factors are the basic variables which affects the
performance of MSE’s. On the other hand, sector operators from the start, serious marketing
problem, shortage of supply of raw materials, lack of working capital are the first and most
pressing problem facing small manufacturing industries for survival of the business. But some
other factors such as lack of commitment to their business, and lack of awareness regarding to
business plan is still uncovered. Thus the study were focused to assess the factor that affect the
performance of MSEs in Ambo town. In addition to this, the study focused not only identifying
factors which affect performance of MSEs, but also try to assessed important opportunities
which are currently available for MSE’s in Ambo town.

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1.3 Objective of the Study
1.3.1 General Objective
The general objective of this study is to assess the factors affecting the performance of small
business enterprise in Ambo town.

1.3.2 Specific Objective

The specific objectives of the study are:

1. To examine the critical factors affecting the performance of MSE’s.

2. To identify the sources of finance available for MSE’s.
3. To identify the MSE's workers about their business plan preparation.
4. To examine the current available opportunity for MSE’s.

1.4. Research question

In view of the above specific objectives, the central research questions strived to be answered are
the following:

1. What are the critical factors that mostly affect the performance of MSEs?
2. What are the sources of finance or funds available to the MSEs?
3. Do the entrepreneurs prepare business plans?
4. What are the current available opportunities for MSEs?

1.5 Significance of the Study

This study provides baseline information concerning the problem faced by small businesses, so
that it can develop creation strategies up lift or at least minimize those problems. Findings from
this study assist academicians in broadening of prospects with respect to this study. Moreover,
understudying of the different factors that affects the micro and small enterprise help the policy
makers and concerned bodies could inform and better overcome problems.

And, it is hoped that the study serves as base for others who needs to pursue for furthers study on
the subject matter. And also it helped to develop the knowledge skill of the researchers mainly.

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1.6 Scope of the Study
The scope of this study was confined to the assessment of factors affecting the performance of
MSE’s in Ambo town. And hence, the study was limited to Ambo town geographically,

1.7 limitation of the study

The limitation of this study wastime and financial constraints. The other limitation of this study
was lack of experience in conducting research, and unwillingness of the respondents to return the
questionnaires.

1.8. Organization of the Study

The study is organized in five chapters. Chapter one includes the introduction part of the study
that contains the background of the study, the statement of the problems, objective of the study,
the significance of the study, the scope of the study, the limitation of study and organization of
the study.The second chapter deals with the literature review of related research. The third
chapter deals with the research methodology of the study. The forth chapter presents the analysis
and the presentation of collected data. Final chapter concluded the result obtained from the
findings and suggest the necessary recommendation.

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 CHAPTER TWO

REVIEW OF LITERATURE
2.1 Overview of enterprise
Enterprise is a business venture or under taking that brings the profit or an ideal that is translated
in to a planned and implemented activity. There are different terms and the classification of the
enterprise in which they succeed respective of their nature cow up with resistible of the nature
cower with an irresistible and valued approach that continue to providing solution to problems a
body as well as satisfied a desired needs and wants. (Gardona, 1998).

2.2 Definition of micro and small enterprise

Generally, there is no universally agreed up on the definition of MSE’s. Due to this the meaning
of MES if necessarily arbitrary because people countries and organic on their own working
definition. Thus individual and organizations have been defining; those individual and
Definitions of Micro and Small Enterprises differ from country to country, depending on one or
more of brinks lay down in respect of investment, employment, poverty reduction, turnover etc.
The issue of what establishes a small or micro enterprise is a major concern in the literature;
even the term Micro and Small Enterprises (MSE) defiantly used on various countries and on
different literature to express the same categories of business (Amenu, 2005).

The definition of firms by size varies among researchers as well as writers. Others define MSE in
terms of their legal status and method of production. Some attempt to use the capital assets while
others use labor and turnover level. Counties have also defined MSEs based on their own context
and development scenario. The term MSE covers a wide-ranging of definitions and measures,
varying from country to country and varying between the sources reporting MSE statistics. Due
to its ease of collection, some of the commonly used criteria are the number of employees, total
net assets, sales, and investment level(Amenu,2005).

Due to lack of uniform definition of MSE across the globe, most countries use and implement
based on legal meaning of the sector although there are such initial points. As we look at the
experiences on international definition, the MSE definition is generally contained three basic
criteria as to other countries experience. These are, full timer employed work force, total asset,
net asset, paid up capital, and annual turnover and they use these criteria independently or in
combination (McMahon E.& Holmes V.(2009).

6
Here is some countries definition that will help us to equate with the Ethiopian definition. In
Kenya, the number of workers, the turnover, and assets of the enterprises defines the micro and
small enterprises (MSE) industry. According to Kenya’s Micro and Small Enterprises Act 2012,
Micro Enterprises defined as a firm, trade, service, industry, or a business activity whose annual
turnover does not exceed Kshs. 500,000 and whose total employees are less than 10 people. The
same statute defined a small enterprise as that which has an annual turnover of between Kshs0.5
- 5 million, with the number of employees in the range from 10-50 people. In essence, the law
classifies these enterprises based on employment and the annual turnover (Kenya Micro and
Small Enterprises Act 2012).

In the context of Tanzania, micro enterprises are those engaging up to four people, in most cases
family members or employing capital amounting up to Tshs.5.0 Million. The majority of micro
enterprises fall under the informal sector. Small enterprises are mostly formalized undertakings
engaging between 5 and 49 employees or with capital investment from Tshs.5 million to
Tshs.200 Million. Medium enterprises employ between 50 and 99 people or use capital
investment from Tshs.200 million to Tshs.800 Million. (United Republic of Tanzania SME
Development Policy).

