AKSUM UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE
ASSESSEMENT OF PROBLEM AND PROSPECT OF MICRO &
SMALL ENTERPRISES IN CASE OF AKSUM TOWN
ARESEARCH PROPOSAL SUBMITTED TO THE DEPARTMENT OF
ACCOUNTING AND FINANCE IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR BACHELOR ARTS [BA] DEGREE IN ACCOUNTING
AND FINANCE
PREPARED BY:-Aregay Brhane
ID NO AKU 1101666
JUNE: 2018
AKSUM, TIGRAY, ETHIOPIA
LIST OF ACRONYMS
CSA
Central Statistical Agency
EC
European Commission
FeMSEDA
Federal Micro and Small Enterprise Development Agency
MoTI
Ministry of Trade and Industry
MSE
Micro and Small Enterprise
MSME
Micro, Small and Medium Enterprise
NGO
Nongovernmental Organizations
OECD
Organization for Economic Cooperation and Development
SMEs
Small and micro Enterprises
WB
World Bank
1
TABLE OF CONTENTS
Contents
page
LIST OF ACRONYMS .................................................................................................................................................1
LIST OF TABLES ..................................................................................................................................................3
CHAPTER ONE .....................................................................................................................................................4
1 INTRODUCTION ................................................................................................................................................4
1.1 Background of the study ...............................................................................................................................4
1.2 Statement of the Problem ..............................................................................................................................6
1.3 key Research questions .................................................................................................................................7
1.4 Objective of the study ...................................................................................................................................7
1.4.1General Objective of the study ................................................................................................................7
1.4.2 Specific objective ...................................................................................................................................7
1.5 Significance of the study ...............................................................................................................................7
1.6Scope of study ................................................................................................................................................8
17Limitation of the study ....................................................................................................................................8
CHAPTER TWO ................................................................................................................................................. 10
1.
LITERATURE REVIEW ............................................................................................................................. 10
2.1 Theoretical Frame Work of Micro and Small Enterprises ......................................................................... 10
2.1.1 Definition of MSEs by European Commission, World Bank, Organization for Economic Cooperation
and Development.......................................................................................................................................... 10
2.2MSEs in Kenya ........................................................................................................................................... 11
2.3 MSEs in Ethiopia ....................................................................................................................................... 12
2.3.2 Small Enterprises in Ethiopia .............................................................................................................. 13
2.4 Characteristics of the sector ....................................................................................................................... 13
2.5 MSE and Entrepreneurship ........................................................................................................................ 14
2 .6 MSE and job opportunity .......................................................................................................................... 14
2.7 MSE and Finance ....................................................................................................................................... 14
2.8 MSE and Marketing ................................................................................................................................... 15
2
2.9 MSE and Institutional Support ................................................................................................................... 16
2.10 Empirical Review of the Study ................................................................................................................ 16
CHAPTER THREE ................................................................................................................................................... 19
3. METHODOLOGY OF THE STUDY ....................................................................................................................... 19
3.1. Research design......................................................................................................................................... 19
3.2. Data type and data collection method ....................................................................................................... 19
3.3. Sample size and sampling Technique ....................................................................................................... 19
3.4. Data Processing and analysis .................................................................................................................... 20
Reference.............................................................................................................................................................. 21
LIST OF TABLES
Table2, 1 Example of MSEs Defined by EC, WB, OECD .................................................................... 11
Table2, 2 Definitions of MSEs in Kenya
11
Table2, 3 the New MSE Definition (2011)
12
3
CHAPTER ONE
1 INTRODUCTION
1.1 Background of the study
Micro and Small Enterprises (MSEs) play vital roles in poverty reduction, income and employment
generation as well as economic development in developing countries like Ethiopia. The sector is now
increasingly recognized unlike the previous pessimist notion that these sectors are not linked to the
modern and formal sectors and would disappear once industrial development is achieved. The primary
goal of micro and small enterprises is to reducing poverty and unemployment (Mulu, 2007).
The Ethiopian MSE sector include a diverse set of operators ranging from petty traders to small
restaurant owners, shoeshine boys to small shoes making enterprises, peddler in the street to grocery
business operators, and the likes. Even though, the increased role and contribution that the MSE
sectors could provide to the country’s economy is immense, the sector is largely constrained by
various structural, institutional, and policy related problems and bottlenecks that stifle its rapid growth
and development (FeMSEDA, 2004).
