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The Assessment of Challenges and Prospects of Small and Medium scale
Enterprise in Adigrat town

BY: Yirga Abera

ADVISOR:Alemayhu

A Research paper Submitted to Department of Management ofUniversity in partial

fulfillment of the requirements of Bachelor of art (B.A) degree in Management

DEBRE MARKOS UNIVERSITY

BURIE CAMPUS
DEPARTMENT OF MANAGMENT

JUN 2017

BURIE, ETHIOPIA
 ACKNOWLEDGENET

First and for most I would Like to thank my almighty God for his protection and help me at
every steps of my life and success in my work.

In addition, I would like to express my deep gratitude to my advisor Alemayehu out only for
spending his valuable precious time in reading every portion of the paper, but also for his
valuable comments, suggestions, and criticism that guided me in doing the research. Without his
support and co-operation, this would not have been finalized.

Finally I would like to thanks my beloved familes for their financial support and valuable moral
until the study has been finished
 LIST OF TABLES
Tables page
4.1 Age of Respondents …………………………………………………...…
4.2 Education Levels………………………………………………………………..
4.3 Gender Composion……………………………………………………………
4.4 Marital Status …………………………………………………………………
4.5 Legal Form of business………………………………………………………..
4.6 Age Of SME;S…………………………………………………………………
4.7 Growth In Employment …… ………………………………………………….
4.8 Suitability Of
OperatingLocation…………………………………………………………………….
4.9 Access to Credit ……………………………..................................................
4.10 Adequacy Of Credit Amount……………………………………………….
4.11 Market Linkage ………………………………………………………….…
Abstract
The small and medium enterprise has become a major sphere of interest for policy makers and
donors. Despite the institutional and policy support, these enterprises have fallen short of
expectations. This study is intended to fill the gap by exploring the challenges and prospects of
the entrepreneurs in the small and medium enterprise in Adigrat town.
Generally, 95 samples of the SME;S enterprise were selected using a stratified random sampling
technique, from which the required data were generated and analyzed employing the descriptive
research design. In the first part, the characteristics and prospects of the entrepreneurs are
presented. The majority of respondents lack the relevant experiences and operate as sole
proprietors.. Financial constraint is found out as a general challenge to entrepreneurs of the
small and meddium enterprises. In addition, different constraints such as training, access to
finance, market opportunities, policy and legal measures are examined and rated across
different business types where each factors are found to affect small enterprises at a different
rates. What is severe problem for one sector is found out to be not a problem when compared to
other sectors. These imply that policies and support programs need to take in to account the
heterogeneous nature of enterprises and entrepreneurs. Overall, the result discloses a high
failure rate of the small enterprises in the study sites and one can conclude that there is a lack of
innovation from the side of entrepreneurs and a weak support from the government and other
supporting institutions. In view of these, the researcher recommends an innovative support
schemes to ameliorate and accelerate the growth of the small enterprises.
Key Words: small and meddium enterprise, growth and performance of small and meddium
enterprise enterprises, challenges, prospects, entrepreneurs, entrepreneurship

Acronyms
SME’S small and medium enterprise
FeMSEDA federal micro and small enterprise development agency
MoTI ministry of trade and industry
MSEDS micro and small enterprise development strategy
 CHAPTER ONE
INTRODUCTION
1.1Background of the study
Small and medium enterprise have been identified the world as the stepping stone for
industrialization and sustainable economic growth (Lara Simon; 2009; 53-64).Medium and small
enterprise sector generates substantial employment and economic output in many countries. The
dynamic role of small and medium enterprise in developing country has been recognized as
engine through which the growth objective of developing countries can be achieved in a planned
manner. Small and medium enterprise plays significant role in the creation of employment
opportunities and generation of income for quit a large proportion of the population in
developing countries. SME,s by virtue of capital investment and their capacity to generate
employment have demonstrated their powerful effect for rapid economic growth (Abdullah&
Baker 2001 65-66) .Their share of overall employment tends to be higher in developing country
which are typically more focused on small scale production .
The sector has given a conductive environment and has enabled entrepreneurs to optimally
exercise their talents and to attain their personal and professional goals (MoTI; 1997;; 9).Small
enterprises have shown great resilience during the time of crises. They have also provided to be a
dependable source of employment by creating opportunities at relatively low capital cost
(according to mesfin 2011).
Recently a policy shift towards the private sector has occurred in many developing countries and
in this context the role of entrepreneurs in small enterprise as seed bed for medium and large
scale enterprise is receiving greater recognition (ABDULAH &baker;2000;134-136).
Mumma(2002;2-5)and solymosy(2000;43-48)argue that small and medium enterprise have
provide to be efficient and dynamic in countries ,where they have been given the opportunity to
develop and asses appropriate support.
Pre world war the second Ethiopia was dependent on small and medium enterprise for its
copititivness.After the war however it gradually became modernized and establishing
complementary linkage to large enterprise (Gwbrehiwot;2006;12-13).These sectors have also
played a dynamic role in the industrialization effort of china and Taiwan (Goedhuys;2002;87-
88).
Taiwan grew fast by fallowing the divergent path taken by Japan and Italy relaying heavily on
the niche and flexible specification strategies devised by its small and medium scale industries
(and retch; 2005; 8; harabi; 2003; 92-100). growth of small and medium enterprise can deepen
promoting a more equitable distribution of benefit of economic growth .Further more it alleviates
some of the problem associated with un even income distribution (Andrew 1997;201-213).
With increase in urban population dynamics in sub Saharan Africa the importance of small and
medium enterprise is also growing (birley&westhed1990;10-12) the fact that there are rapid rural
urban migration and that urban centers are providing in employment opportunities (gebrehiwot
and welday2004;117-121;zewde 2002;77-80).
According to mulu (2009;66)the first empirical policy giving attention to small and medium
enterprise of Ethiopian economy come much later after 1855 through the
emperorTewodros(1855-67)the emperior understood the significance of private business sector
from his comparative understanding of Europe considerable achievement however emperiors
policy failed to bring his ambition to fruition(faye;1998;111;mulatu 2005;43-44)
Since 1991 the government of federal and democratic republic of Ethiopia has recognized
promotion and development of small and medium enterprise as important vehicles in addressing
the challenges of un employment economic growth and equity .This sector also accepted as the
base for large scale enterprise (gebrehiwot & assefa 2004;28-30).In Nov 1997 the Ethiopian
ministry of trade and industry(METI) published the small and medium enterprise development
strategy which initiates systematic approches to minimize problems promote the growth of small
and medium enterprise (MoTI;1997;40-52).
Following the publication of( SMEDA) the federal government of Ethiopia set up the federal
micro and small scale enterprise development agency(FMSEDA)have taken several measure to
support micro and small enterprise promotional strategies based on their context in tandem with
FMSEDA)(gebrehiwot and welday2004;21-23).
Similar development have been taking place in Tigray region, the Tigray micro and small
enterprise development agency (TMSEDA) have taken several measures to support the micro
and small enterprise promotion strategy based on their context and to facilitate the
implementation of these strategy (gebrehiwot and welday 2004; 21-23).This agency has
expanded its structure down to district level to rich the majority of the people (gebrehiwot and
welday; 2004; 303-304).
1.2 statements of problem
There is consensus among developed and developing countries that small enterprise can become
effective creator of employment innovation and income generation ,moreover they can derive
economic growth and thus play crucial role in the fight against poverty(andreff;2001;278-
289).statistics in Ethiopia such as (CSA;2003;87-90)indicates that three out fife small business
fail with in the first few month of their operation and there are no robust or dynamic medium
sized enterprise (assefa;1997;128-131).and also andreff and Dominique(2001;46-48)argue that
most small enterprise are either in liquidation or only bordering on survival.
A study by belay (2000;2-7-)found that 98%of business firms in Ethiopia ware micro and small
enterprise 33% of which are small enterprise with only 2% represented by middle and large scale
industry, this suggest that small enterprise found it difficult to grow in to medium and large
enterprise
Although the role of small enterprise in over all national welfare are assumed to be substantial ,in
other word the growth of small enterprise is still in its infancy and requires special attention from
the government and other concerned bodies .
There is growing recognition among concerned bodies that there is an imperative to address
specific problems facing small and medium enterprise in easy that are compatible with the
general direction of the industrial and macroeconomic policy of the country (andnreff &
Dominique ;2001;90-93). This could be a positive move towards the establishment of critical
mass of domestic enterprise on the middle and large scale domestically and internationally
competitive and capable of penetrating global chain of production
Different studies are conducted on the challenges and opportunities of small scale enterprise but
no more studies are conducted on small and medium scale enterprise .Hence this study will be
focused to assess the challenges and prospects of small medium scale enterprise on Adigrat town
1.3 Research question
This study will be conducted to assess the challenges and prospects of small and medium scale
enterprise in Adigrat town, to address these overall objectives of the study the fallowing major
questions are developed and will be answered
1. what are the major problems and challenges of small and medium enterprise
 2. what is the role of government participation to support small and medium enterprise
3. what is the feature prospects of entrepreneurship in Adigrat city
1.4 Objectives of the study
1.4.1 General objective
The overall objective of the study is to describe and analyze the challenges and prospects of
small and medium scale enterprise in Adigrat
1.4.2 Specific objectives
Based on the general objective of the study the specific objectives are
1. To describe various challenges facing the small and medium enterprise in Adigrat
2. To describe the role of government participation to support small and medium enterprise in
Adigrat town
3. To evaluate the future prospects of entrepreneurship activity up on its expansion in Adigrat
town

