THE ROLE OF MICRO AND SMALL ENTERPRISE ON (IN) REDUCING

UNEMPLOYMENT AND THEIR CONSTRIANTS (IN CASE OF ALETA WONDO

TOWN, SOUTHERN ETHIOPIA)

COLLEGE OF COMMERCE AND BUSINESS ADMINSTRATION

DEPARTEMENT OF FINANCE AND DEVELOPMENT ECONOMICS

A RESEARCH PROPOSAL SUBMITTED TO PARTIAL FULFILLMENT OF THE

REQUIREMENT OF BACHELOR ART DEGREE IN FINANCE AND
DEVELOPMENT ECONOMICS

BY:-ASRAT BEKELE
E-mail:-asratbekele255@gmail.com
ADVISOR:-Mr. Mihretu T.(Msc)
E-mail:-ferewetes@gmail.com

DEC, 2020
SAWLA, ETHIOPIA
 ACKNOWLEDGEMENT
Above all, let me praise and honor the almighty God for the opportunity and capacity given to
me to realize my appreciation. Second, I would like to express my heartfelt thanks to my
advisor Mr.Mhiretu T. for his professional guidance, criticism and constrictive comment
which brought about successful completion of the paper. Thirdly, I would like to thanks my
family and my friends.

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 Acronym
SNNP South nation nationality and peoples

MSEs Micro and small enterprise

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Table of contents

Acknowledgement..................................................................................................................................I

Acronyms...............................................................................................................................................II

Table of contents..............................................................................................................................III

CHAPTER ONE................................................................................................................................2

1. INTRODUCTION.........................................................................................................................2

1.2 Statement of the problem.................................................................................................................4

1.2.1 Research Questions...................................................................................................................5

1.3 Objective of the study..................................................................................................................5

1.3.1 General objective......................................................................................................................5

1.3.2 Specific objective.....................................................................................................................5

1.4. Significance of the study.............................................................................................................5

1.5. Scope of the study.......................................................................................................................6

1.6. Organization of the paper...............................................................................................................6

CHAPTER TWO...................................................................................................................................7

2. LITERATU REVIEW.......................................................................................................................7

2.1 Theoretical literature review........................................................................................................7

2.1.1 Definition..................................................................................................................................7

2.1.2 Problems of Micro and small enterprise.......................................................................................7

2.1.3. The role of MSEs in reduction of unemployment....................................................................9

2.1.4. Role of micro and small enterprise in Ethiopian economy...........................................................9

2.2. Empirical literature review.......................................................................................................10

2.2.1 Lessons from the experience of developing country...................................................................10

CHAPTER THREE.............................................................................................................................11

3. METHODOLOGY......................................................................................................................11

3.1. Site description.............................................................................................................................11

3.2. Research method and data source.............................................................................................11

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3.2.1. Data source and data collection technique.................................................................................11

3.2.2. Sampling method and sample size.....................................................................................11

3.2.3. Method of data presentation and analysis..................................................................................12

CHAPTER FOUR...............................................................................................................................13

4. Time budget and cost budget.......................................................................................................13

4.1 Time budget...........................................................................................................................13

4.2 Cost budget....................................................................................................................................14

Bibliography........................................................................................................................................15

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CHAPTER ONE

1. INTRODUCTION

1.1. Back ground of the study

Micro and small-scale enterprises are widely recognized for their role in social, political and
economic development. Their importance is apparent in its ability to provide reasonably
priced goods, services, income and employment to the number of peoples. Consequently, the
efficiency of micro and small-scale enterprises is closely associated with the efficiency of the
country (Demisew G. Degefu, 2018).

In most fast developing countries, micro and small-scale enterprise by virtue of their size,
capital investment and their capacity to generate greater employment have proved powerful
proponent effect for economic growth. The sector is also known as instrument bringing about
economic transition by efficiently using the skill and talent of people without requesting high
level training, capital and sophisticated technology. Moreover, they create job opportunities
for a substantial segment of the population. Hence, this is quick remedy for unemployment
problem, direct intervention and support of the government crucial to facilitate the
environment for new job sectors and self-employments. Ethiopia private sector as a whole is a
highly dominated by micro and small-scale enterprises which are geared towards satisfying
the speeds of low-income groups (Demisew G. Degefu, 2018).