A national MSE strategy of Ethiopia was issued in 1997.The industrial development strategy of
Ethiopia issued in 2003, clearly states that, MSE will be the engine of industrial development. It is also
indicates that, promoting MSE’S is one of the important instrument to create productive private sectors
and Entrepreneurship and that the government will give due emphasis and priority to promote this
sector. The strategy also stress that every effort will be made to support this sector by providing
infrastructure( working premises and land), financial facilities, supply of Raw materials, training and
etc (FeMSEDA, 2004).
The sector has potential to provide the ideal environment for enabling entrepreneurs to optimally
exercise their talent and to attain their personal and professional goals and in all successful economies,
MSEs are seen as an essential spring board for growth, job creation and social progress. The small
business sector is also seen as an important force to generate employment and more equitable income
4
distribution, activate competition, exploit place markets, and enhance productivity and technical
change and, through the combination of all of these measures, to stimulate economic development this
is not denying the importance of large industries and other enterprises for the growth of the Ethiopian
economy there is ample evidence to suggest that the labor absorptive capacity of the MSE sector is
high. The average capital cost per job created is usually lower than in big business, and its role in
technical and other innovative activities is vital for many of the challenges facing Ethiopia (MoTI,
1997).
In Ethiopia, MSEs sector is the second largest employment -generating sector following agriculture A
national survey conducted by Ethiopian Central Statistical Authority (CSA) in 2005 in 48 major towns
indicates that nearly 585,000 and 3,000 operators engaged in micro and small scale manufacturing
industries respectively, which absorb about 740,000 labor forces,(CSA,2005).
The major Problem facing the sector comprises the stringent legal and regulatory environments, poor
access to markets, shortage of finance, inadequate business information, absence of business premises
(at affordable rent), lack of technical and managerial skills, very limited access to appropriate
technology, absence of access to quality business infrastructure, and in some cases discriminatory
regulatory practices (Mead, 1998).
According to Kasaya(2008) reports, from the study of factors affect the growth and expansion of
micro and small enterprise in Jimma town, lack of initial capital, lack of training lack of access to
market, poor infrastructure , lack of access to finance, influence of government action are the factor
that affect micro and small enterprises .
Wolday (1997), also found that lack of initial capital and working capital isone of the major
constraints of the enterprise. Factor like short term loan repayment period, existence of several
collateral requirement, Procedures and lack of knowledge about bank regulation and service are found
to be major factor that discourage potential and existing MSE’s entrepreneurs from coming to
institutional forms of credit.
Finally, by taking in to account the above major problem which was found as problem to the MSE in
different part of the country the present researcher is motivated to undertake the research on this topic
since this sector will have a potential to absorb large number of employ as the capital required is small.
Further this sector will helps the operator task stepping stone to become industrialist. Therefore
5
conducting study over this sector will have immense contribution as the result of the finding will help
the operators themselves, government and policy makers to take remedial action
1.2 Statement of the Problem
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 80 out of 100 enterprises due to lack
of skills and access to capital (Fedahunsi, 1997).
It is typical problem of MSEs in Africa to be lacking in business skills and collateral to meet the
existing lending criteria of financial institutions World Bank, (2004). According to World Bank,
(2004), MSEs 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 has undermined
the role of MSEs in the economic development in African countries, (World Bank, 2004).
The study conducted by Ethiopian CSA (2006), discloses that, the contribution of small enterprises in
creating job opportunities and in the development of our economy is vital However, their contribution
is very low in compared with that of other countries due to financial problem, lack of qualified
employees, lack of proper financial records, marketing problems, lack of working premises and raw
materials. Lack of information about market opportunities and standards and regulations is one of the
underlying factors that hinder their performance MSEs.
According to Zeleke (2009) and Admasu(2012), lack of integration between the vocational curriculum
taught at academic institution and skills required at the workplace in small scale and enterprises is a
major obstacle to the growth and development of MSEs. The performance of the MSEs in Ethiopia is
poor in comparison with similar sectors in other African countries such as South Africa, Kenya,
Uganda, and Tanzania.
Small scale enterprises in Ethiopian are generally characterized by an acute shortage of finance, lack
of technical skills, lake of opportunities and raw materials, poor infrastructure.In most urban areas of
Ethiopia, MSEs have a problem of finance when establishing the business most individual source of
finance come from personal savings and loans acquired from relatives, friends and many lenders with
high amount of interests (MoTI, 2005).