1.5 Significance of the study

This study will significant in that it examines and describes the difficulties and prospects of
entrepreneurs running small and medium enterprise specifically it identifies sector-specific
growth constraints and it doing so aim to assist the government and other stock holders in their
effect to promote the growth and expansion of small and medium enterprise by employing
different strategies in the various sectors
In addition the study will provide significance information and evidence to entrepreneurs as well
as policy makers it is hoped that this will aid them in their effort to promote the growth of small
and medium enterprise and to reduce absolute poverty &unemployment
Furthermore this study will serve as stepping stone for academicians who may focus on similar
topic and issue particularly challenges facing enterpriser sand their prospective in small and
medium scale enterprise.
The study will also significant as it recommends some practical measures to overcome the
constraints facing small business thus enabling them to pay a key role in the reduction of poverty
and in the industrialization effort made by the study area.
1.6 Scope of the study
The scope of the study is limited to analyze of challenges facing small and medium scale
enterprise and their prospects in Adigrat town using descriptive and qualitative research design,
due to time and financial limitation the main area of the study will be limited by the industrial
sectors (manufacturing, construction and urban agriculture) as the number of enterprise in this
Sector is smaller than trade and industry sector in Adigrat town.
1.7 Limitations of the Study
Undeniably, every study has its own limitations. In undertaking the study some of the limitations
will be considered as follows; - As the population of the study will be very large, it is difficult to
collect data from each population members. So, the study adopted judgmental sampling
technique. Due to this reason, this sample may not represent the whole population, as it is very
difficult on making the final recommendation and conclusion. Because, non- probability
sampling has its own limitations. Although the subject of study is small, therefore the
interpretation and conclusion may be in error because of the limited sampling, repetitions of this
structured interview have field similar result. Inflexibility- this research is not such flexible due
to sampling problem. The collected data is limited and therefore, this does not allow getting
sufficient information from all employees. These may leads to erroneous conclusion. Because the
organization is branch project there is no background of the organization on the paper.
1.8 Organization of the paper
The study includes five chapter, the first chapter includes the introduction part which discuss the
basic idea and general picture of the study .The second chapter includes literature review .The
third chapter contains about methodology of the study .The fourth chapter will be includes
analyses and interpretation of the findings and the last chapter will be include the summery of the
main findings and recommendations
 CHAPTER TWO

2. Review of related literature

2.1 Definitions of SMEs

As Gebreeyesus (2009) citied from Dababneh and Tukan (2007), the characteristic of MSEs Not
only reflects the economic patterns of a country but also the social and cultural dimensions.
These differing patterns are noticeably reflected within different definitions and criteria of MSEs
adopted by different countries: whereas some refer to the number of employees as their
distinctive criteria for MSEs, others use invested capital, and some other use a combination of
the number of employees, invested capital, sales and industry type.
Rigorously defining small business has always been difficult, even controversial. The term
covers a variety of firms and most writers use it rather loosely based on their purpose of study.
As Gebreeysus (2009) adopted the definition of small business from Peterson, Albaum, and
Kozmetskys (1986) ‘a small business is one which is independently owned and operated, and
which is not dominant in its field of operation’. Researchers and other interested parties have
used specific criteria to operationalize the small business as a construct: value added, value of
assets, annual sales, and number of employees. The latter two criteria are most often used to
delimit the category.
A study done by, Commission on Legal Empowerment of the Poor (2006), conducted in Addis
Ababa reported that; size of employment, capital investment or turnover is used as criteria to
categorize enterprises along scales of operation and define SME’S. This categorization is
important for functional and promotional purposes to achieve the desired levels of development.
In the case of Ethiopia, there is lack of uniform definition at the national level to have a common
understanding of the MSE sector. While the definition by Ministry of Trade and Industry (MoTI)
uses capital investment, the Central Statistical Authority (CSA) uses employment and favors
capital intensive technologies as a yardstick.
The definition used by MoTI, which uses capital investment as a yardstick, has been developed
for formulating micro and small enterprise development strategy in 1997.
According to MoTI:
• Micro enterprises are those businesses enterprises, in the formal and informal sector, with
a paid up capital not exceeding Birr 20,000 and excluding high tech consultancy firms and other
high tech establishments.
• Small enterprises are those business enterprises with a paid up capital of above Birr
20,000 and not exceeding Birr 500,000 and excluding high tech consultancy firms and other high
tech establishments.
2WQOn the other hand, CSA categorizes enterprises into different scales of operation on the size
of employment and the nature of equipment.
According to CSA:
• Establishments employing less than ten persons and using motor operated equipment are
considered as small scale manufacturing enterprises.
• Enterprises in the micro enterprise category are subdivided into informal sector
operations and cottage industries: Cottage and handicraft industries are those establishments
performing their activities by hand and using non power driven machines. The informal sector is
defined as household type establishments or activities, which are non-registered companies and
cooperatives operating with less than 10 persons. All enterprises employing ten or more workers
are grossly considered as medium and large enterprises.