In developing countries, micro and small enterprise were asked to rate among some of the
most common problem with in the sector to the daily operation and growth of their company.
In order of importance, the lack of adequate working premises, lack of access to credit, and
shortage of power supply have been ranked as the three most important obstacles that call for
the attention of all stakeholders working on micro and small enterprise development
(Gebreeyesus, et al., 2017).

Micro and small scale business enterprises are seen as the most important alternative sector in
fostering socio-economic developments and reduction of poverty in both developed and
developing countries. It is the chief sector to achieve the goal through creating employment,
improve saving and wealth and improvement of living standards. Since poverty and
unemployment rate are considerably higher in these countries than developed countries so
MSEs is very important. In addition to this MSEs can play a role in improving the socio-

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economic condition of the poor by enable them through generate their income access for
socio-economic merits such as education, better health condition, good housing and nutrition
(Geremewe, 2018).

The role of MSEs provides significant contribution to the economy of country in respect of
employment and output. But, in Ethiopia case this sector are marginalized and do not got
much emphasis in general and in AletaWondo in particular.

In AletaWondo town, like other towns of the country, the number of population is changing
radically, but the poverty and unemployment rates are increasing as of its population. Thought
poverty and unemployment of the town is high, the research and the study to tackle these
problems have not been given seriously and the various tools of reducing poverty which
ultimately improve the socio economic development of the town are not given proper
attention it deserves. MSEs is one of the tools to help improve the socio economic
development yet, Practically there are scanty studies to complement these resulting in
knowledge gap regarding the MSEs contribution to the development of socio economic and
the constraints of the MSEs face to be diversified. Due to these, it is vital to study on them.
Therefore, this study deals with the analysis of the role of MSEs in reducing unemployment
and their constraint in AletaWondo town. In Ethiopia micro and small scale enterprise faces
absence of adequate infrastructure which is a major problem for small units to grow. Most of
the small units and industrial estates found in towns and cities are having one or more
problem like lack of power supply, water and dranage problem, poor rod, raw material and
marketing problem. Thus absence of adequate infrastructure adversely affects the quality,
quantity and production schedule of enterprise which ultimately results in under-utilization of
capacity (Mohamed, 2016). MSEs in SNNP are plays a vital role in the process of
development. And also it generates employment at low cost and helps the society on move
one path of wealth and growth (Southern nation nationality and Peoples Bureau in 2017). On
my study area there were majority of the MSEs that exist in Aleta Wondo are owned by male
rather than female and it create high level of job opportunity to the society. (Aleta Wondo
Bureau).
According to Federal Urban Development Package of Ethiopia 2017,
In Ethiopia, the number of people who can work continues to grow more rapidly than the
ability of the economy to provide new employment opportunities. Unemployment,
particularly urban unemployment, is one of the critical problems in the country. The rate of
urban unemployment in the country was 26.4 percent in medium towns and 40 percent in

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large urban towns in 2017. SNNP is one of the cities found in Ethiopia, with high
unemployment level. There were around 18,350 unemployed people in southern (Southern
Regional State Bureau of Trade, Industry and Transport 2016). According to Aleta Wondo
Bureau of there is high level of unemployment rate in town.

1.2 Statement of the problem

Development of micro and small scale enterprise leads to employment of the majority of labor
force. It well known that micro and small enterprise plays a crucial role in the socio economic
development of one nation; through enhancing of the income of poor, reducing the rate of
unemployment and poverty. Micro and small enterprise is major feature of economic
landscape in all developing countries today. The contribution of enterprises to the creation of
jobs and to the alleviation of poverty has been recognized by many third world governments.
They have been given prominence in many development plans as well as in the strategies of
many donors.
Poor countries, like Ethiopia, at this time are highly attached with different problems like
poverty, unemployment, backward culture, famine, illiteracy, high population growth rate etc.
MSEs are increasing in number and coverage in SNNP region in general, especially in Aleta
Wondo town. Nevertheless, according to the information from Aletawondo town, MSEs are
hindered by variety of problems which interrelated and tested. The growth and dynamism of
the organization such as lack of finance, lack of market profitability and infrastructure. With
this problem it is difficult for the MSEs to be competitive and profitability in the present
nature.