6
After the business goes operational, the probability of becoming profitable and paying back debts
along with accrued interest is less. Besides, MSEs do not conduct market research and develop/design
a product or service as per the need of customers (Zeleke,2009),
According to the study conducted in Addis Ababa university by Zeleke (2009) and Admasu (2012) as
cited in Solomon (2014) particularly in Arada and Lideta sub city concluded that marketing,
infrastructural and entrepreneurial factors are the basic variables which affect performance of MSEs,
therefore on the basis of the above study the present researcher will attempte to find out same gaps
which were not addressed by prior researcher such as prospect of society and important opportunities
and supportive given by MSE agency for currently available MSEs in Aksum town. Finally the
Researcher pointed out the following research questions:
1.3 key Research questions
1. What are the problem faced by the micro and small enterprise in the Aksum town?
2. What are the opportunities and supportive available for micro and small enterprise in Aksum
town?
3. What is the prospect of society toward micro and small enterprise in Aksum?
1.4 Objective of the study
1.4.1General Objective of the study
The General objective of this study will to assess Problem and Prospect of Micro & Small Enterprises
in Aksum town.
1.4.2 Specific objective
 To identify the problem faced the micro and small enterprises in Aksum town.
 To identify opportunities and supportive available for micro and small enterprises in the
Aksum town.
 To explore the prospect of society toward micro and small enterprise.
1.5 Significance of the study
This study is very important for the researcher to be familiar with the basic Concept of research and
can enables to engage in entrepreneurial activities to develop their own business. The findings can also
help MSEs in Aksum town and other within insight of the study for assessed different factors in the
7
studies to predict and pro-act against the factors that affect the performance of MSEs. More over the
government can use finding of this study to assist in policy formulation and development for a
framework for critical finance, marketing, work premises and other factors that affect the performance
of MSE. Finally the findings of this study can also help the policy makers and financial institution how
to encourage establishing or expanding MSEs. It also enables them to know what kind(s) of policies
should be formulated.
1.6Scope of study
The study will assesse problem and prospect of micro and small enterprises in case of Aksum town.
Although, there are different issues that has been researched in relation to MSEs, this study will
delimite to the working premise, production and financial problems, inadequate access to finance, lack
of infrastructure, access to training, marketing related factors and awareness of society to use micro
and small enterprise goods and service. Besides, the scope of this study will spread across MSEs
especially in the business sector of manufacturing, service rendering, and merchandising sectors.
17Limitation of the study
In studying the problems facing MSEs in Aksum town, the researcher carried out the
study successfully, however there are some limitations:The researcher will use only primary data or
information collecte from owners, lack of well-prepared secondary data from the sector, Most of the
time this types of research cases are undertaken by explanatory types of research design by using
models. However, due to lack of knowledge from the side of the researcher, the researcher will use
descriptive research method, this paper employs only stratified random sampling technique, lack of
available organized data conducting research on the side of the researcher,and some respondents did
not return the questionnaires on the promised time.Additionally, lack of financial resources like
computers and internet accesses.
1.8 Organization study
The study will organize in five chapters, the first chapter which is an introductory section of the paper
which includes background of the study, statement of the problem, objective of study, significance of
the study, scope of the study and limitation of the study. The second chapter deals with the related
literature review. The third chapters deal with the research methodology of the study .The forth
8
chapter concern with the data analysis and presentation of the findings. Finally the last chapter deals
with conclusions and recommendations.
9
CHAPTER TWO
1. LITERATURE REVIEW
2.1 Theoretical Frame Work of Micro and Small Enterprises
Regarding the definition of the term MSEs universally accepted definition is not yet given. This is
because of the heterogeneity of MSEs themselves and the nature of the economy in which they
operate. This become the agent for the absence of establishing feasible global definitions that can be
used everywhere in the same manners http://www.cgp.org /.
Small and medium-sized enterprises (Small enterprises) are a very heterogeneous group of businesses
usually operating in the service, trade, agri-business, and manufacturing sectors. They include a wide
variety of firms such as village handicraft makers, small machine shops, and computer software firms
that possess a wide range of sophistication and skills. Some are dynamic, innovative, and growthoriented while others are satisfied to remain small and perhaps family owned. Small enterprises
usually operate in the formal sector of the economy and employ mainly wage-earning workers. Small
enterprises are often classified by the number of employees and/or by the value of their assets. The
size classification varies within regions and across countries relative to the size of the economy and its
endowments. It is important to note that there is a minimum as well as a maximum size for Small
enterprises (Lukács, 2005).