In light of the above definitions and taking into consideration the Ethiopian situation, micro and
small enterprises (MSEs) may be defined in the following way:
• Micro enterprises are business activities that are independently owned and operated, have
small share of the market, are managed by the owner and employing five or less employees.
• Small businesses are those enterprises that employ 6 to 49 employees. They share the
same characteristics with micro enterprises in other aspects.
• Medium scale enterprises are those enterprises which have a relatively higher share of the
market, are independently or jointly owned or managed by the owner or by appointed executives
and employ 50 to 99 persons.
• Those enterprises that employ more than 100 persons could be considered as large
enterprises. Nevertheless, there is lack of clarity, inconsistency, lack of organized information
and consistent historical data is lacking in Ethiopia.
The features that distinguish MSEs from larger scale enterprises include greater owner influence,
dominance of one person, more subjective decision due to centralization of decision making,
close contact of the top management with employees at lower levels and greater concern with
financial matters due to difficulty of attributable funds etc (Gebreeysus, 2009).
Clusters under the umbrella of MSEs are numerous activities – street vendors, shop keepers,
construction, wood and metal work, food processing, textile and garments, urban
farm ,municipality service , bars, shops, groceries, hairdressers, wholesale and retail traders,
export import traders and small scale industries etc. Most of these enterprises in the country are
largely confined to trade and services and to small scale manufacturing and handicrafts, which
constitute an important subset of small scale enterprises.

The definition of small scale industries adopted by the Federal Micro and Small Enterprises
Development Agency (FeMSEDA) in proclamation 124/77 is as follows:
A small scale manufacturing activity and engineering service establishment is a manufacturing
establishment -except handicrafts- which has a fixed location within urban center; uses either
manually operated machinery and equipment move power driven machinery and equipment and
engaged in the mechanical-chemical transformation of substances into new products and in the
fabrication, assembly, reconstruction, alteration and repair activity; employs at least one person
other than the owner/owners, unpaid family workers and/or apprentices; and has fixed assets of
value not exceeding Birr 200,000 excluding investments made on land and buildings.

2.2 Constraints facing the MSE sector

The constraints facing MSEs in most developing economies are similar :(Stevenson and St-onge,
2005).
These constraints include the following:
 Lack of access to markets, business, information’s.
 Unfavorable legal and regulatory environments and in some cases, discriminatory
regulatory practices.
 Lack of business premises (at affordable rent).
 Low ability to acquire skill and managerial expertise.
 Low access to appropriate technology and
  Poor access to quality business infrastructure.
Ethiopian MSEs are confronted by many of these problems. The major obstacles experienced by
small scale manufacturing industries where the irregular and erratic supply of raw materials and
shortage of suitable working premises.
The problem of shortage of raw materials, lack of working capital and effective marketing
practices faced by small scale manufacturing industries result in the failure of these businesses to
expand.
2.3 Demographic Characteristics of Entrepreneurs

