Table of ContentsContribution of Small and Medium Enterprises to the EconomyConstraints of Small and Medium EnterprisesTypes of Financing Available for Small and Medium EnterprisesThe small-scale manufacturing sector engages, including owners, in average 3 people per industry and the average employee per industry is 2 people, while the average annual salary per employee is 1914 birr. The average operating surplus by industry is 18,934 birr, which shows that the income generated by small-scale manufacturing activities is much better than that engaged in informal activities. Say no. to plagiarism. Get a tailor-made essay on “Why violent video games should not be banned”?Get the original essayA distinguishing feature of small and medium-sized businesses from large corporations is that the latter have direct access to international and local capital markets so that the former are excluded. due to higher intermediation costs of smaller projects. Additionally, small and medium-sized businesses have the same fixed costs as large businesses to comply with regulations, but have limited ability to market their products abroad (Kayanula & Quartey, 2015). Small and medium enterprises in Oromia can be classified into urban and rural enterprises. The former can be subdivided into “organized” and “unorganized” businesses. Organized businesses tend to have workers with headquarters and are mostly owned solely by an individual. while the unorganized are mainly made up of artisans who work in open spaces, temporary wooden structures or at home and employ few or in some cases no workers. They mainly rely on family members or apprentices. Rural enterprises are largely made up of family groups, individual artisans and women engaged in food production from local crops. The main activities of this sector include: soap and detergents, fabrics, clothing and tailoring, textiles and leather, village blacksmiths, timber and mining, bricks and cement, beverages, food processing, wooden furniture, electronic assembly, food processing, chemicals. and mechanics (Liedholm & Mead, 2011; Osei et al., 2010) cited by (Kayanula & Quartey, 2015). This sector is characterized by low levels of education and training of self-employed workers. Most of these are family businesses and there is little separation between the finances of the business and those of the owners, even to the point where the personal account of the owner or operator is the same as that of the the company. Micro-enterprises are those small businesses with paid income. -capital not exceeding 20,000 birr, and excluding high technology. consulting firms and other high technologies. establishments. Small businesses are businesses with paid-up capital of more than 20,000 and not more than 500,000 birr, excluding high-tech. consulting firms and other high technologies. EstablishmentsContribution of Small and Medium Enterprises to the EconomyMicro and small enterprise development has a strategic place in Ethiopia's industrial development strategy. Especially since MSEs are the key instruments for job creation in urban centers, while job creation is the centerpiece of the country's development plan. The role of MSEs as major job creators is highlighted not only in low-income countries likeEthiopia, but also in high-income countries, including the United States of America. Accordingly, given that MSEs play a central role in job creation, stimulating and strengthening MSE development should be one of Ethiopia's top development priorities. MSEs are not yet key players in the manufacturing sector. The possibility of filling this gap justifies the priority given to the development of MSEs. In Japan – home to major international companies such as Toyota and Sony – for example, more than half of manufacturing output is generated by MSEs. In Ethiopia, the need to support the development of MSEs goes beyond the current priorities given to job creation as, in addition, they have a vital role to play in the industrial development of the country, especially if one takes into account the rapid expansion envisaged for the manufacturing sector under the ongoing renaissance programme. Experience shows that while many MSE start-ups can survive, many others fail. few years, leaving only a small percentage to transform into medium and large companies. Nevertheless, MSE operators still constitute the largest pool of growth-oriented investors committed to developing entrepreneurial attitudes and skills. For example, if there are half a million MSEs and 99% of them are unable to grow into medium or large businesses or fail completely, that still means that 1% – or 5,000 – become medium-sized companies, and could eventually become large-scale companies. . MSEs should be recognized as incubators of development investors. This logic is not limited to low-income countries like Ethiopia, but also applies to high-income industrialized countries. There is also a political rationale for providing policy and policy support to MSEs. Just as farmers form the basis of a developmental state (developmental administration) in rural areas that will cater to the interests of rural residents and in which a crucial role will be played by rich farmers, achieving this would provide impetus (to the ruling party ) to achieve progress in terms of democracy and development and gather the support of the urban population. MSE operators in urban centers, who normally constitute a significant segment of the urban population, also share similar characteristics with rural farmers. MSE operators in urban centers not only strive to create wealth by providing their labor and mobilizing other resources, but