The fundamental contribution of the small business sector to the overall performance of the
economy is indeed a crucial motive for researchers to investigate and examine the key success
factors behind this sector. Small businesses face many challenges that hinder their growth or
even further cause a permanent shutdown. Most micro and small businesses are control by
their owners because they could not have fund for to hire proficiency to run the businesses for
them (Meresa, 2018). The micro and small enterprise development strategy has started
implementation recently in Ethiopia to reduce urban unemployment, poverty and bring
economic development. Due to this, promoting MSEs has been taken as a tool in AletaWondo
town, like other town in SNNP region. As the result of this, many MSEs are created in the
past five to six years. Those MSEs flourished are individually owned and cooperatives
enterprise and as evidence indicate for last consecutive years of the population is suffering

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from unemployment and very low per capital income. This is the case that MSE has potential
to enhance the income of poor and reducing the rate of unemployment through creating
different job opportunity. This idea indicates that reducing unemployment, increasing income
of the poor people and reducing poverty. In this specific study area there were no research
work done in analyzing role of micro and small enterprise on reducing unemployment and its
constraints so far to be reviewed. But there were some research’s work done in another town
in Ethiopia. For instance Bereket Tadesse;by his research uses cluster sampling method to
take sample from the total enterprise working in his study’s area in 2016.During this study
will be uses stratified random sampling method to take sample from the enterprise.

1.2.1 Research Questions

 How MSEs do contributes for employment generation and its sustainability?
 How MSEs do play its role in the income generation in the study area?
 What are problems that hindered the development of MSEs?

1.3 Objective of the study

1.3.1 General objective

The overall objective of the study will be assesses the role of micro and small enterprise in
reduction of unemployment and their constraints in AletaWondo town.

1.3.2 Specific objective

 To examine the role of MSEs with respect to employment creation in the study area.
 To assess the role of MSEs in income generation in the study area.
 To identify different challenges that constrained that hinder the development of MSEs
in the study area. suggest possible solution to correct the problem (challenge).

1.4. Significance of the study

This study will be contributes more towards understanding of optional advantage of micro
and small enterprise in relation to employment opportunity to generate income and improving
living conditions of urban dwellers, nation economic development and poverty alleviation
makes them crucial economic instrument. In addition that it will helps to identify constraint
that hinder the role of micro and small enterprises in reducing of unemployment and seek
possible solution for the obstacle.
Hence, the result of the research will provides relevant information to policy makers and local
development planners working on the development of facilitative environment for MSE’s.
Furthermore, the study will provides additional information about the role of MSEs in
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employment creation in AletaWondo town for interested researchers, prospective
entrepreneurs, and business consulting firms.

1.5. Scope of the study

This study will be mainly focuses on the role of micro and small enterprises for
unemployment reduction through job creating and income generation. The researcher will
give emphasis on the (textile and garment, metal and woodwork, industries, trade, service and
construction, urban agriculture ) but for this study industries, trade, urban agriculture, service
and construction is select because cover high present all total number of micro and small
enterprise in the town. The other types of sectors, other than the five sectors mentioned
above, are beyond the scope of the study because of time and finance constraints.

1.6. Organization of the paper

The research paper will be prepares in five chapters. The first chapter is introduction; which
includes background of the study, statement of the problem, objectives of the study,
significance of the study, scope of the study, limitation of the study and organization of the
paper. Literature review is second chapter and the third chapter deals with brief description of
the study area and research methodology.