The demographic variables that are reviewed in this section include age, gender, education,
previous experience and religion of entrepreneurs.
2.3.1 Age
Theorists explain the influence of the age of owners/managers and call for younger
owners/managers (Baum 2004; Dockel and Ligthelm 2005). These arguments are based on the
belief that younger owners/managers have the necessary inspiration, energy and commitment to
work and are more likely to take risks. The logic is that older owners/managers are more likely
than younger owners/managers to have achieved their initial ambition. Ishengoma and Kappel
(2006) and Kolvereid and Isaksen (2006) argue that there is a significant relationship between
the age of the owners/managers and the level of growth achieved. As a result, firms that are run
by younger owners/managers tend to have greater growth probability than those run by their
older counterparts.
2.3.2 Gender
Hisrich and Brush (1985) and ILO (2004) point out that the proportion of firms owned by men
exceeds those that are owned by women. The failure rates for female-owned firms are higher
than for male-owned firms. Maleowned/managed firms exhibit higher growth rates than female-
owned/managed firms, showing a significant relationship between the gender of the
owner/manager and firm growth (Hyytinen and Pekka 2007). The reasons for this include limited
access to finance, stringent collateral requirements, gender bias and women‟s double duties
(Kandasaami and Tibbits 1998).
2.3.3 Formal Education
According to Blackman (2000), there is a significant relationship between the educational
qualification of the owners/managers and the level of growth achieved by small enterprises.
Growth is greater in firms where the owners/managers have a college or university degree. There
is no question that basic education enhances the overall quality of the owners/managers by
providing them with basic numeracy and literacy skills, thus increasing the chance of survival
(Chilosi 2001: 138–140; Hallberg 1999).
2.3.4 Previous Experience
Morrison (2000) argues that there is a significant relationship between previous experience of the
owners/managers, particularly prior small enterprise experience, and firm growth, indicating that
growth is positively influenced by the previous experience of the owners/managers. Other
studies confirm that in general, small enterprise owners/managers with managerial and sectoral
experience tend to correlate with greater growth (Dereje 2008; Todorovic and McNaughton
2007). ) found that small enterprise owners/managers in the UK, with little experience at the
start-up, faced problems and remained solvent with an increase in expenditure in relation to their
earnings. Possession of relevant skills and experience helps to ensure the survival of a business at
start-up and success in its future performance.
2.4 Characteristics of Small Enterprises
Characteristics of small enterprises refer to those features such as size, age, location and the legal
form of the business.
2.4.1 Age of the Business
Studies of small enterprises have recognized that business age plays an important role in an
enterprise’s performance and growth ( Hyytinen and Pekka (2007) and Jovanovich (1982) argue
that younger businesses grow faster than older ones because of the willingness of their managers
to take risks. In contrast, Papadaki and Chami (2002), Gebrehiwot and Welday (2004) and Baum
and Locke (2004: ) observe that among small businesses, the older grow faster than the newer,
and among larger businesses, growth declines as age increases. Moreno and Cassilas (2007)
agree that older businesses may not show significant growth changes as owners have achieved
optimal combinations of resources that allow them to maximize their levels of efficiency.
2.4.2 Size of the Business
In relation to firm size, the general belief is that smaller firms grow more rapidly than larger ones
(Andreff and Dominique 2001). However, a number of scholars have rejected this viewpoint. For
example, Chen (2005), Harabi (2003) all note that a small firm has less likelihood of survival,
suggesting a significant relationship between the size of the firm and the level of growth
achieved. This is because firm growth increases with firm size. Similar findings were made by
Beck and Levine (2003) and Blackman (2000) in their study of high technology firms in
England, where they found that larger firms had a greater tendency for growth than their smaller
counterparts.
2.4.3 Legal Form of the Business
Theoretically, a firm that enjoys limited liability/partnership has been said to have greater
incentive to pursue risky projects and can therefore expect higher profits and growth rates than
sole proprietorship and joint ventures ( Kolvereid and Isaksen 2006:). Arimah (2001:) argues that
firms with limited legal responsibility have above average growth, showing a significant
relationship between the legal status of the firm and the level of growth achieved. Berry (1995)
also found that the prime benefit of corporate status is its limited liability and firms with
partnerships have a higher growth rate than their counterparts without.
2.4.4 Location
Location can play a central role in determining the survival of small enterprises. Those
enterprises that operate in commercial districts or on roadsides show greater growth rates than
those based in homes, or far from main roads (Berkham et al. 1996:1; Liedlholm 2000).
Geographical locations have implications for access to customers and other resources such as
finance, trained labor, distribution and transport logistics. The achievements of small enterprises
also depend on neighborhood appearance and status of future business operations in that
location. ) stress that urban areas have favorable conditions for a firm’s development. For
example, small enterprises located in
urban areas have relative ease of access to customers and inputs such as finance, premises and
technology required to produce goods and/or services. Furthermore, small businesses situated in
urban areas benefited from agglomeration economies and particular infrastructures such as
information, a network of suppliers, a specialized workforce and knowledge. According to
Rosmary (2001) and Michael et al. (1996), most rural areas have less financial and business
development service than urban areas, although this can stimulate them to exhibit greater
proactive entrepreneurial behavior.
2.4.5 Small Entrepreneurs with a Business Plan
A business plan is a written document spelling out where the business is heading and explaining
how it is going to reach its destination. According to Nieman et al. (2008), the business plan is a
written demonstration that carefully explains the business, its products or services and its goals
together with strategies for reaching the stated goals. The business plan is a very important part
of the business that helps to decide whether to invest or not and helps to counterbalance one’s
emotions to avoid serious faults. Liedholm and Mead (1999) also argue that entrepreneurs need
to develop a business plan to establish strategy, set targets for new alliances and allocate
resources according to strategic priority. This can help to ensure that entrepreneurs move along
the right path.
2.5 Challenges to Small Enterprises
Despite their significant contribution to the economy, small enterprises face serious challenges.
According to Muma (2002) and Ishengoma and Kappel (2006), this sector is often referred to as
small businesses with big problems. Sector type is an important determinant of enterprise growth
as different sectors face different product demands and Encounter various cost structures on the
supply side.
A second variable likely to affect the growth of existing enterprises is location. Complementary
enterprises grouped close together or located close to the final demand sources might be
expected to grow more rapidly than their more isolated counterp; Harding . Empirical evidence
from Africa has indicated that urban enterprises typically grow more rapidly than their rural-
based counterparts because of their location. Kolvereid and Isaksen (2006) argue that various
socioeconomic variables influence enterprise growth. For example, increases in “human capital”
through increases in the experience or education of the entrepreneur lead to enterprise growth.
In addition to “human capital”, proprietor gender is also thought to be an important determinant
of enterprise growth. Blackman (2000) and Liedholm and Mead (1999), for instance, posit that
female entrepreneurs in Africa are more risk averse and thus less likely to grow than their male
counterparts.
Finally, the overall socio-economic and political situation in a country is a key determinant in the
growth of small business grouped problems of small enterprises into five clusters:
Finance, government rules, marketing, labor, equipment and infrastructure are the most critical
problem.
Monk (2000) also found that deficiencies in working capital, poor market access and rapidly
changing market conditions were the major reasons for the failure of small enterprises. Despite
the numero determinants of growth and expansion in small enterprises, the Ethiopian
Government has identified finance, market factors, working premises, policy and legal factors
and institutional linkage-related problems as major obstacles in the way of optimal performance
of the small enterprise sector.
2.5.1 Financial Challenges
Several development economists have demonstrated that lack of access to finance is a major
obstacle to the growth and development of small enterprises ( Gebrehiwot and Welday 2006).
The accessibility of finance is crucial for dynamic enterprises whose growth potential exceeds
their internal sources of finance. However, because of limitations in the credit markets of
developing countries, the majority of entrepreneurs start their businesses with little or no support
from formal financial institutions (Barney 1991).
According to a large proportion of small enterprises in Africa operate with financial constraints
as the result of a lack of credit arising from the weaknesses in the financial markets. has reported
that only 2% of small enterprises in the world have access to financial services from formal
sectors. In particular, credit presents a challenge to small-scale enterprises because banks are
reluctant to offer them loans on the assumption that the risk accompanying loans to small
enterprises is high.
Furthermore, the low returns expected from small loans provided to small enterprises have
jeopardized their relationship with formal financial institutions. The inability of entrepreneurs in
small enterprises to provide precise information about themselves has also contributed to the lack
of access to credit
According to the formal money-lending institutions, collateral is seen as a way of reducing risk,
shortening the selection process, and as a mechanism for compensating for bad debts Mishkin
2006). A number of development economists have observed that the most widely accepted forms
of collateral in most credit markets are mobile and fixed assets such as motor vehicles, real estate
and industrial equipment; these are rarely attained by entrepreneurs in small enterprises
Mengistae (2001) argue that despite the fact that there are many financial institutions to extend
credit facilities, small firms are still generally short of credit. A study by Peter) concluded that
whatever the size or location of the small enterprises, financial factors were crucial to the
existence of small enterprises .Also believe that financial distress is a major difficulty for small
enterprises as high collateral requirements, high interest rates and short repayment periods are
among the chief problems that make access to credit difficult.
Banks are unfamiliar with small enterprises because they consider them high risk, not
dependable and involving excessive administrative costs . Furthermore, many small enterprises
seldom approach formal financial institutions, as they are not confident of obtaining loans
(Huang and Brown 1999). In addition, their limited experience with bank officials has done little
to change their perceptions of the difficulties and bureaucracy involved in obtaining credit.
Abdullah and Baker (2000) argue that small firms start their businesses with their own savings,
supplemented by borrowing from friends and relatives. They meet their capital requirements by
approaching informal credit institutions that exist within their community, but rarely use formal
institutions.
Results of the 1997 CSA survey in Ethiopia show that for about 50 per cent of the sectors
operators, the main difficulty when starting their operation is a lack of sufficient initial capital .
This issue becomes more critical when they decide to expand their businesses. A also believe
that small enterprises face difficulties in obtaining capital when they want to expand.
Aryeetey et al. (1994) and Carpenter and Petersen (2002) argue that the growth of small
enterprises is often constrained by a lack of access to finance from formal financial institutions,
and that informal financial institutions such as “Iqqub” schemes fill the gap for the majority of
small enterprises. These are traditional financial institutions that are based on mutual trust among
the members and that vary in size, capacity and function. They run on a cyclical basis, satisfying
the demands of only one member at a time. Other members must wait their turn and the last
member receives a lump sum only at the very end of the cycle. Iqqub schemes promote the
viability of a small enterprise through enhancing own savings, conversion of savings into
investments and reduction of transaction costs in credit markets (Gebrehiwot and Welday 2004:).
Furthermore, these schemes facilitate knowledge and skills sharing for the more efficient
operation of small enterprises. The schemes cater predominantly for small businesses that have
little or no chance of securing finance from formal financial institutions such as banks.
2.5.2 Business Development Service
Business Development Services (BDS) are defined as a wide variety of nonfinancial services
such as training, counselling, technology development and its diffusion . According to Cortes,
Berry and Ishaq (1987) and Meid and Leidholm (1998), business development services enable
small enterprises to become productive and to effectively reduce poverty by contributing to the
development of local economies.
In most developing countries, according to Ishengoma and Kappel (2006), the majority of
enterprises have no access to business development services. This is mostly because institutions
that can provide such services do not exist or because entrepreneurs are unaware that the service
is offered in their country, while others are ignorant of their value. In fact, the presence of a
strong institution that can provide reliable and timely information through efficient information
systems is vital for the success of small enterprises. Information related to market, raw materials,
technology, business opportunities, government policies and regulations is a prerequisite for the
growth and expansion of small enterprises.
2.5.3 Marketing Challenges
Access to markets is crucial; not having access to markets has an adverse effect on the
entrepreneurs‟ performance as their objective of achieving competitive advantage ends in failure.
For instance, in terms of location, the majority of small enterprises are home-based with limited
markets for their products and services. Their interaction with other businesses increases
transaction costs and this contributes to limited access to marketing information (Gebeyehu and
Assefa 2004).
Supply constraints are also considered a hindrance to the normal functioning of enterprises as in
one way or another these limit the ability of entrepreneurs in small enterprises to generate goods
and services for better income generation (Belay 2000).
Apart from this, studies conducted by Gebrehiowot and Welday (2004) on small enterprises has
revealed that demand constraints exist, which limit the opportunities for production. Ken (2003:
43–56) believes that small enterprises are facing "too much competition", citing the existence of
overcrowding in the market and failure of demand to grow, at least not as rapidly as the supply.
However, development policies, if properly considered and applied, could ensure greater demand
for smaller enterprises‟ output and thus open up new prospects for their growth.
According to Andualem (1997) and Negash and Kena (2003), market constraints experienced by
small enterprises have been listed as among the most serious obstacles to growth beyond
subsistence level. Ethiopia, which is based on 31,863 small-scale industries all over the country,
indicates that 48% of all establishments faced difficulties related to demand or access to markets,
and weaknesses in or total absence of appropriate marketing channels, exhibitions, trade fairs
and display centres.
Furthermore, a shortage of inputs and their costs are common constraints. Although specific
problems differ by country, most crucial in all this is whether entrepreneurs regard access or their
costs as the most pressing problem (Solymossy and Penna 2000). Whether inputs are primarily
imported or domestic is also another important issue.
2.5.4 Working Location Challenges
The obstacles experienced by entrepreneurs running small enterprises include unavailability of
work premises, high rent and poor access to good quality
business infrastructure (Liedholm 1992). According to the survey result, problems associated
with working premises are mentioned as one major constraint hindering the smooth performance
of small enterprises . Some enterprises operate in open spaces, a situation that limits their access
to public services such as toilets, water and electricity supplies. The main reason for enterprises
being concentrated in urban areas is the greater availability of various types of infrastructure
relative to rural areas (Liedholm and Mead 1999). However, the shortage of such infrastructure
has also been one of the main obstacles to the development of the sector in many urban areas of
the country .
2.5.5 Technology Related Challenges
According to Beck and Levine (2003), technology designates a combination of machinery,
labour, skills and techniques. These technologies need to be consistent with local resources and
conditions in order to make effective use of the relatively abundant resources. However, the issue
of adopting appropriate technology and the limited access to this type of technology have
presented serious problems and obstacles for operators of small-scale enterprises (Liedholm
1992). Among the entrepreneurs studied by the CSA in Ethiopia, 29% reported machinery failure
as the major reason for their inability to be operational (CSA 2003) also notes that small
enterprises have difficulties in accessing appropriate technologies and information.
2.5.6 Policy Related Challenges
Arimah (2001) point out that small enterprises require policies conducive to growth, a good
incentive package and encouraging business environments to produce products that are
competitive both locally and
internationally. A government that is committed to the promotion and development of small
enterprises makes fiscal policy and monetary setting stable with reasonable interest and exchange
rates (Berkham et al. 1996). Furthermore, financial markets and tax rates should be stable and
moderate in addition to endorsing policies that minimize the cost of business registration and
licensing.
In many countries, the overall economic policies such as trade, pricing, taxation and credit policy
are biased in favor of large enterprises (Haggblade, Liedholm and Mead 1990; Huang and Brown
1999). Under trade policy, for example, government can directly allocate import inputs and this
favors large enterprises that are more likely than smaller ones to gain access to import quotas.
Large enterprises are often granted industrial investment incentives that enable them to import
their capital goods duty-free for a certain period (Berry 1995).
In the case of policy biases that favor large firms over small enterprises, attempts have been
made to quantify policy-induced cost differentials between small and large enterprises in
accessing resources such as labor and capital (Gebrehiwot and Welday 2004). However, such
bias is often difficult to explain as some policies may be biased against small enterprises while
others favour them.
In addition, measuring policy-induced price differentials is difficult as not all such differentials
are policy-induced; they may be the result of quality differences (in the case of labour or finished
products) or differences in risks or administrative costs (in the case of capital) (Paul and Rahel
2010). Price differences may also arise from private sector habits or strategies rather than from
policies.
There are also complex and burdensome government rules and regulations that emanate from a
perception that small enterprises neglect business regulations and therefore operate under illegal
conditions, disobeying one or more government rule (Cortes et al. 1987). Such infractions could
result in penalties in the form of a lump-sum fee, which would result in a reduction of income for
business operators (Mensah 2005). In extreme cases, it could result in the closure of a business or
the confiscation of a business‟s property, creating uncertainty and discouraging business
investment.
2.5.7 Institutional Linkage Challenges
One of the most important issues affecting the growth of small enterprises is the linkage with
other enterprises, including research organisations (Aggarwal 2006) argue that the nature of
these linkages and commercial relationships between small and large enterprises is weak and
unbalanced, which harms the smaller enterprises. The most dominant linkage relationship
between these two types of enterprise is one in which medium and large enterprises provide
inputs to small enterprises; this is regarded as exploitative (Chen 2005).
A forward linkage, in which small enterprises supply medium and large ones and which is
believed to have a positive effect on the performance of the small enterprise is not very common
in developing countries Ishengoma and Kappel 2006). This imbalance in linkages between
sectors is among the factors that explain low competency in the small enterprise sector. The
majority of small enterprises that are involved in bilateral vertical linkages with medium and
large enterprises have relatively low bargaining power as a result of their weak legal status and
inadequate capabilities (Charmes 2000; Gebrehiwot and Welday 2004). Consequently, they are
likely to be exploited and to incur relatively high transaction costs
 CHAPTER THREE
3 Research methodology