2.1.1 Definition of MSEs by European Commission, World Bank, Organization for
Economic Cooperation and Development.
The definition of MSEs is with the purpose to be adequate to more economies, sought to
facilitate comparability and the internationalization in defining small enterprises, and moreover
to create new opportunities like: access to the small enterprises to place market, to technologies,
know-how, access to capital, workforce, new market and products(Buculescu, 2013).
10
Table2, 1 Example of MSEs Defined by EC, WB, OECD
Micro-entities
European
•
Commission
•
World Bank
Average number of employees < 10;
•
Average number of employees < 50;
Annual turnover < 2 million
•
Annual turnover <10 million Euros; or
•
Total balance sheet < 10 million Euros;
•
Less than 50 employees;
turnover < 100.000 dollars
•
Annual turnover < 3 million dollars
Total balance sheet <100.000dollars
•
Total balance sheet < 3 million dollars
Between 1 - 4 employees (small micro)
Between 20 – 99 employees
Euros or
Total balance sheet < 2 million Euros;
•
Less
•
OECD
Small enterprises
•
than
10
employees;
Annual
Between 5 - 19 employees (micro entities)
(Source: Definitions of small enterprises by EC, WB and OECD by Fitch 2006, cited by
Buculescu 2013).
2.2MSEs in Kenya
In Kenya context, the Micro, Small and Medium Enterprises (MSME) bill 2009 has used two
criteria to define Small and Micro Enterprises (SMEs) in general: Number of
people/employees and the company’s annual turnover. For enterprises in the manufacturing
sector, the definition takes into account the investment in plant and machinery as well as the
registered capital. This MES definition is therefore as follows
Table2, 2 Definitions of MSEs in Kenya
Classification
Micro
No of Employees
/people
Less
than
People
10
Annual Turnover
Limit
Investment in Plant and
Machinery plus
Registered Capital
Equipment
Investment plus
Registered Capital
Not exceeding
Not exceeding
Not exceeding
Ksh. 500,000
Ksh. 10M
Ksh. 5M
11
Small
More than 10 but Between
Ksh. More than 10M but less More than 5M but
less than 50
500,000 to Ksh5M than 50M
less than 20M
Source: Kenya Association of Manufacturers, 2009, p. 1-2
2.3 MSEs in Ethiopia
Definition of micro and small-scale enterprise is very essential for managing their activities and
providing support based on the size and types of business, they operate. In the world there is no
commonly accepted definition for MSE’s, Different countries define MSEs based on number of
employee and amount of capital employed in the operation of the business. The amount of capital and
the number of employees are different from country to country (FDREMSEs Development, Support
Scheme, and Implementation Strategies of 2011).
Table2, 3 the New MSE Definition (2011)
Type of the Enterprise Sector
Micro enterprise
Industry
Micro enterprise
Service
Small enterprise
Industry
Small enterprise
Service
Human Power
<5
<5
6-30
6-30
Total Asset
< 100,000(Birr)
<50,000(Birr)
< 1.5 million (Birr)
<500,000(Birr)
Source: Ethiopian Micro and Small Enterprises Strategy (2011)
2.3.1 Micro Enterprises in Ethiopia
Micro enterprises are defined in two ways based on the sector the enterprise operate their business.
The first classification is industrial sectors, which include manufacturing, construction, and mining sub
sectors. Accordingly, businesses engaged in those sectors having employees equal or less than five
labor force including owner of the business and family member labor or the total value of the
enterprises asset is equal or less than Br.100, 000. The second classification is services sector which
includes retail trade, transport, hotel and tourism, information technology and repairs enterprise having
employs equal or less than five labor force including owner and family member labor or the monetary
values of the enterprise total asset is equal or less than Br.50,000(FDREMSEs Development, Support
Scheme, and Implementation Strategies,2011).
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2.3.2 Small Enterprises in Ethiopia
Similar to micro enterprises small enterprises al defined based on the sector they are involved. The
first one is industrial sector, which includes manufacturing, construction and mining subsector
employing 6-30 workers including owner of the enterprise and family member labor or having the
total asset values from Br. 100,001 - 1,500,000. Service sector is the second classification which
includes retail trade, transport, hotel and tourism, information technology and repairs enterprises
having employs 6-30 work force including enterprise owner and family member labor or the enterprise
total asset value is between Br. 50,001- 500,000(Federal Democratic Republic of Ethiopia,2011).