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 CHAPTER TWO

2. LITERATU REVIEW

2.1 Theoretical literature review

2.1.1 Definition
Micro and small enterprise sector is highly diversified sector and plays a predominant role in
the economy of developing country. The employee a large proportion of labor force and in
many developing countries they are the source of income for various peoples. MSEs have also
been influential in bringing about economic transaction by providing goods and services to a
large number of people without requiring high-level of training large sum of capital or
sophisticated technology (Alemu KS, Dame DB, 2016).

In legal terms distinctions are only made between sole traders, partners and companies with
no formal definition of what constitutes a micro and small business. And there is no single
and universal definition of what constitutes a micro and small firm, which can be useful for
all purposes. Firms differ in their levels of capitalization, sales and employment. Hence,
definitions which employ measures of size (number of employees, turnover, profitability, net
worth, etc.) when applied to one sector could lead to all firms being classified as small, while
the same size definition when applied to a different sector could lead to a different result
(kebede, Getnet Hungnawu, 2019).

2.1.2 Problems of Micro and small enterprise

A. Lack of access to capital and credit: In the development of micro and small scale
enterprise it hundred by different problems. Among the problem lack of capital for startup
activities, operation, expansions can be mentioned. The Central statics authority of Ethiopia
for the purpose of its survey on small scale manufacturing industries in 2017 shows 30.64 %
of total establishment have faced problems of capital during the start of their operations
However 9% of the total establishment faced shortage of working capital when they are in
operation (kebede, Getnet Hungnawu, 2019).

B. Low access to working premises: micro and small scale enterprise operators usually don't
get access to suitable location to where they can get easy access to market. The days on today,
the issues of land acquisition and transaction cost has become very prohibitive to the

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emergency of new enterprise and to the growth and survival of the existing ones. The issue of
land provision has become one of the most controversial issues in all urban areas. The land
lease system has greatly constrained the micro and small scale enterprise who aspire to start
up business (Meresa, 2018).

C. Inadequate Advisory consultancy: the delivery of good information is important for

sustainable competitiveness in local and global markets and creating and sustainable growth
of micro and small scale enterprise sector. In completed and constantly changing business the
production and supply of quality good's or service to the customers at a minimum cost of
production depends highly on the availability and provision of business up grading service
and technical knowhow. Consultant and advisory service them as a tools to enable
entrepreneurs to diagonally their business and undertaken informed decision is one of the key
elements from arrange of service (Demisew G. Degefu, 2018).

D. Shortage of raw material: Raw material is the unprocessed items that are broken down,
processed or combined with other materials to create and end products. Raw materials are
used in particularly all aspects of a manufacturing and construction. Shortage of row materials
are frequent problems to micro and small scale enterprise such problems may arise from
shortage of working capital, which effectively ties the enterprise to one high priced, unreliable
or poor quality supply (Meresa, 2018).

E. Lack of Adequate market: due to this aspect being very vital to overcome marketing
problems the crucial points that micro and small scale enterprise are unable to meet are
manifested by lack of information where the best market area are located, inability to analyze
their respective market, lack of skills to set competitive prices. Marketing knowledge is
important for the promotion, growth and development of small-Scale enterprises. In this
regard, the Ethiopian government has formulated MSE‟s strategies to ease marketing
challenges by creating inter-linkage mechanisms with other institutions, providing training on
marketing, developing export support programs and marketing information center. However,
inability to sell the products and services; lack of adequate marketing channels, and lack of
marketing skills are the problems to the starting of business and further growth of the sector
(Meresa, 2018).

F. problems in market promotion: The role of promotion is to facilitate product or services

providers and customers. Commercial enterprise is concerned with attracting customers.
Different types of enterprise will have distinct promotional mixes utilizing a variety of

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promotional methods. The major promotional mixes are as follows, advertising, sales
promotion, and public finance (Demisew G. Degefu, 2018).

2.1.3. The role of MSEs in reduction of unemployment

Based on the report obtained from National Bank of Ethiopia from 2008/09-2014/15, it is
revealed that the new MSEs establishments is important for employments generated. The
MSEs establishment has grown from 73,775 in 2008/09 to 271,519 in 20014/15.When we see
the employment creation of newly established MSEs on employment creation is increasing
from 530,417 people in 2008/09 to 2,800,000 people in 2014/15. According to World Bank
report 2013/14 revealed that the unemployment level in Ethiopia had declined from 44% in
2000 to 30% in 2011 and have further went down to 26 % in 2013 (Raghurama, 2017).