3.1 Research design

The researcher used descriptive types of research design in order to finds fact and enquires. The
main purpose of these kinds of research design is description of personal concern has no control
over the variables but only report what has happened or what is happening
(Bernard2000;Ghoshi1998;).thus this study was explore and describe various challenges facing
small and medium scale enterprise using descriptive narration
3.2 Types of data
The study used both qualitative and quantitative types data collected from the study site.
(albert;1961&Bernard 2000)argued that qualitative data are data that deals with phenomena and
expressed in the word ,description that are opinion and feeling of people. Whereas quantitative
data is generated in quantitatively and analyzed by using numerical values
3.3 sources of data
The study used both primary and secondary sources of data. Primary data are data that have been
observed ,experienced or recorded close to the event that one can get the nearest truth
(miles&huberman 1994).In this study the primary data will be collected by using structured
quasioneries (definite, concrete,& pre determined)both closed(yes or no) and opened(free
response) questions and interviews to collect data from the trade and industry officers of Burie
town .Second data refers to data that are collected and analyzed by someone else or written
source that interpreted or record primary data (cothiari 2004). In this study secondary data will
be used from both published and un published such as research documents , journals and reports
of Amhara micro and small enterprise development agency to obtain background information on
this issue
3.3 Study population
This study is conducted on the challenges and prospects of small and medium scale enterprise in
Burie town .The target population of this study was 20 .then the study used census methods
because the population is small.
Sectors Population Sample Percentage %

Manufacturing 792 41 43.8

 Construction 50 3 2.8

Urban agriculture 968 51 53.4

Total 1810 95 L

3.4 Method of data collection

The study is employed both primary and secondary source of data collection. For primary data
the study used structured quasioneries to collect the required data from leaders or representatives
of the enterprise .Besides face to face interviews conducted with the Burie trade and industry
officers .Secondary sources also used to collect the relevant data from files pamphlets office
manuals circular and policy papers from the SME’S officers .Besides published books and
government documents reports and newsletters will be reviewed to make this study fruit full.
3.6 methods of data analyses
The data analyses was based on the data collected, completed and tabulated from primary
sources and supplemented by secondary sources .In addition the idea and opinion elicited from
the officials through interview is analyzed by using descriptive narration qualitatively to support
the data collected from quasioneries which is analyzed by quantitative method. The study was
examine the challenges and prospects of SME’s in Burie town by using descriptive statistical
tools such as percentages, frequncy and table .
CHAPTER 4
4. DATA PRESENTATION, ANALYSIS AND
INTERPRETATION
4.1 Introduction
The methodology followed in sample selection, sampling design, tools and processes of data
collection has been described in Chapter Three of this study. The data were collected using
questionnaires, observations and interviews. All these were supplemented by selected
literature.
Chapter Four includes a discussion of the demographic features of entrepreneurs, the
characteristics and the growth of s measured in terms of increases in employment since start-
up up to the time of data collection (2010). The challenges affecting the performance of
SME’s enterprises in general are discussed and the challenges facing each sector are
examined, together with the prospects of these SME’S enterprises.
Generally, the analysis and discussion of the results were carried out using a descriptive
research design, including statistical tools such as percetage, freqency and table.
4.2 Demographic Characteristics and Prospects of Entrepreneurs
This section discusses the general characteristics of the entrepreneurs in the SME’S as
captured in their responses. The variables dealt with in this section include the sex and age of
managers/owner managers, their level of education and their marital status.
4.2.1 Age and Education