In Ethiopia, as indicated in Ethiopian MSE strategic document, 2011, the definition of micro and
small enterprises is smooth and has not been universally agreed for decades. However, according
to the Ethiopia micro and small enterprises development strategy, which cited in different
packages of MSEs, the working definition of MSEs in Ethiopia is based on capital and number
of employees and by type of services. Thus, during 1997, Micro enterprises are those business
enterprises with a paid up capital of not exceeding birr 20,000 and less than 5 employees
excluding high tech consultancy and high tech establishment; during 1997 when the first MSE
development strategy is formulated it considered other countries experience especially the South
Africa experience. The definition given to MSE on that time was only based on paid capital or
capital investment as most business was confined to family man power basis and lack of
availability of manpower information of the sector (Andulem, 1997.) Hence, during 2011 the
definition of MSE are amended, accordingly; the terms microenterprise and micro business have
the same meaning, though traditionally when referring to a small business financed by micro-
credit the term micro-enterprise is used. Similarly, when referring to a small, usually legal

7
business that is not financed by micro credit, the term micro-business is used (Micro and Small
Enterprise development strategy, 2011).

Micro enterprise in the industrial sector (manufacturing, construction, and mining) is one, which
operates with up to five people including the owner and/or has total assets not exceeding Birr
100,000. Similarly, for activities in the service sector (retailer, transport, hotel, tour-ism, ICT and
maintenance), a micro enterprise is one which operates with up to five people including the
owner and/or has total assets not exceeding Birr 50,000. A small enterprise in the industrial
sector is one, which operates with between 6 to 30 persons and/ or has paid up capital or total
assets not exceeding Birr 1.5 Million. Similarly, a small service sector enterprise is one that has
between 6 and 30 persons and/or has total assets or paid up capital of Birr 500,000. Different
country experiences show that the policies and strategies designed to speed up MSE
development based on national definition of enterprises as it helps to provide sustainable support
and effective-ness of the sector, (Ethiopia’s MSED Strategy, 2011).

2.3. The role of Micro and Small enterprises

Role of MSE in economic growth and employment creation has occupied most of the discussions
among government, policy makers, academicians, researchers and economists in both developed
and emerging countries. In most fast developing countries MSE by virtue of their size, location,
capital investment and their capacity to generate greater employment have proved their powerful
propellant influence for speedy economic growth. The sector is also known as a tool in bringing
about economic transition by effectively using the skill and talent of the people without
requesting high level training, much investment and sophisticated technology. The micro and
small enterprise sector also described as the national home of entrepreneurship. They are the
primary vehicles by which new entrepreneurs provide the economy with a continuous supply of
ideas, skills, and innovations, (Katua, 2014).

As reports released by ILO and World Bank indicated that working in micro, small, and medium
enterprises (MSMEs) is the most prevalent way to make a living in low- and middle-income
countries.Formal MSE employ more than one-third of the world’s labor force.The International
Monetary Fund (IMF) estimates that across the 132 economies covered, there are about 125
million formal MSE of which 89 million operate in Low and Middle Income Countries (LMICs)
and of which the overwhelming majority, about 83%, are micro enterprises, including the self-

8
employed.Across these countries, micro, and small enterprises (MSEs) constitute the largest
share of private-sector enterprises and account for the majority of employment. (ILO, 2015;
World Bank, 2013)

Even though large shares of these MSEs are informal, they are also accountable for most of the
job creation in low and middle-income countries. It provides the ideal setting, enabling
entrepreneurs to exercise their talents to the full and attain their goals. In all successful economy,
they have seen as an indispensable springboard for growth, job creation, and social development
at large. The MSE also seen as an important force to generate employment and more impartial
income distribution, to activate competition, exploit niche markets, increase productivity and
technical change and through all of these stimulate economic advancement. (Kushner k. 2010).

2.4. Factors affecting Micro and Small Business Enterprises performance

The main factors/problems that limits small firm’s success/growth into two groups; first is the
factors that originate from within the firm (in other words they are internal to the firm) and the
second group is factors that originate from outside the firm (these are external to the firm). The
Internal factors limiting small firm growth are the characteristics and attitude of the
entrepreneur(s) and the firm as a whole. These factors can be impacted by the decisions made in
the firm either by the entrepreneur(s) or the staff in the firm. These factors are, Lack of
motivation and drive, Lack of background and experience in the business, Capital constraint,
Lack of a proper business plan/vision, Theft/cheating and lack of trust in doing business, Poor
management, Running informal/unregistered businesses, Lack of proper record keeping,
Inadequate education and training, People factor/lack of needed talent and Improper professional
advice and consultation. The External factors limiting small firm growth are the factors have to
do with decisions, rules and policies that affect a small firm directly, and in response the firm has
not really control over the decisions made but an influence to a change of their existence is
possible. These factors originate from outside the firm, these are, Corruption, Competition,
Government policy, Technological barrier, in access to finances/funding, Bureaucratic processes
and Unfavorable economic factors. (Enoch Nkonoki, 2010).

Most MSEs in Ethiopia faces critical constraints both at the operation and start up level. Some of
these constraints include lack of access to finance, access to premise, infrastructure, training in
entrepreneurial and management skills, information on business opportunities, and social and

9
cultural factors particularly related to deficient entrepreneurial culture and excessive corruption.
Lack of adequate capital, sufficient loan, and inefficient financial market in terms of facilitating
financial resources to entrepreneurs are the major obstacles in doing business particularly in the
informal sector. Most micro and small enterprises are highly risky ventures involving excessive
administrative costs andlack the experience in dealing with financial institutions and do not have
a track record of credit worthiness with banks. Since most banking institutions are reluctant to
provide small enterprises with loan and credits, most MSEs are unable to secure collateral
requirements. As a result of absence in financing, the creation of new enterprises and the growth
and survival of existing ones will be impeded (Commission on Legal Empowerment of the Poor,
2006).

According To Wolday and Gebrehiwot (2006), more than 93 percent of MSEs replied that they
did not apply for bank loans for the reasons they considered themselves as discouraged potential
borrowers, need credit but are discouraged from applying by the perceived or real high collateral
requirement, high cost of borrowing, difficulty of processes, ineligibility, or concern about their
repayment ability and uninformed (i.e. not aware of the facility, or where and how to apply, etc.).