2.1.4. Role of micro and small enterprise in Ethiopian economy

In Ethiopia micro and small scale enterprise faces absence of adequate infrastructure which is
a major problem for small units to grow. Most of the small units and industrial estates found
in towns and cities are having one or more problem like lack of power supply, water and
drainage problem, poor rod, raw material and marketing problem. Thus absence of adequate
infrastructure adversely affects the quality, quantity and production schedule of enterprise
which ultimately results in under-utilization of capacity (Mohamed, 2016). Micro and small-
scale enterprise in Ethiopia are extremely dominative and socially in efficient. Its greatest
asset is the desire to survive and eventually get rich. The other advantage is its creativity and
ingeniousness. Ethiopian private sector as a whole is highly dominated by micro and small-
scale enterprise which are geared towards satisfying the speeds of low-income groups
(Demisew G. Degefu, 2018).

According to Addis Ababa 2016 report, due to limited growth in employment prospects in the
public sector and declining absorptive capacity of the agricultural sector, the numbers of new
job seekers are turning to micro and small enterprises (MSEs). The Ethiopia government is
focusing on the micro and small enterprises basically because of their contribution in reducing
poverty and unemployment becomes better than other sectors. Even he emphasizes more on
micro and small enterprises than medium and large enterprises. The government has been
supporting their MSEs extensively through many different programs, with subsidized credit
schemes, financial support, creating marketing link, providing free showing area, free
production and operation area, promotion and soon (Geremewe, 2018).

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2.2. Empirical literature review
The MSE sector has high capacity in absorbing high labor force; this is because the sector
characterized by diversified activities. Due to its contribution for reducing unemployment and
of course with a number of constraints micro and small enterprises, get the attention of many
researchers (Meresa, 2018).

Micro and small enterprise sector is highly diversified sector and plays a predominant role in
the economy of developing country. The employee a large proportion of labor force and in
many developing countries they are the source of income for various peoples. MSEs have also
been influential in bringing about economic transaction by providing goods and services to a
large number of people without requiring high-level of training large sum of capital or
sophisticated technology (Alemu KS, Dame DB, 2016).

2.2.1 Lessons from the experience of developing country

For instance we can take Ethiopia; In Ethiopia, micro and small scale enterprise faces absence
of adequate infrastructure which is a major problem for small units to grow. Most of the small
units and industrial estates found in towns and cities are having one or more problem like lack
of power supply, water and drainage problem, poor road, raw material and marketing
problem. Thus absence of adequate infrastructure adversely affects the quality, quantity and
production schedule of enterprise which ultimately results in under-utilization of capacity
(Getahun Mohammed, 2016).

2.3. Conceptual framework

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 CHAPTER THREE

3. METHODOLOGY

3.1. Site description (Description of the study area)

The study will be conducts in Aleta wondo town and Aleta wondo is located in southern
nation nationalities and peoples region of Ethiopia at distance of 336km from Addis Ababa.
Aleta Wondo is bordered on the south by Dara, on the west by Chuko, on the north by Dale
and Wensho, on the east by Bursa and on the southeast by Hula. The administrative center is
Aleta Wondo. A survey of land in this woreda shows that 72% is arable or cultivated, 12.9%
pasture, 7% forest and the reaming 8% is considered swampy. Aleta Wondo is also located in
a fertile and forested area near Lake Abaya in upper Gidabo River basin, not far from the
source of the Genale Doroya and Dawa river in sidama zone of southern nations nationalities
and peoples regions. This town has a longitude and latitude of 6 036’N 38025’/
6.6000N38.4170E with an elevation of 2037 meters above sea level. (source )

3.2. Research method and data source

3.2.Data source and data collection technique (Types of data and methods of data
collection technique)

Descriptive research method will be uses to analyze the data gathered related role of micro
and small enterprise in reduction of unemployment and their constraints that hinder the
effectiveness of MSE’s. The data uses for this study will be collects from two complementary
sources: Primary and secondary data sources. Primary data collects from MSE operator,
government officials of MSEs in Aleta Wondo town through interview, personal observation
and by distributing close ended and open ended questionnaire to the respondent. Secondary
data will be collects from documentary source, government annuals reports, internet,
magazines, published and unpublished research report and recorded file from Aleta Wondo
trade and industry bureau will be used for this study.