The available studies advocate that owners/managers should be younger; arguing that younger
owners/managers have the motivation, energy and commitment to work and are more inclined
to take risks. Firms that are run by younger owners/managers tend to have higher growth
potential than those run by older individuals (Covered and Isakson 2006; Mulley 2017). The
theory behind this is that older owners/managers are likely to have achieved their initial
aspirations.

Table 4.1 below shows the profile of owners /managers in terms of age
Response Respondent Percentage
18 -20 4 8% Source: (Own
21-30 22 44% Data, 2017)
31-40 17 34% As clearly indicated
41-50 7 14% on the above table 8%
51-65 - - of the owners of
Total 50 100% SME’S are found to
be in the age of 18-20, 44% of the owners are found between 21-30, 34% of them are between
31-40,and the remaining 14% found 51-65. This shows that the greater share is constituted by the
owners between 21-30 next to them the young owner, and the smaller share is constituted by the
age level of between 41-50 so it indicates that, most of the owners of these enterprises are the
young individual that have attractive future prospect of this sector, meeting one of the objective
of the government; creating employment opportunity for youth. Such a productive work force is
commonly believed to be an engine for the overall development of country as there is significant
relationship between the age of owners /managers and the level of growth attained (Baum and
Locke 2004).
According to lee (2001), there is significant relationship between the educational qualification of
owners/managers and level of growth attained. However the results of survey Cleary indicated
that less educated operators, who possibly lack the skill that might have been obtained from
higher education, do in fact own SME’s

Table 4.2: Educational Level of Managers/Owners

Level of Education Freq. Percent

Uneducated 4 4.2
Grade 1–4 13 13.7
Grade 5–8 39 41.1
Grade 9–12 23 24.2
Diploma 10 10.5
Bachelor’s degree 5 5.2
Master’s degree 1 1.1
Total 95 100
Source: (Own Data, 2017)
As shown in Table 4.2 above, the educational level of entrepreneurs at study sites was
assessed. It emerged that the majority, or 56 (59%) entrepreneurs had not reached grade nine
at school. Only 16 (16.8%) of them had a diploma or a degree. This suggests that less
educated operators tend to own s, implying that there is a need to enhance their capacity
through training and consultation.
A high level of education is indeed a significant factor in increasing operational efficiency,
profitability and success of a business as it can enable owners or operators to arrive at
strategically important business decisions by accepting a reasonable amount of cost and
calculated risk (Chelsi 2001).
4.2.2 Gender Composition of SME’S
In 1993, in a national policy on women, the Ethiopian Government expressed its intention to
eliminate gender and cultural biases that excluded women from equal participation in the
economic and social development efforts of the country (Embed 2017). Thus, it is of
paramount importance to examine the gender composition of entrepreneurs in SME’S.

Table 4.3: Gender Composition of SME’S in Study Sites

Gender Respondants Percentage
Female 22 23.2
Fale 73 76.8
Total 95 100

Source: (Own Data, 2017)

Table 4.3 demonstrates that 73 (76.8%) SME’S were owned and/or managed by men while
the remainder 22 (23.2%) were operated by women. This indicates that women’s participation
in s, particularly as heads if these enterprises, was relatively low. The result is consistent with
previous studies that found that male-owned/managed small businesses outnumbered those
owned or managed by women. The failure rate for female-owned businesses was also higher
than that of their counterparts showing a significant relationship between the gender of
owners/managers and s‟ growth and survival (Hyytinen and Pokka 2007).
It is clear that the government needs to provide special assistance and critical structural
improvements to protect women from the exploitative contexts of migration and trafficking by
improving their access to s (Emebet 2017).
4.2.4 Marital Status of the Entrepreneurs
Entrepreneurs were asked about their marital status in order to compare the proportion of
married entrepreneurs with that of unmarried and divorced entrepreneurs.
Table 4.4: Marital Status of Entrepreneurs
Marital status Respondents Percentage

Maried 53 55.8

Un maried 37 39

Divorced 5 5.2
Total 95 100
Source: (Own Data, 2017)
Table 4.4 above demonstrates that the majority (53 or 55.8%) of the respondents in s were
married while 37 (39%) and 5 (5.2%) were unmarried and divorced respectively. This finding
suggests that married respondents pursue and use s more to create employment, generate
income, conduct family affairs and finance other social and individual expenditure.
4.3 Characteristics and Prospects of SME’S
In this part of the study, characteristics of s such as business type, and legal forms of business
organization are discussed. In addition, enterprise age and the growth of s measured in terms
of same category.
4.3.1 Legal Forms of Business Organizations
The respondents in the study sites were asked about the legal forms of their businesses and the
challenges associated with each legal form.
Table 4.5: Legal Forms of Business Organization

Forms of business Respondents Percentage

Sole proprietorship 79 83.2

Partner ship 15 15.8
Joint venture 1 1
Total 95 100
Source: (Own Data, 2017)
As illustrated in Table 4.5 above, the majority of the small businesses, i.e., 79 (83.2%),
operated as sole proprietors while only 15 (15.8%) and one (1%) operated as partnerships and
joint ventures respectively. This contradicts Scale’s (2000) argument that a business where the
owners/managers enjoy partnership/limited liability has greater incentive to pursue risky
projects and therefore to expect higher profits and growth rates than other forms of business
and in this way attract many entrepreneurs.
Table 4.6 Age of SME’S
Time of establishment Frequency Percentage
Before 1990 6 6.63
1991-1995 14 14.7
1996-2000 34 35.8
2000-now 41 43.2
Total 95 100
Source: compiled from questionnaire
The Table above indicates that additional number of micro and SME’S are increasing from time
to time, before 1990 they were only 6.3% (6), from year 1991 up to 1995 it were increased to
14.7% (14)
From 1996 -2000 the number of these enterprises was increased to 35.8% (34), and also from
2001 to know reaches 43.2% (41).
Even though, their growth in establishment of this business sector is not much and enough as
needed, the increasing rate from time to time is appreciable in the town. The strategic plan of
trade, transport, industry and investment bureau and different agencies is important in assisting
to increase the number of micro and SME’S as needed in this area. In general, the increase in
percentage from time to time is an indicator of better growth in establishment of this sub sector.
On the other hand the increase in the number of SME’S indicates, that individual was
participating on different business activities. This show that an increase of business operators by
integrating their knowledge with their capital on new business workers as entrepreneurs. There
for this indicates that the entrepreneurial idea grows from time to time so by far this entrepreneur
activity will fill the gap in unemployment, and granted the overall development of the town in
the near future.
4.3.8 Growth of SME’S measured by Employment Increase
Data were collected on the change in employee numbers in this s since start-up to their current
(2017) number of full-time employees. Table 4.6 below summarizes and measures these
changes.
Table 4.7: Growth of SME Measured by Employment
Increases
Variable Observation Mean Std. Dev.

