Factors affecting access to finance for micro and small enterprises: the case of West Hararghe Zone, Ethiopia

The overall objective of the study was to find out the factors affecting access to finance of MSEs in the study area. The research design was cross sectional survey which included a structured and unstructured questionnaire. 392 questionnaires distributed to MSEs Managers, 318 questionnaires were filled and returned. The collected data was examined using SPSS (version 20) and AMOS (version 21). In this study descriptive statistics like simple percentage, frequency and tables were used to give clear picture about the MSEs, to answer the major obstacles of MSEs in borrowing finance and MSEs source of finance. Beside to descriptive analysis, the research used structural Equation Model (SEM).In accordance with SEM results, preparing business plan, financial statements, and collateral Availability have a significant effect on MSEs finance access. This implies, those MSEs which were preparing business plan and financial statements have access to finance from finance institutions. Availability of collateral is a most significant element of MSEs to have access to finance. Descriptive analysis also discovered that the major obstacles of MSEs in borrowing finance were long time loan process and bureaucracy, requirement of large amount of advance saving, short term loan repayment period; high collateral and high interest rate respectively. Therefore, based on the finding the researcher recommended that MSEs have to prepare business plan and financial statement to get loans. Furthermore, Financial Institutions have to improve loan process bureaucracies.