The main sources of startup and expansion finance or funds for most MSEs are personal savings
followed by iqub/idir, family and friends/relatives. The formal financial institutions have not
been able to meet the credit needs of the MSE’s. Since there is high interest rate and collateral
requirement, most MSEs have been forced to use the informal institutions for credit. But the
supply of credit from the informal institutions is often so limited to meet the credit needs of the
MSE’s. In some cases this problems may be the inability of many operators to meet formal
financial institutions requirements for example business plan, governance systems and other
accountability issues which are linked to business risk. This shows that the studied operators
accessed finance mainly from informal sources (Admasu, 2012).

According to Ethiopian Minster of Urban Development and Construction (2013), a number of

challenges and constraints hindering the growth of MSEs in Selected Major Cities of Ethiopia
were identified. These challenges were manifested in terms of capital, technology and
employment growth trends. Enterprises from the regional cites indicated that shortage of finance
(42 percent) to expand their business was their principal challenge, followed by lack of working
premise (28.3 percent); and lack of access to market or absence of linkage to market. The study

10
also showed that lack of access to land has been one of the most crucial bottlenecks (26.4
percent) in Addis Ababa, problem of finance (25.6 percent) and access to market (25.1 percent)
were among the strong factors inhibiting the growth of these enterprises in the capital.

The findings of Mulu (2007) also indicate that banks and MFIs do not seem to support MSE’s
expansion. Due to this 85 percent of the respondents have never received credit from these
formal sources. The availability of other informal sources of finance, however, affects growth
positively and significantly. This shows that in the absence of formal source of credit, informal
networks appear more appealing for MSE’s. Hence, firms with better network to borrow from
informal sources such as, relatives, friends, and suppliers better loosen credit constraints, and
grow faster.

The other major constraints identified by various studies on MSEs in Ethiopia are associated
with market and finance problems. The causes of market-related problems of MSEs engaged in
metal and wood work are shortage or absence of marketing skills, poor quality of products,
absence of marketing research, shortage of market information, shortage of selling places, and
absence of sub-contracting (MSEDA, 2011).

The product line of MSE activities in Ethiopia is relatively similar, accordingly lack of product
diversity, however, is prevalent and as a result similar products are over-crowding the market.
Some micro enterprises shift from one product to another, and in doing so, capture better market
opportunities. Nevertheless, as soon as the market has established itself, a multitude of further
micro enterprises start off in the same business and this causes the selling price to fall
immediately (Assegedech Woldelul, 2004)

According cited in Admasu Abera( 2012 ) has identified and categorized the critical problems of
MSEs in to market related problems, which are caused by poor market linkage and poor
promotional efforts; institution-related problems including bureaucratic bottlenecks, weak
institutional capacity, lack of awareness, failure to abide policies, regulations, rules, directives,
absence of training to executives, and poor monitoring and follow-up; operator-related
shortcomings like developing a dependency tradition, extravagant and wasting behavior, and
lack of vision and commitment from the side of the operators; MSE-related challenges including
lack of selling place, weak accounting and record keeping, lack of experience sharing, and lack

11
of cooperation within and among the MSEs and finally society-related problems such as its
distorted attitude about the operators themselves and their products.

2.5. The Micro and Small Enterprise Development Strategy in Ethiopia

The primary objective of the national micro and small enterprise development strategy of
Ethiopia is to create providing the legal institutional and other supportive environment for the
development of micro and small enterprise. The specific objective includes: Facilitate the
economic growth and bring about the equitable development, strengthen the cooperatives
between MSEs, promote export, and balance preferential treatment MSE and biggest enterprise.
In generally promotion of MSEs in the countries is increasingly becoming more important due to
the fact that they use what the country possess and less of what it lack as well as their work
force, role in employment creation for the majority because of the potential MSEs for economic
development through creating marketing for local product, and utilization of the raw materials
(MSEDA, 2011).

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CHAPTER THREE

RESEARCH METHODOLOGY
3.1. Background of the Study Area
Ambo is town and separate woreda in central Ethiopia. Located in the West Shoa Zone of the
Oromia Region, west of Addis Ababa, this town has a latitude and longitude of8°59′N 37°51′E
/8.983°N 37.850°E and an elevation of 2101 meters. Ambo is known for its mineral water, which
is bottled outside of town; it is reportedly the most popular brand in Ethiopia. Nearby attractions
include Mount Wenchi to the south with its Crater Lake, and Huluka Falls. Ambo is also the
location of a research station of the EthiopianInstitute of Agricultural Research; initiated in 1977,
this station hosts research inprotecting major crops in Ethiopia.

3.2 Research Design

In this study descriptive research were used because, it describes the state of affairs or state of
nature as it exists at present and describes easily. Based on this line, descriptive research design
were usedto assess factors affecting the performance of small business enterprise in ambo town.
Moreover, the study utilized cross sectional data in the sense that all relevant data would be
collected at a single point in time combination of the qualitative and quantitative approach were
used in order to cover each methods weakness and strengths from the other methods.

3.3 Source of data

The data for the study were collected from both primary and secondary source of the data. In
order to gather the primary data, questionnaires as best instrument were used beside face to face
interview with MSE’soperator or relevant owner or manager who heads the enterprise.
Secondary data from the file and websitewere used to provide additional information where
appropriate.

3.4. Target population, sample size and sampling technique

The total populations of the workers are 511 workers. From these84 would be selected and the
researchers would beused simple random sampling technique. The sample size was calculated by
(Yamane, 1967) formula by assuming sampling error of 10 percent as follows.

n=N/1+N (e2)

n=511/1+511(0.12)

n=84

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Where N=means total population of 511 respondents

n =means sample size

e= sampling error 0.1

3.5. Data Collection Method

In order to realize the target of this study the researchers were used questionnaire and structured
open-ended interview to collect primary data which was useful for addressing the objective of
the study. A well-developed questionnaire were distributed to the selected 84 respondents.
Structured open-ended interview were conducted with manager of MSE’s.