2.4 Characteristics of the sector
Micro and small enterprise seen as instrument to alleviate unemployment problem in the world,
especially for least developed countries, where unemployment is a series problem. MSEs are also
labor intensive and capital saving and that is why the sector are assumed as a key factor to alleviate the
current problem of unemployment through creating new or additional job opportunity.
Micro and small enterprise has so many characteristics but the most important are;
 One person (Owner-manager)-this means that business decision will often become personal
decision or there is an over dependency on a single individual for the well-being of the
enterprise. Information is also flows top to down.
 They are likely to operate in a single market or limited range of market, probably offering a
limited range of products or services, in other words the scope of the enterprise’s operation is
limited and less of strategic issue than in large firms. They are also found it more difficult to
diversify their business risk.
 They are likely to be over reliant on small number of customer. This means they are
particularly vulnerable to losing any one customer and the effect of such loss on the enterprise
will be disproportionately large. as far as a high competition in the market is concerned, if
there is shift in preference, the operation of these types of business is automatically loosed and
they are forced to with draw from the market easily(Sirpolis, 1997 p. 3-4)
13
2.5 MSE and Entrepreneurship
MSE are often described as “a natural bone of entrepreneurship” (lukacs, 2005).This means it provides
the ideal environment that enable the entrepreneur to exercise their talents to full and attain the goal
and objective that they have set for themselves. In all successful economies, entrepreneurs are seen as
essential for growth, Job creation and social progress and the virtues of small business are by now
almost universally accepted.
2 .6 MSE and job opportunity
The use and values of employment in targeting poverty is neither new nor restricted to any one region.
Historically the poor employment act of 1817 in Great Britain represented the major milestone in the
development of economic policy to reduce poverty through creating employment opportunity and
development (Mead, 1998).
Fedahunsi (2000) represent the job generation role of the small enterprise emphasize the external
weakness and volatility of individual small business growth, the pattern and low quality and
sustainability of the many job created by the mass micro enterprises. He observed that a relatively few
firms exhibiting rapid and sustain growth account for the bulk of sustained job generation in small
firms.
Finally, those micro and small enterprise that are better placed with access resource including
information and technology have a potential to offer sustained jobs, which further enhance the living
standard of the society and have the way for the eradication of poverty.
2.7 MSE and Finance
Finance is the lifeblood of any organization. This means without the availability of finance
organization cannot be survived, like wise MSE’S need finance for their smooth operation.
According to Wolday, (1997), lack of initial capital and working capital is reported to be one of the
major constraints of the enterprise. Factor like short-term loan repayment period, existence of several
collateral requirement, Procedures and lack of knowledge about bank regulation and service are found
to be major factor that discourage potential and existing MSE’s entrepreneurs from coming to
institutional forms of credit. In the study on MSE’s has been identified that 78% & 81% of MSE use
saving and retained earnings as their primary source of investment and working capital respectively.
14
This indicates that MSE’s sectors face one major problem that is lack of capital, especially lack of
initial capital. About 93% of MSE did not formally apply for credit. Many of them may be considered
as discouraged potential borrower (i.e. firms that need credit but are discouraged from applying by the
perceived or really a high collateral requirement, high cost of borrowing (interest), concerning about
their repayment ability and some other are unaware (wolday, 1997)
Access to finance is one of the important ingredients to the success of MSE’s. Therefore government
should concern the finance be an available not only in volume but also must be affordable, appropriate
and timely existence of symmetric information and bankable collateral explain the lack of access to
credit for MSE’s (Workenh, 2007). This difficulty of access to credit is certainly one of the major
problems that do have decisive bearing on the quantity and quality of investment made by these
enterprises.
2.8 MSE and Marketing
In a free market economy, especially with stiff competition, marketing is a key factor for the success
of MSE’s a report (Gebrehiwot; &wolday, 2005). According to these Authors, efficiency in marketing
determines sales, profit and growth. Marketing should aim at creating markets and developing saleable
products of MSE operators. Like that of medium and large-scale enterprise, marketing in MSE sector
involves three basic inputs, the product, the promotional method adopted and distribution system. The
input should be integrated to achieve a maximum consumer satisfaction, sales and profits. Marketing
in MSE sectors should address the marketing problems that emanate from the following sectors:
1) Increased competition from/within / the MSE sectors as well as from medium large enterprises
and imports.