Start up workers 95 4 4
Current workers 95 3 3
Source: (Own Data, 2017)
This summary of statistics from the study sites indicates that the average number of full-time
workers decreased from four employees at start-up to an average of three employees in 2017.
This indicates that almost no s had registered a growth in terms of workers between the year
of establishment and the current period (2017).
These figures reveal the challenges to growth that are still present in this sector, and show the
extent of the support they require from the bodies concerned. They also suggest that although
the number of SME’S, established and run by owner-managers, has increased in aggregate at
regional and national level, the growth and expansion of each sector of s and their ability to
employ additional workers have been constrained by various challenges.
4.3.9 Suitability of Operating Locations
Location, particularly in the case of sales outlets, can play a central role in determining the
survival of SME’S. It is generally believed that those who operate in commercial districts or
at the roadside typically show higher growth rates than those that are based in private homes
or are far away from main roads. Table 4.8 reflects the suitability of operating locations for
SME’S
Table 4.8: Suitability of Operating Locations
No Suitability of Location Yes Percentage
1 Unhygienic 17 18
 2 Far from market center 24 25.3
3 Good location 42 44.2
4 Others 5 5.2
5 No response 7 7.3
Total 95 100

Source: (Own Data, 2017)

As indicated in Table 4.8 above, respondents in the study sites were asked about the
suitability of their location for operating their businesses and selling their products. 42
(44.2%) of the respondents in the survey confirmed that the location of their business was
advantageous; thus the manufacturing areas or sales outlets were located in appropriate places
in the case of almost half the s. 24 (25.3%) of the respondents complained that their location
was a long way from the market and that they were not able to sell their products. This could
increase the possibility of their going out of business.
A small number (17 or 18%) of the respondents reported that their location was „unhygienic‟,
located in an area where water and other required sanitation facilities were not available.
According to the reports from operators in these areas, they were not sufficiently productive
and some of them were likely to fail in the near future. Thus 59 (38.3%) of the s were
suffering financially because of their location, a situation that demands particular attention
from both regional and local bodies.
4.4 Challenges and Prospects of SME’S
A number of challenges emerged in this study that could affect the growth and performance of
SME’S. This part of the study examines the most serious challenges facing the growth of s.
Such as limited access to credit, the inadequacy of credit amounts and challenges related to
rental of premises, market linkages and training were perceived by entrepreneurs in s.
4.4.1 Challenges Related to Finance
In this section, finance-related challenges such as accessibility of credit, sources of capital for
start-up and expansion, adequacy of credit amounts, and reasons for not taking credit from
financial institutions were the focus of the discussion.
Table 4.9: Credit Access by Entrepreneurs
 Credit access by entrepreneurs Respondents Percentage
Yes 42 44.2
No 50 52.6
Not interested 3 3.2
Total 95 100
Source: (Own Data, 2017)
As demonstrated in table 4.9 above, the majority (50or 52.6%) of entrepreneurs in the study
sites could not get access to credit while 3 (3.2%) showed no interest in taking credit, for
various reasons. Only 42 (44.2%) of the respondents had had access to financial institutions
for the operation and expansion of their businesses. The survey results were consistent with
the argument of Abdullah and Baker (2000) who point out that small firms are still short of
credit despite the fact that there are many indigenous financial institutions available that
extend credit facilities. The focus group discussions with entrepreneurs from the various
sectors of s in the study sites revealed that they had poor access to credit from financial
institutions because of the high collateral requirements, group-lending requirements, high
interest rates and short repayment periods. These were the main factors making access to
credit difficult.
4.4.3 The Adequacy of the Amount of Credit
The respondents who had borrowed money from formal financial institutions such as
microfinance institutions and banks were asked about the adequacy of the amount of credit
they had received.
4.10: Adequacy of the Amount of Credit in the Study Site
Adequacy of amount of Frequency Percentage
credit
Sufficient 7 7.4
Moderate 21 22.1
Not sufficient 67 70.5
Total 95 100
Source: (Own Data, 2017)
As the above table shows, the breakdown of the adequacy of the amount of credit revealed that
67 (70.5%) of the respondents reported that the credit amount was not sufficient. 21(22.1%)
stated that the credit amount was moderate. On the other hand, only 7 (7.4%) of the respondents
indicated that the credit they had received from financial institutions was sufficient. This result
indicates that the problem of inadequate credit was very severe in the study sites. This demands
immediate intervention from the concerned bodies to improve the accessibility of adequate
credit.
4.4.6 Market Linkages of SME’S
One of the most common challenges facing the growth of SME’S is the weak links among
themselves and with other institutions, including research organizations. Based on this fact,
the linkages with and support of various institutions for s was assessed. To this end,
entrepreneurs in the study sites were asked whether they had links with other institutions and
stakeholders.