3.6. Data Analysis method

The data collected from primary sources using different instrument were organized, condensed,
and analyzed in to sub section based on their similarities. Tables and percentage were used to
analyze data obtained from primary source. In other word descriptive analysis were used to
reduce the data in to summer format by tabulation (the data arranged in the data table
format).Therefore, table and percentage were utilized and interpreted to reach logical conclusion.

3.7. Validity of the data

The primary data collection was directed towards the MSE’s entrepreneurs, who are the mostly
faced with growth constraints. The study tries to discover which factors mostly influence the
MSE’s performance by considering existing theories. Respondents were chosen randomly and
the study sample was fairly representative. The researchers utilized a quantitative method in form
of a questionnaire and interview for MSE’s manager inform of qualitative method. However,
answers of respondents were exposed to subjectivity and may distort the responses.

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 CHAPTER FOUR

DATA PRESENTATION, ANALYSIS, AND INTERPRETATION

This chapter deals with data presentation, analysis, and interpretation of the collected data on the
base of information gathered through questionnaire and interview.

4.1. Result from questionnaires for respondents.

The questionnaires which amount in number 84 were distributed to employees of MSE enterprise
in Ambo town. From those questionnaire 77(91.67%) were successfully returned or response,
while the remaining 7(8.33%) of questionnaires were unreturned or unresponsive due to
unwillingness and careless of respondents. So the analysis was based on only gathered data.

The table below represents the demographic characteristics of the sample population which
contains gender, age, marital status, occupation and educational level of the respondents.

15
 Table 1Analysis of Respondents Personal Profile

1 Sex frequency Percentage

Male 37 48%
Female 40 52%
Total 77 100%

2 Age range frequency Percentage

>20 years 5 6.49%
years 38 49.35%
31-40years 18 23.38%
41-50years 12 15.58%
Above 50 year 4 5.20%
Total 77 100
3 Education level frequency Percentage
Certificate 35 45.45%
Diploma 25 32.48%
Degree 14 18.18%
Master 3 3.89%

Total 77 100%
4 Marital status
Married 38 49.35%

Single 23 29.87%

Widowed 6 7.79%
Divorced 10 13.99%

Total 77 100%

Source: Own survey questionnaire 2019 GC

As shown in the above Table 1 Indicates that 37(48%) of the respondents were males while the
remaining 40(52%) of the respondents were females.. Therefore the MSEs were dominated by
female employees.

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As shown in the above table 4.1 (6.49%) of the respondents were lies in between the age of <20
while, 38(49.35%) of the respondents were lies in between the age of 21-30 and 18(23.38%) of
the respondents were lies in between the age of 31-40,12(15.58%) of the respondents were lies
in between the age of 41-50, and the remaining 4(5.19%) of the respondents were lies above the
age 50. This implied that the majority of respondents were lies in between age of 21-30.
Therefore the organization was dominated by young employees and productive work force.

As shown in the above the table 4.1 the educational level of the respondents 35(45.45%) of the
respondents were certificate holders, 25(32.467%) of the respondents were diploma holders,
14(18.18%) of the respondents were degree holders, and the remaining 3(3.896%) of the
respondents were master holders. Therefore the majority of respondents were certificate holders
in the MSE’s. As shown in the above table 4.1 38(49%) of the respondents were married,
23(30%) of the respondents were unmarried or single, 6(8%) of the respondents were widowed,
and the remaining 10(13%) of the respondents were divorced. Therefore, the above survey data
implied that the majorities of the respondents in the MSEs were married.

Table 2 What is the main activity of the enterprise?

NO ITEM NUMBER OF RESPONDENTS PERCENTAGE %

1 Manufacturing 27 36%
2 Construction 10 12%
3 Services 40 52%
Total 77 100%
Source own survey questionnaires 2019

As most respondents were response (36%) of respondents are said manufacturing, (12%) of
respondents were said that construction .while MSE is dominated (52%) of respondents were
said that service is the main activity in MSE. Therefore the organization is dominated by service.

Table 3how did you raise funds to start up your business?

Question Number of response Percentage%

How did you raise funds to
start up your business?
Personal saving 23 29.9%

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Family 12 15.6%
Banks 3 3.9%
Micro finance institution 22 28.6%
Friends /relatives 5 6.5%
Iqub or Idir 12 15.6%
Total 77 100
Source’ ownsurveys of questionnaires 2019

As can be seen from the figure personal savings (29.9%) are the most frequently used sources,
followed by micro finance institutions (28.6%), family(15.6%), friends/relatives(6.5%), iqub/idir
(15.6%) and banks (3.6%) %) in that order. This shows that the main source of finance for
MSEs is personal saving followed by micro finance institutions. But also other traditional
source like iqub/idir, family and friends/relatives plays the great role.

Table 4The most important for the success of your business venture?

Question Number of response Percentage%

Success of your business
venture?
Business plan 45 58%
Business opportunity 12 15.6%
An entrepreneurial team 3 3.9%

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Training business skills 17 22%
Total 77 100%
Source own survey questionnaires 2019

As it can be seen from the figure above, 58% of the respondents indicated that a business plan is
important for the success of their business ventures, 3.9% of the respondents felt that an
entrepreneurial team is essential for the success of their business ventures, 15.6% of respondents
respond that the availability of business opportunities is important for the success of their
business ventures and 22% of the respondents concluded that training in business skills is
important for the success of their business ventures. The closer analysis of the result leads to the
conclusion that a business plan is the most important aspects for the success of business venture.

Table 5 Business Plan

No Questions Percentage
N o of respondent
1 Do you have business plan?