3.2.2. Sampling method and sample size

During the study stratified random sampling method will be used to take sample from the
total enterprise working in association in the town. Sampling will undertake from different
types of activities: industry, services, construction, urban agriculture and trades of formally
organized operators in the enterprises. This study applies simplified formula (Yamane, 1967)
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in order to determine the required sample size at 90% confidence level and 10% of precision
level.

N
n= ( e )2
1+ N

Where n sample size N is total population and ‘e’ level of precision accordingly the above
formula. And from those different sectors the sample has been select through disproportional
stratified sampling by judgment decision. This is for the purpose of comparison between
different sectors in their contribution to income and employment

3.2.3. Method of data presentation and analysis

To analyze the collected data, the researcher will uses both the quantitative and qualitative
method of analysis. Qualitative data analysis will uses for organizing, describing and
systematic interpreting the collected data, while quantitative data analysis will uses to analysis
tools such as percentage, mean, charts and tables are used to present data.

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 CHAPTER FOUR

4. Time budget and cost budget (Budget Plan and Time Schedule)

4.1 Time budget

Dec Jan Feb Mar Apr May Jun
1 Literature survey Xx
2 Problem Xx
formulation and
report preparation
3 Research design xx
4 Data collection xx
5 Data analysis xx
6 Report writing xx
7 Presentation and Xx
submission

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4.2 Cost budget
No. Items Quantity Price P
1 Internet fee 30hrs 10 300
2 Paper 53 0.5 26.5
3 Pen 2 10 20
4 Binder 1 35 35
5 Typing cost 53 5 265
6 Printing cost 53 1 53
7 Miscellaneous 1 50 50
expenses
8 Note book 1 30 30
9 Total 779.5

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Tourism Hospit , 5 (3), 214.

Demisew G. Degefu. (2018). factor that determine the growth of MSE. iBusiness , 10 (2150-
4083), 185-200.

Gebreeyesus, M., Ambachewu, A., Getahun, T., Aseefa, B., Abebe, G., Hassen, S., et al.
(2017). main feature of micro and small manufaturing enterprise in ethiopia. ethiopia
development research institue(EDRI). addis ababa: Gebreeyesus, Mulu; Ambachewu,
Abebe; Getahun, Tigabu; Aseefa, Berhu; Abebe, Girum; Hassen, Seid; Medin,
Hailesilase.

Geremewe, Y. T. (2018). The Role of Micro and Small Enterprises for Poverty Alleviation.
International Journal of Research Studies in Agricultural , 4 (12), 1-10.

Getahun Mohammed. (2016). The Challenge and Prospects of Small Scale Enterprise in
Ethiopia: A Survey of Some Selected Small Scale Enterprise. (G. Mohammed, Ed.)
International Journal of Scientific and Research Publications , 6 (5), 617-626.

kebede, Getnet Hungnawu. (2019). policy framework of small and microenterpriseand its role
on developments. public policy and adminstration research journal , 9 (4), 30.

Meresa, M. (2018). Factors Affecting the performance of Small-Scale Enterprise (Restaurant

and Hotels) Inraya Azebo Wereda. International Journal of Managerial Studies and
Research (IJMSR) , 6 (1), 68-92 .

Mohamed, G. (2016). The Challenge and Prospects of Small Scale Enterprise in Ethiopia: A
Survey of Some Selected Small Scale Enterprise. international journal of scientific
and research publication , 6 (5), 617-626.

Raghurama, A. a. (2017). The Role of Micro and Small Enterprises for Poverty Alleviation.
International Journal of Research Studies in Agricultural , 4 (12), 1-10.

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