Table 4.11: Market Linkage of SME’S

Market linkage of Respondents Percentage
enterprises
Yes 23 24.2
No 70 73.6
Other 2 2.1
Total 95 100
Source: (Own Data, 2017)
As indicated in Table 4.11, the vast majority (70 or 73.6%) of respondents in the study sites
had no formal or well-organized linkages either among themselves or with other institutions.
Only 23 (24.2%) of the respondents had developed links among themselves or with other
institutions such as government sector offices and other consumers.
The interview held with entrepreneurs confirmed that the majority had no linkages and this
reality had contributed to the slow growth rate of their enterprises. These findings are in
keeping with Liedholm and Mead’s (1999) argument that where s have linkages among
themselves or with other institutions, they are more likely to grow faster than those enterprises
that have no such links.
 CHAPTER 5
5 SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
5.1 Summary and Conclusion
Small and medium enterprises in the study sites were heterogeneous across different sectors
and homogeneous within each sector. Each sector was used purposively as a stratum from
which the required samples were drawn to represent the whole population, using a stratified
proportional random sampling technique. In order to determine the sample size, the study
applied a simplified formula provided by Yamane (1967), as cited in Yilmaz (2005: 42), to
achieve the minimum required sample size at 95% confidence level, 0.5 degrees of variability
and 0.9% precision level (e). Using these techniques, 95 s were randomly selected from the
study sites.
with regard to the research objective of assessing and comparing the characterstics and
prospects of SME’S, variables such as age, level of education, gender distribution and marital
status were discussed
The discussions revealed that most of the SME’S were owed and run by a youthful labor
force. This meets one of the objectives of the government, that of creating employment
opportunities for the youth. However, being predominantly staffed by the working age group
alone will not fulfill of the sectors‟ important requirement of growth in small to medium and
large enterprises. The data analyzed rivals that the majority of respondents ware under grade
nine indicated that operators of SME’S were generally less educated, and that they were
lacking in the skills and knowledge that are derived from higher formal education. This may
jeopardize entrepreneurs‟ operational efficiency, unless the necessary training and other
interventions are made. The study found that women’s participation in SME;s ware relatively
low. The male-dominated nature of the SME’S in this study was ascribed to cultural norms
and societal attitudes that regard women as inferior to men and place too much emphasis on
women’s family responsibilities The proportion of entrepreneurs engaged in the urban
agriculture was higher than in the manufacturing and construction sectors. The small
proportion of entrepreneurs in the manufacturing and construction sectors implies there were
other factors, other than the market, that prevented entrepreneurs from becoming involved in
these sectors. Some of these factors were high capital demands, complex procedures and
specific requirements set by the government.
The majority of SME’S operated under a sole proprietor. The entrepreneurs revealed
that the complex procedures of establishing and giving up a business, the high costs of
registering and formalizing a partnership and the mistrust among operators involved in
taking equal responsibility for the business had prevented them from pursuing a
partnership. The study found that the majority of respondents had operated their
businesses for a period of less than three years, while there were very few who had
been in operation for more than five years. While 6(6.63%) of the enterprises in the
city were more than six years old. These findings suggest that entrepreneurs faced
acute challenges in their start-up stage and described their businesses as doing poorly
within the first three years of their start-up stage. Almost half, i.e., 38 (49.4%), of the
respondents in the survey confirmed that the location of their business was
advantageous. It was also found that 30 (38.3%) of the SME’S were in trouble because
of the unsuitability of their location; this requires urgent attention from the regional
and local government. As far as the objectives of the research to examine and compare
the growth of SME’S in terms of employment increase were concerned, the findings
were that very few SME’S had registered growth in terms of full-time workers
between their establishment and the current period (2017).the average number of
workers becomes decrease from start up to now .This had the result that, once
enterprises had been established, they could not expand and their growth was hindered
by various constraints.
With regard to the research objectives of examining and comparing the general
challenges facing SME’S, the most serious challenges cited by respondents during the
survey were analyzed. These contributed to a better understanding of how certain
types of obstacles to growth, such inadequate credit and challenges related to market
linkage had a negative effect on the various sectors of and their entrepreneurs.The
majority of entrepreneurs (50 or 52.6%) did not get access to credit from formal
financial institutions for the start-up and expansion of their businesses. Generally, the
finding revealed that entrepreneurs were short of credit despite the fact that there were
many indigenous financial institutions in the study sites.The majority of the
respondents who had access to credit from formal financial institutions reported that
the amount of credit was not adequate. This indicated that formal financial institutions
were very far from meeting the credit demands of SME’S. The majority, i.e., 70
(73.6%) of the respondents in the survey had no formally or well-organized market
linkages among themselves or with other institutions. We can deduce from this that
forming market linkages is an acute problem.
5.3 Recommendations
The findings of the study have important implications for appropriate interventions in the
study site in particular, and in other similar sites in Ethiopia in general. Hence, based on the
findings, the conclusions and the relevant literature, the researcher proposes the following
recommendations for policy makers, researchers and practitioners or entrepreneurs in SME’S
in order to boost their growth and expansion.
Most entrepreneurs have low educational status. Hence, to make the SME;S more competitive
and profitable, boosting the capacity and skills of the operators through continuous training
and provision of business advice and consultancy is crucial.Women entrepreneurs encounter
more operational and strategic impediments than their male counterparts. Therefore, the
government should capitalize on affirmative action to support women entrepreneurs. Creating
awareness of such schemes is also important as the lack of promotion and a participatory
approach impedes the effective realization of such schemes. The majority of the entrepreneurs
did not have access to credit from formal financial institutions as the precondition of collateral
and group requirements by these lending institutions proved insoluble obstacles. In order to
overcome these chronic problems, more innovative guarantee schemes should be designed to
support entrepreneurs in SME’S. The entrepreneurs engaged in manufacturing construction
ware less in the study site hence the government should give more emphasis on these sectors
by motivating the entrepreneurs to engaged more on these sectors. Improved provision and
expansion of the necessary infrastructure, such as an uninterrupted electrical power supply,
are necessary and basic to the effective performance of these enterprises. In order to resolve
the problem of limited access to market, i.e., few customers coupled with high competition,
SME’S should have access to differentiated market segments, which will help them to operate
without stiff competition.
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7 Charney, A., &Libecap, G. D. (2000). Impact of Entrepreneurship Education: Kauffman Center for
Entrepreneurial Leadership, Available at,
www.freepatentsonline.com/...Entrepreneurship-Education/235632782.html.

8 Commission on Legal Empowerment of the Poor. (2006), Background issue paper on Legal
Empowerment of the Poor. Available at,
www.undp.org/legalempowerment/pdf/HLCLEP_Overview.pdf.

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business ownership”, Entrepreneurship Theory and Practice, Vol. 26 No. Available at,
www.questia.com/PM.qst?a=o&d=5002434876

11 Empirical Evidence”,Eastern Africa Social Science Research Review, Vol.22, No.1.

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‘Women and Men in the Informal Economy: A
 APENDEX
ADIGRAT UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF MANAGEMENT

Dear Respondents, I am a student at Adigrat University in the college of Business and economics
department of management. This questionnaire designed to carry out research entitled the ‘’the
problems and prospects of small and medium enterprise in Adigrat town.Tthe purpose of this
study is only to conducted as partial fulfillment of bachelor degree in management. Your views
are very important for the success of the research. So you are kindly request to express your
opinion, felling, and experiences as honestly.
 No need of writing your name
 Write your answer on the space provided with the sign (x)
 If you are additional idea write in the space provided
Put “X” mark for the closed ended questions and write answer for open ended questions.
1. Personal information
1.1. Sex Mal Female
1.2. Age
18-20 20-30 30-40
40-50 50-60
1.3 Educational background
1-8 9-12 Certificate  Diploma 
BA Degre e MA degree others 

1.4) Family size 1-3 4-6 7-9 >9

1.5) Marital status single married divorce widowed

Part 2 characteristics and prospects of small and medium enterprise

2.1 Indicate business types of your enterprise
A) Manufacturing B) construction C) urban
agriculture
2.2 What is legal form of your business?
 A) Sole procreator ship B) partnership
C) joint venture
2.3 How many years your enterprise is worked?
A) Less than one B) 1-3 D) 3-5
E) 5 and above
2.4 How many employees you had at the start of the business?
Male __________ female ____________
Total__________
2.5 How many employees you have at present
male__________ female____________
Total_________
Part 3 challenges and prospects of small and medium enterprise
Financial related challenges
3.1 did you obtain credit facility?
A) Yes B) no C) not
interested
3.2 If your answer for question 3.1 is no why?
A) High interest B) inadequate loan amount
C) I don’t need
3.3 If your answer for 3.1 is yes is the amount of loan sufficient
A) Sufficient B) moderate C) not sufficient
D) I have no idea
3.4 is there different alternative to get credit?
A) Yes B) no
Market related challenges
3.5 Did you get any assistance in market linkage?
Yes no
3.6 If your answer for question 3.5 is yes what is nature of market linkage?
A) Linkage with customer B) linkage with supplier C)
both D) other (specify) _______________
 Other challenges
3.7 write any other main barriers you perceive
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
Part 4 the role of government in small and medium enterprise
4.1 did you get any advantage from government bodies? (More than one answer is possible)
A) By creating opportunity to promote product and service
B) By creating opportunity to be competitive in the market
C) By facilitating you to participate in innovative activity
D) By giving land to expand facility
E) By assisting easy business registration and licensing
F) By cooperating individuals in a business

G) Other, mention__________________________________________________

_________________________________________

4.2 If your answer for question 4.1 is not what kind of support you need from the government
bodies _______________________
______________________________________________________________________________

Part 5 the future prospects of small and medium enterprise

5.1 are you willing to introduce new idea that is not used by other?

Yes no

5.2 do the type; quality and design of your product get improvement from time to time?

Yes no

5.3 If the answer for question 5.2 is no why not?

____________________________________________________

5,3 do you have an intention to employee workers in your business?

Yes no