Yes 70 90.9%
No 5 6.5%

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 I haven’t but I’m planning to prepare for 2 2.6%
the future
Total 77 100%
Source own questionnaires 2019

As it is indicated on the table, 90.9% respondents stated that they have their own business plan
while starting their business. From the total respondents, 2.6% of them have no business plan but
they are trying to prepare it for future operation. The remaining respondents of the study i.e.
6.5% of them have no business plan. Among these, most of them have knowledge gap on the
importance of business plan and they always resist while they are enforced to prepare.

Respondents were asked different questions regarding the factors affecting the performance of
MSE’s. Their responses are in the following manner.

Table 6 Legal and Political factors that affect the performance of MSEs

Question Strong Disagree Neutral Agree Strong Total

Disagree agree
Political No. % No. % No. % No. % No % No. %
legal factor .
Tax levied 15 19.5 14 18 20 26.2 18 23 10 13.5 77 100
on my

20
business is
not
reasonable
Bureaucracy 10 13 34 44 9 11.7 5 6.5 19 24.7 77 100
in company
registration
Lack of 3 3.9 5 6.5 7 9 35 45.5 27 35 77 100
government
support
Total 28 36.4 53 68.5 36 46.9 58 75 56 73.2 77 100

Source own survey, 2019

As result on the above table 6, concerning the Tax levied on my business is not reasonable
(19.5%),(18%),(26.2%),(23%) and(13.5%) of the respondents responded strong
disagree,disagree,neutral, agree and strong disagree with the respectively .this implies that the
majority respondents neutral.

As in term of Bureaucracy in company registration (13%),(44%), (11.7%) (6.5%) and (24.7%) of

the respondents responded strong disagree,disagree,neutral,agree and strong agree with the
respectively. This implies that the majority of respondents disagree and bureaucracy in
registration negatively affect their performance.

As in term of Lack of government support (3.9%),(6.5%),(9%) (45.5%) and (35%) of the

respondents responded strong disagree,disagree,neutral,agree and strong agree. This implies that
the majority respondents responded that they lack government support and this affect their
performance negatively.

Table 7Please indicate the degree to which you agree with the following statements
concerning working place factors.

Item Response
Working place Strongly Disagree Neutral Agree Strongly Total
factors disagree agree

21
Absence of No % No % No % No % No % No %
own premises - - 2 3 6 8 40 52 29 37 77 100

Current 1 2 5 6 - - 43 56 28 36 77 100
working place
is not
convenient

The rent of 1 2 12 16 2 3 37 48 25 31 77 100

house is too
high
Source; - own survey 2019

As the above table indicates 2(3%) of the respondents were said disagree, 2(6%) of the
respondents were said neutral, 40(52%) of the respondents were said agree, while the remaining
29(37%) of the respondents were said that strongly agree on absence of own promise. Therefore
the above surveys data indicate most respondents were agrees on absence of own promise and it
affect negatively their performance. 1(2%) of the respondents were said strong disagree, while
5(6%) of the respondents were said that dis agree .43(56%) of the respondents were said that
agree while the remaining 28(36%) of the respondents were said strongly agree on current
working place not convenient. Therefore majority of respondents were said agree on current
working is not convenient and therefore it affect negatively. 1(2%) of the respondents were said
that strongly dis agree 12(16%) of the respondents were said that disagree 2(3%) of the
respondents were said that neutral 37(48%) of the respondents were said agree while 25(32%) of
the respondents were strongly agree. Therefore most respondents were said agree on the rent
house is too high and so rent of house affect negatively.

22
 Table 8Please indicate the degree to which you agree with the following statements
concerning technology factors.

Item Response
Technological factor Strongly Disagree Neutral Agree Strongly Total
disagree agree

Lack of appropriate No % No % No % No % No % No %
machinery and - - 2 3 8 10 35 46 32 41 77 100
equipment

Lack of skills to 2 3 6 8 - - 46 60 23 39 77 100

handle new
technology

Lack of money to 2 3 11 14 1 2 43 56 20 25 77 100

acquire new
technology
Source own survey questionnaires 2019
As above table shows 2(3%) of respondents were said dis agree, 8(10%) of the respondents were
said neutral 35(46%) of the respondents were said that agree while the remaining 32(41%) of the
respondents were said that strongly agree on lack of appropriate machinery. Therefore most
respondents’ response agrees on lack of appropriate machinery and lack of appropriate
machinery affect them negatively.2(3%) of respondents were said that strongly dis agree 6(8%)
of the respondents were said that disagree 46 (60%) of the respondents were said that agree. the
remaining 23(30%) of the respondents were said that strongly agree. Therefore the above data
most respondent were said that lack of skill to handle new technology affect their performance
negatively. 2(2%) of the respondents were said that strongly disagree 11(14%) of the respondents
were said that agree 1(2%) of the respondents were said that neutral 43(56%) of the respondents
were said that agree while the remaining 20(26%) of the respondents were said that strongly
agree on lack of money to acquire newtechnology.

Table 9Please indicate the degree to which you agree with the following statements
concerninginfrastructural factors

Item Response

23
Infrastructural Strongly Disagree Neutral Agree Strongly Total
factors disagree agree

Power No % No % No % No % No % No %
interruptions - - 2 3 6 8 49 63 20 26 77 100

Insufficient and 2 3 12 16 - - 42 53 21 28 77 100

interrupted
water supply

Lack of 2 3 9 12 1 2 45 57 20 26 77 100
sufficient and
quick
transportation
service
Source own survey questionnaires 2019
As the survey data indicates 2(3%) of the respondents were said that disagree, 6(8%) of the
respondents were said that neutral, 49(63%) of the respondents were said that agree while the
rest 20(26%) of the respondents were said that strongly agree. Therefore the majority of
respondents were said that power interruption has negative impacts on their performance. 2(3%)
of the respondents were said that strongly disagree, 12(16%) of the respondents were said that
disagree ,42(53%) of respondents were said that agree while the rest 21(28%) of the respondents
were said strongly agree on insufficient and interrupted water supply. therefore the above survey
data indicate that agree. 2(3%) of the respondents were said that strongly agree ,9(12%) of the
respondents were said agree ,1(2%) of the respondents were said neural 45(57%) of the
respondents were said that agree ,the rest 20(26%) of respondents were strongly agree on lack of
sufficient and quick transportation service. Therefore the above data indicates more respondents
were responded negatively on transportation service.