2) Limited consumer awareness of the product / service of MSE.
3) Inability of MSE to exploit export market.
In general, any marketing efforts to improve the growth and performance of MSE’s should focus on
finding out what consumer want, planning and satisfy these wants and developing products and
services to determine the best way to price, promote and distribute them. In order to facilitate the
marketing efforts of MSE, the government, NGO’s and other stake holders should encourage and
support the operation of marketing organization or unit that are engage in promoting sales of MSE
products( Gebrehiwot; &wolday, 2005).
15
2.9 MSE and Institutional Support
One of the series constraints hampering the development of the enterprise is lack of institutional
support. In Ethiopia, Country where there is no strong chamber of commerce that can provide reliable
and timely market information and technical advice to entrepreneurs Potential investors who plan to
start MSE business has limited access to market information and technical advice. Consequently the
major criterion entrepreneurs resort to choosing their line of investment appears to be the imitation of
others who have started presumably profitable activities in the same locality.
According to Wolday,(1997) reports, the MSE enterprise reported that a number of institutional and
bureaucratic impediments constrain them, particularly in acquiring license during the startup of their
business .Depending on the line of activity, entrepreneurs are usually required to approach different
institution (trade, industry, transport, municipality and etc) each having its own criteria and regulation
for the issuance of license. Then coordinated activity of various offices appears to discourage
entrepreneurs from formalizing their business.
In addition, the minimum investment capital requirement of ETB 250,000 to qualify for investment
activity have denied access to any incentives for a large majority of domestic entrepreneurs, who
should have been give special attention. The denial was because of the fact that the importance of
small enterprise in contributing towards the economic development of the country was wrongly and
undesirably undetermined by policy makers and the community as a whole.
2.10 Empirical Review of the Study
The study conducted by Ethiopian CSA (2006), discloses that, the contribution of small enterprises in
creating job opportunities and in the development of our economy is vital However, their contribution
is very low in compared with that of other countries due to financial problem, lack of qualified
employees, lack of proper financial records, marketing problems, lack of working premises and raw
materials. Lack of information about market opportunities and standards and regulations is one of the
underlying factors that hinder their performance MSEs.
Wolday (1997), also found that lack of initial capital and working capital is one of the major
constraints of the enterprise. Factor like short-term loan repayment period, existence of several
collateral requirement, Procedures and lack of knowledge about bank regulation and service are found
16
to be major factor that discourage potential and existing MSE’s entrepreneurs from coming to
institutional forms of credit.
According to Zeleke (2009) and Admasu (2012), lack of integration between the vocational
curriculum taught at academic institution and skills required at the workplace in small scale and
enterprises is a major obstacle to the growth and development of MSEs. The performance of the MSEs
in Ethiopia is poor in comparison with similar sectors in other African countries such as South Africa,
Kenya, Uganda, and Tanzania
Roy and Wheeler (2006) identified that the level of training of micro entrepreneurs (both formal and
informal); experience and number of years in operation; knowledge of the market; level of
differentiation (in terms of price, quality or other) and diversification of products; access to the
necessary resources and/or technologies; level of planning; vision for the future; and the
entrepreneur’s level of poverty are among the factors contributing to success of MSEs while lack of
market knowledge and training, limited access to capital, and lack of co-operation among possible
business partners are some of the factors inhibiting the growth and development of the micro
enterprise sector.
A study by Hall (1992) has identified two primary causes of small business failure appear to be a lack
of appropriate management skills and inadequate capital (both at start-up and on a continuing basis).
The research undertaken in Tanzania by surveying 160 micro enterprises showed that high tax rates,
corruption, and regulation in the form of licenses and permits, are found to be the most important
constraints to 24 business operations of micro enterprises (Mulugeta, 2011).
Assegedech,( 2004). Stated that 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, more over Shortage of funds discourages the smooth operation and
development of MSEs. Even if there are credit facilities, some of the MSEs do not use the money for
the intended purpose. They rather divert it for other unintended and non-productive expenditures.
Consequently, the enterprises fail to return the money back to the lender on time. This can result in a
loss of credibility to get repeated loans when needed. She also stated that competition is also another
17
problem that hinders the performance of MSE. She explained it: As is mostly the case and common
recognition, "Competition is Cruel", which implies that some larger companies in relation to MSEs
have advantages due to: selling at reduced price without reducing product quality using economies of
scale, customer targeting capacity, proper and intensified product/service advertising capacity, good
personal contacts and networks, sound industry reputation and sufficient information regarding
existing market and capacity to exploit more market opportunities.
