Role of Microfinance Institutions in Financing Micro and Small Enterprises in Ethiopia

Abstract

Micro and Small Enterprises (MSEs) understood as a means to attain the United Nations 2030 agenda particularly its contribution in reducing the massive unemployment and deep-rooted poverty. Hence, the main aim of this paper is to examine the role of Microfinance Institutions (MFIs) to the survival, value creation and growth of MSEs. For this study purpose, secondary data were collected from the National Bank of Ethiopia (NBE) and triangulated with systematic review of empirical evidences. Principal Component Analysis (PCA) was used to examine the relationships and significance in and between the data emerge. The empirical evidences result reveals that unlike banks, MFIs provide diverse micro credit services to address the diverse socioeconomic needs of the poor who cannot afford collateral requirement and besides the result from PCA reveals that the economic growth and access to microcredit service by itself is not enough to create more jobs as they are uncorrelated. However, the empirical evidences shows that, the poorest and most vulnerable people are being left behind due to lack of access to finance, poor market linkage and inadequate skill training among many other factors. Therefore, policy-makers have to develop regulatory frameworks that build sound financial institutions and encourage competition among one another.

The impact of government microfinance program on poverty alleviation and job creation in a developing economy

“…Empirical evidence revealed that increased incomes allowed loan beneficiaries to take care of themselves and their households (Dhungana et al, 2023). The spillover contribution is the improvement in the local economic activities, especially in the areas where microfinance institutions operate (Oshora et al, 2020). Empirical evidence shows that the SAMAF scheme reached out to more needy people in the targeted rural areas.…”

“…The success story of microfinance programs is based on the fact that disadvantaged people are helped and supported by developing their small enterprise businesses. This creates jobs that positively affect extreme poverty in rural areas (Oshora et al, 2020). Furthermore, the recent emphasis on microfinance reflects governments' effort to provide credit to the informal self-employed.…”

Microfinance and Sustainable Development in Africa

“…Likewise, Bondinuba (2020) suggest there were over 10,000 microfinance institutions around the world in 2020. Moreover, despite the recent Covid-19 pandemic about 90 million microfinance borrowers were reached globally in 2020 alone (Oshora et al, 2020). Furthermore, Cull, et al (2014) found that the Grameen bank solely funded over 8 million microbusinesses in 2011.…”