Table 10 Marketing factors that affect the performance of MSEs

Question Strong Disag Neutral Agree Strong Total

ree
Disagree agree
Marketing NO % NO % NO % NO % N % NO %

24
factor O
Inadequate 2 2.6 5 6.5 7 9 44 57.1 19 24.67 77 100
market for my 4
product
Searching new 9 11.7 32 41.6 12 15. 7 9 17 22 77 100
market is so 6
difficult
Poor customer 12 15.6 3 3.89 4 5.2 23 29.9 35 45.5 77 100
relationship and
handling
Source own survey questionnaires 2019
As result on the above table, concerning the Inadequate market for my product (2.6%),(6.5%),
(9%),(57.14%) and(24.67%) of the respondents responded strong disagree,disagree,neutral,agree
and strong disagree with the respectively .this implies that the majority respondents agree and
therefore it affect negatively.

As in term of Searching new market is so difficult (11.7%), (41.6%),(15.6%) (9%) and (22%) of
the respondents responded strong disagree,disagree,neutral,agree and strong agree with the
respectively. This implies that the majority respondents responds that positively with in
searching new market difficulties.

As in term of Poor customer relationship and handling (15.6%),(3.89%),(5.2%) (29.6%) and

(45.5%) of the respondents responded strong disagree,disagree,neutral,agree and strong agree.
This implies that the majority respondents responds that negatively with customer relationship
and handling.

Table 11Financial factors that affect the performance of MSEs

Question Strong Disagr Neutr Agree Stron Total

ee al g
Disagree
Agree
Financial NO % NO % NO % NO % NO % NO %
factor
Inadequacy 12 15.6 27 35 3 3. 2 2.6 33 42.9 77 100
credit 8
institution

25
 Shortage of 7 9 9 11.7 4 5. 12 15.6 45 58.4 77 100
working 2
capital
High 23 29.9 5 6.5 8 10 7 9 34 44.2 77 100
collateral
requirement
from banks
and other
lending
institution

High interest 1 1.3 5 6.5 8 10 25 32.46 38 49.4 77 100

rate
exchange by
banks and
by other
lending
institution
Source own survey questionnaires 2019
As result on the above table concerning the Inadequacy credit institution (15.6%),(35%),(3.8%),
(2.6%) and (42.9%) of the respondents responded strong disagree,disagree,neutral,agree and
strong agree with respectively. this implies that the majority respondents strong agree.

As in term of Shortage of working capital Create (9 %),(11.7%),(5.2%),(15.6%) and (58.4%) of

the respondents responded strong disagree,disagree,neutral,agree and strong agree with
respectively. this implies that the majority respondents strong agree and this shortage of working
capital affect negatively.

As in term of High collateral requirement from banks and other lending institution (29.6%),
(6.5%),(10%),(9%) and (44.2%) of the respondents responded strong
disagree,disagree,neutral,agree and strong agree with respectively. this implies that the majority
respondents responded that collateral requirement affect negatively their performance.

As in term of High interest rate exchange by banks and by other lending institution (1.3%),
(5.6%),(10%),(32.46%) and (49.4%) of the respondents responded strong
disagree,disagree,neutral,agree and strong agree with respectively. this implies that the majority
respondents strong agree.

26
Table 12Management factors that affect the performance

Question Strong Disagr Neutra Agree Strong Total

Disagree ee l agree
Managerial NO % NO % N % N % N % N %
factor O O O O
Lack of clear 13 16.9 16 20.8 19 24.7 9 11.7 20 25.97 77 100
division of
duties and
responsibility
among
employees
Lack of well 11 14.3 9 11.7 3 3.8 1 1.3 53 68.8 77 100
trained and
experienced
employees
Source own questionnaires 2019
As result on the above table 12 concerning the Lack of clear division of duties and responsibility
among employees (16.9%),(20.8%),(24.7%),(11.7%) and (25.97%)%) of the respondents
responded strong disagree,disagree,neutral,agree and strong agree with respectively. this implies
that the majority respondents strong agree.

As in term of Lack of well trained and experienced employees (14.3%),(11.7%),(3.8%),(1.3%)

and (68.8%) of the respondents responded strong disagree,disagree,neutral,agree and strong
agree with respectively. this implies that the majority respondents strong agree.

Table 13Entrepreneurial factors that affect the performance

Question Strong Disagr Neutral Agree Strong Total

Disagree ee Agree
Entrepreneurial N % N % N % NO % NO % N %
factor O O O O
Lack of 22 28.6 12 15.6 2 2.6 7 9 34 44 77 100
motivation and
drive
Lack of 17 22.07 19 24.7 26 33.14 5 6.5 10 12.98 77 100
persistence and
courage to take

27
responsibility
for one’s
failure.
Absence of 10 12.98 19 24.7 21 27.3 9 11.7 18 23.4 77 100
initiative to
assess ones
strengths and
weakness

Source own questionnaires 2019

As result on the above table 13 concerning the Lack of motivation and drive (28.6%),(15.6%),
(2.6%),(9%) and (44%)%) of the respondents responded strong disagree,disagree,neutral,agree
and strong agree with respectively. this implies that the majority respondents strong agree.

As in term of Lack of persistence and courage to take responsibility for one’s failure (22.7 %),
(24.7%),(33.14%),(6.5%) and (12.98%) of the respondents responded strong disagree,disagree,
neutral,agree and strong agree with respectively. this implies that the majority respondents
neutral.