In his research, Dereje (2008) examined the nature, characteristics, economic performance,
opportunities and challenges of MSEs in the construction sector based on 125 sample enterprises. The
results of the study revealed that the main constraints of the MSEs were shortage of capital, lack of
raw materials, absence of government support, lack of market, lack of credit facilities and high interest
rate. Studies were also conducted specifically with a purpose of identifying the problems that MSEs
encounter.
Workneh’s (2007) research undertaken in KolfeKeraneosub-city of Addis Ababa indicated that lack of
capital, lack of market, unfavorable policy, and inadequate infrastructure, absence of adequate and
relevant training, bureaucratic structure and procedures are among constraints faced by MSEs.
Similarly, Adil’s (2007) research carried out in Addis Ababa shows that inappropriate government
intervention, shortage of capital, location disadvantage, lack of market and lack of display room are
the major challenges that obstruct MSEs.
According to HLCLEP (2006: p. 17), there is lack of entrepreneurial and managerial skills, which in
turn leads to problems in production due to the unfamiliarity of workers with rapid changing
technology, lack of coordination of production process and inability to troubleshoot failures on
machinery and/or equipment is a critical problem that MSEs are facing since they cannot afford to
employ specialists in the fields of planning, finance and administration, quality control and those with
technical knowledge.
18
CHAPTER THREE
3. METHODOLOGY OF THE STUDY
3.1. Research design
The researcher will applie descriptive data analysis method to put the objective of the study into effect
by using both qualitative and quantitative means of analysis.The main purpose of descriptive research
is to describe the state of affairs, as it exists at the present time. The distinguishing feature of this
method is that the researcher has no control over the variables, but only reports what has happened or
what is happening. Survey methods of all kinds, including comparative methods, can be use in
descriptive research. This type of research is also concerned with predictions and the narration of facts
about a particular individual or a group (Bernard 2000, Bryman 2004; Ghosh 1982&Silverman 1993).
3.2. Data type and data collection method
Only primary data will use for the accomplishment of the study the reason behind using primary data
will that in order to get most updated and reliable data directly from the respondent and due to the fact
that in case of our country micro and small enterprise cannot prepare financial statement that use for
seconder data. Primary source includes the actually information received from individual directly
concerning the problem and prospect for the study that was the owner of employed in micro and small
enterprise. The primary data will collecte through structured questionnaire. The data will collecte by
distributing questionnaires to the owner and other employed in micro and small enterprise. All
necessary data the researcher collecte by using primary data collection method both opens and close
ended questionnaire.
3.3. Sample size and sampling Technique
The data will collecte from owner of the enterprises that are organize as micro and small enterprise.
The total population of the study area is heterogeneousness and it will stratifie in to group and five
sectors of enterprises such as construction, manufacturing, service rendering, merchandising, and
urban agriculture. Large numbers of MSEs sectors in Aksum town. Due to transportation cost and
constraints of time and budget the researcher decide to select only three sectors from micro and small
enterprises as a target population namely: merchandise, service rendering and manufacturing sectors.
Therefore the researcher will select 97 samples from the target 3477 population. In order to select
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sample from target population the researcher preferre to use stratified sampling technique due to its
convenience to take sample from each three heterogeneous sub group of micro and small enterprises.
The researcher adopted simple mathematical formula that developed by Yemane (1967) for
determining simple size
𝑁
𝑛 = 1+𝑁(𝑒)2
e- Is the error or confidence level
N-TOTAL MSE in Aksum town
𝑛=
3477
1 + 3477(0.1)2
n=97.20≈97
Number of samples in each group will selecte by proportional stratified method based on the
numberofsmallenterprisesineachgroupincluded.
Sample size of the strata = size of entire sampletotal population size ∗ Sample size layer
Service=942/3477*9726,
Merchandise=1938/3477*9754,
Manufacturing= 597/3477*9717,
3.4. Data Processing and analysis
After the relevant data will collecte, it will processe and analyze by using, tables and percentage
computation. This involved data processing, which includes editing and classifying the collected data.
The data analysis technique that the research used for the study was descriptive analysis; this enabled
the researcher simply to understand and clarity for drawing conclusion.
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