Asin term of Absence of initiative to assess ones strengths and weakness (12.98%),(24.7%),
(27.3%),(11.7%) and (23.4%) of the respondents responded strong disagree, disagree, neutral,
agree and strong agree with respectively. this implies that the majority respondents neutral

28
Table 14 Please indicate the degree to which you agree with the following factors that have
a direct influence on the performance of your business

Item Response
General Factors Strongly Disagree Neutral Agree Strongly Total
disagree agree

Politico-legal No % No % No % No % No % No %
factors.
- - 9 12 14 18 31 40 23 30 77 100

Working space 5 6 12 16 - - 45 58 15 20 77 100

factors.

Technological 12 16 15 20 - - 39 50 11 14 77 100
factors

29
 Infrastructural 12 15 15 20 - - 35 45 15 20 77 100
factors.

Marketing 2 2 9 12 1 2 45 58 20 26 77 100
factors.

Financial factors. 8 10 22 28 - - 29 38 18 24 77 100

Managerial 5 6 18 24 3 4 26 34 25 32 77 100
factors.

Entrepreneurial 6 8 15 20 5 6 32 42 19 24 77 100
factors.
Source own survey questionnaires 2019
As the above table indicates 9(12%) of respondents were said that disagree 14(18%) of the
respondents were said that neutral 31(40%) of the respondents were said that agree 23(30%) of
the respondents were said that strongly agree on political legal factor. Therefore the above data
indicates most respondents were said that agree. 5(6%) of the respondents were said that strongly
disagree 12(16%) of the respondents were said that disagree .45(58%) of respondents were said
that agree the rest 15(20%) of the respondents were said that strongly agree on working space
factors. 12(16%0 of the respondents were said that strongly disagree 15(20%) of the respondents
were said that disagree 39(50%) of the respondents were said that agree the rest is 11(14%) of
the respondents were said that strongly agree on technological factors. 12(15%) of the
respondents were said that strongly disagree ,15(20%) of the respondents were said that disagree
35(45%) of respondents were said that agree the rest 15(20%) of the respondents were said that
strongly agree on infrastructural factors. Therefor most respondents were said that agree. 2(2%)
of the respondents were responds strongly disagree 9(12%) of the respondents were said that
disagree 1(2%) of the respondents were said that neutral 45(58%) of the respondents were said
that agree while 20(26%) of the respondents were said that strongly agree. Therefore the above
data indicate most respondents said that agree on marketing factors. 8(10%) of the respondents
were said that strongly disagree 22(28%) of the respondents were said that disagree 29(38%) of
the respondents were said that agree the rest is 18(24%) of the respondents were said that
strongly agree on financial factors. Therefore most respondents said that agree on the above
issue. 5(6%) of the respondents were said that strongly disagree 18(24%) of the respondents
30
were said that disagree 3(4%) of the respondents said that neutral 26(34%) of the respondents
were said that agree 25(32%) of the respondents were said that strongly agree on managerial
factors. 6(8%) of the respondents were said that strongly disagree ,15(20%) of the respondents
were said that disagree ,5(6%) of the respondents were said that neutral ,32(42%) of respondents
were said that agree 19(24%) of respondents were said that strongly agree on entrepreneurial
factors. Therefore the researcher conclude that most respondents were said that agree on the
above issue

Table 15Please indicate the degree to which you agree with the following statements
concerning the current available opportunities of MSEs in the city

Question Strong Disagr Neutral Agree Strong Total

ee
Disagree Agree
Available NO % NO % N % N % NO % N %
opportunity O O O
Growing 22 28.6 12 15.6 2 2.6 7 9 34 44 77 100
number of
credit
institutions
Supply 17 22.07 19 24.7 26 33.14 5 6.5 10 12.98 77 100
technology
inputs

31
Supply of 10 12.98 19 24.7 21 27.3 9 11.7 18 23.4 77 100
working
place

Availability 3 3.9 6 7.8 13 16.9 19 24.7 36 46.6 77 100

of supply
chain of
input
Marketing 1 1.2 5 6.5 8 10.4 49 63.6 14 18.2 77 100
relationship

Source own survey questionnaires 2019

As result on the above table 15 concerning the Growing number of credit institutions),(28.69%)
(15.6%)(2.6%),(9%)and(44%) of the respondents responded strong disagree, disagree, neutral,
agree and strong agree with respectively. this implies that the majority respondents strong agree.

As in term of Supply technology inputs (22.08%),(24.7%),(33.14%),(6.5%) and (12.98%) of the

respondents responded strong disagree,disagree,neutral,agree and strong agree with respectively.
this implies that the majority respondents neutral.

As in term of Supply of working place (12.98%),(24.7%),(27.3%),(11.7%) and (23.4%) of the

respondents responded strong disagree,disagree,neutral,agree and strong agree with respectively.
this implies that the majority respondents neutral

As in term of Availability of supply chain of input (3.9%),(7.8%), (16.9%), (24.7%) and (46.6%)
of the respondents responded strong disagree,disagree,neutral,agree and strong agree with
respectively. this implies that the majority respondents strong a green.

As in term of Marketing relationship (1.2%), (6.5%), (10.4%), (63.6%) and (18.2%) of the
respondents responded strong disagree,disagree,neutral, agree and strong agree with respectively.
this implies that the majority respondents agree

32
4.2.Interview Analysis
What type of employee relation in your organization? As the manager responded that, in their
organization Managers and employees are horizontal relation and also all employees are
important to contribution of productivity, final entrepreneurial decision and they are the key for
economic development.

What are the roles of government in micro and small business enterprise in your organization?
The organization managers responded thatas the government is reducing the number of
unemployment and creating job opportunity for the citizens,in micro and small enterprisethere
are also remedial solutions that are improved by government to reduce the problems of small
business. Some of which are providing information like technology information, marketing
information, financial and trading institution, reducing rent of house providing free place for
entrepreneurs.

How do you encourage Entrepreneurs in your organization? The manager responds that
encouraging and initiating the entrepreneurs by giving advice for them including about saving
practice.And also the manager of MSE’s said that we encourage employees by giving workplace,
help them in linkage of market, helping them managing their business, we encourage new start-
up by giving important information related with small business enterprise.

33
 CHAPTER FIVE

CONCLUSIONS AND RECOMMENDATIONS

5.1Introduction
In this chapter the conclusions and recommendations are discussed. For clarity purpose, the
conclusions are based on the research objectives of the study. Based on the findings of the study
recommendations are made to government bodies, to operators of MSEs and suggestion for other
researchers.

5.2 Conclusions
This research was conducted on assessing the factors affecting the performance of MSEs
typically engaged in manufacturing, construction and service business activities. Specifically, the
study attempted to examine the sources of finance or funds available for MSEs, the problems
affecting their performance, attitudes of MSEs towards preparation of business plan and
opportunities which are currently available to MSE’s operators. Based on the objectives and
findings of the study, the following conclusions are worth drawn.

The main sources of startup and expansion finance or funds for most MSEs are personal savings
followed by micro finance institutions and family, friends/relatives. The formal financial
institutions, particularly banks have not been able to meet the credit needs of the MSE’s. Since

34
there is high interest rate and collateral requirement, most MSE’s have been forced to use the
informal institutions for credit. But the supply of credit from the informal institutions is often so
limited to meet the credit needs of the MSE’s.

The most important critical factors identified are financial factors which include shortage of
working capital, high interest rate charged by banks and other lending institutions, and too
complicated loan application procedures of banks and other lending institutions.

The workings premises factors such as absence of own premises and inconveniency of the
current working place hinder their performance. Marketing factors include inadequacy of market,
difficulty of searching new market, lack of demand forecasting, lack of market information and
absence of relationship with an organization/association that conduct marketing research.
Infrastructural factors incorporate power interruptions, and lack of sufficient and quick
transportation service that hinder the business performance of all sectors.

The main internal factors identified were management factors which include poor selection of
associates in business, lack of strategic business planning, and costly and inaccessible training
facilities. Lastly, the major entrepreneurial factors include lack of persistence and courage to take
responsibility for one’s failure and absence of initiative to assess ones strengths and weakness.

Finally, the study has further identified that the different influences in which each of the factors
under study have in different categories of the business. The research clearly illustrates that, even
if the degree of those critical factors in manufacturing sector slightly differ from the factors that
are critical to construction and service sector businesses, most of the factors are considerably
common for three sectors. It has been noted that the following factors are prevalent to the
businesses such as financial, infrastructural, workings premi

To make MSEs competitive and profitable, increasing the capacity and skill of the operators
through continuous trainings, experience sharing from successful enterprises, and provision of
advice and consultancy are crucial. Moreover, improved provision of necessary infrastructure
and enabling the environment for business operations is generally an imperative. Uninterrupted
power supply and quick transportations are basic to effective performance of these enterprises.

Finally, investigating d

35
 5. Politico-Legal Factors 5 4 3 2 1
5.1 The tax levied on my business is not reasonable
5.2 Bureaucracy in company registration and licensing
5.3 Lack of government support

6. Please indicate the degree to which you agree with the following statements concerning
working place factors.

6. Working Place Factors 5 4 3 2 1

6.1. Absence of own premises
6.2 Current working place is not convenient
6.3 The rent of house is too high

7. Please indicate the degree to which you agree with the following statements concerning
technology factors.

7.Technological Factors 5 4 3 2 1
7.1 Lack of appropriate machinery and equipment
7.2 Lack of skills to handle new technology
7.3 Lack of money to acquire new technology

8. Please indicate the degree to which you agree with the following statements concerning
infrastructural factors.

8. Infrastructural factors 5 4 3 2 1
8.1 Power interruptions
8.2 Insufficient and interrupted water supply
8.3 Lack of sufficient and quick transportation
service
marketing factors.

36
 9. Marketing Factors 5 4 3 2 1

9.1 Inadequate market for my product.

9.2 Searching new market is so difficult.

9.3 Absence of relationship with an organization that conduct

marketing research.

9.4 Poor customer relationship and handling.

10. Please indicate the degree to which you agree with the following statements concerning
financial factors.

10. Financial Factors 5 4 3 2 1

10.1 Inadequacy of credit institutions.
10.2 Shortage of working capital.
10.3 High collateral requirement from banks and other
lending institutions.
10.4 High interest rate charged by banks and other lending
institutions.
11. Please indicate the degree to which you agree with the following statements concerning
management factors.

11. Management Factors 5 4 3 2 1

11.1. Lack of clear division of duties and responsibility
among employees.
11.2. Lack of well trained and experienced employees.

12. Please indicate the degree to which you agree with the following statements concerning
entrepreneurship factors.

37
 12. Entrepreneurial Factors 5 4 3 2 1
12.1 Lack of motivation and drive.
12.2 Lack of persistence and courage to take responsibility for
one’s failure.
12.3 Absence of initiative to assess ones strengths and weakness.

13. Please indicate the degree to which you agree with the following factors that have a direct
influence on the performance of your business?

13.General Factors 5 4 3 2 1
13.1 Politico-legal factors.
13.2 Working space factors.
13.3 Technological factors.
13.4 Infrastructural factors.
13.5 Marketing factors.
13.6 Financial factors.
13.7 Managerial factors.
13.8 Entrepreneurial factors.

14. Please indicate the degree to which you agree with the following statements concerning the
current available opportunities of MSEs in the town.

14. The current available Opportunities of MSEs 5 4 3 2 1

14.1. Growing expansion of credit institutions.
14.2. Adequate supply of technological inputs.
14.3. Availability of place for operation.
14.4. Availability of supply chain of inputs in the city.
14.5 Strong market relationship

38
 APPENDIX 2
AMBO UNIVESITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT

INTERVIEW QUESTIONS TO MANAGERS

1. What are employee relations in your organization?

2. What are the roles of government in micro and small business Enterprise in your
organization?
3. How do you encourage Entrepreneur in your organization?

39