they are also likely to engage in rent-seeking behavior. They are therefore expected to benefit from micro and small enterprise development policy and strategy and become the basis for policy support. Among the main benefits of providing priority support for MSE development is the strategic advantage of mobilizing remaining sections of the population to support overall urban development efforts.Constraints of Small and Medium EnterprisesCuevas et al. (2010) indicates that access to bank credit by small and medium-sized enterprises has been an issue repeatedly raised by numerous studies as a major constraint to industrial growth. A common explanation for the alleged lack of access to bank lending by small and medium-sized businesses is their inability to secure acceptable collateral. According to them, the current system of regulation of land ownership and transfers clearly delays and, to a certain extent,measure, limits access to formal loans. First, due to the lack of clear title to much usable land in Oromia, there is a limited amount of real estate that can be pledged as collateral. Second, a government embargo on the transfer of agricultural and family land has further restricted the availability of land as collateral. Finally, when the title or lease is clear and alienable, the regulation of transfers unnecessarily delays the finalization of mortgages and, therefore, access to borrowed capital (p. 24). Aryeetey et al. (2010) supported the view of Cuevas et al. (2010) that from the private sector perspective, finance-related issues dominate all other constraints to expansion (p 50). They asserted that the availability of collateral plays an important role in banks' ability to meet private sector demand. Guarantees provide an incentive to reimburse and compensate for losses in the event of default. For example, collateral was required from almost 75 percent of the sampled businesses in need of loans as part of a study they conducted on the demand and supply of financing for small businesses. 'Oromia (p. 19). The study also indicated that 65 percent of the total sampled companies had, at different times, applied for bank loans for their business. However, a large number of companies saw their applications rejected by the banks. For businesses that applied for loans, there was a nearly 2:1 chance that the application would be rejected. Businesses receive loans much lower than they requested. Among the companies whose applications were rejected, lack of adequate collateral (usually in the form of land) was the main reason given by banks. Aryeetey et al. (2012) suggest that banks can offer alternatives to ownership as collateral, such as guarantors, sales contracts, and liens on financed equipment. The generally negative attitude towards MSEs constitutes the main challenge and takes different manifestations, the most important of which are. the potential of MSEs. The attitude that views engagement in MSEs as a sign of poverty and backwardness and overlooks their potential role due to this narrow perspective – their size and use of simple technologies, rather than their operations and potential. Preference for paid employment. Most graduates from Ethiopia's higher education and technical and vocational training (TVET) institutions seek gainful and secure employment rather than an entrepreneurial route.Dependency. Dependency syndrome is common and is expressed by expecting to receive grants and charity rather than working and investing in one's own future. These attitudes and the resulting behaviors undermine the attractions and benefits of hard work and autonomy as primary exit routes. of poverty. The practice of selling poor quality products and the desire to make quick profits are more prevalent than the practice of making modest profits by producing and selling good quality products and services. The key factor explaining these and other manifestations of attitudinal and behavioral constraints on MSE development is the absence of a democratic culture oriented towards development. Insufficient start-up capital is another major constraint that most MSEs face during their establishment. This is partly because operators do not have the confidence to use their own savings to start a business and persevere despite a jobrelentless. On the other hand, it appears that loans that can serve as start-up capital are not being fully utilized, indicating problems within the capacity of MSEs to absorb funds. The prevalence of unused technology and limited will to reverse the situation is also not uncommon among MSEs. Another area of ​​concern is market constraints for MSE products and services. Factors that explain marketing challenges include examples of MSEs manufacturing products or providing services without first identifying customer needs through market research, using weak marketing strategies (i.e. 'that is to say in terms of quality and price) and who are reluctant to take their own initiative. to expand their market access.Types of financing available to small and medium enterprisesThe Ethiopian financial sector is dominated by the banking sector (commercial banks) which currently accounts for over 92.6 percent of total financial sector assets, at Exclusion of assets of the Development Bank of Ethiopia (DBE) and National Bank of Ethiopia (NBE). MFIs represent 5.2 percent and insurance companies 2.2 percent of total financial sector assets. There is a considerable increase in MFI assets from 4.4 percent of total financial sector assets in 2005/06 to 5.2 percent in 2011/12, demonstrating the growing role of microfinance institutions in poverty reduction, asset building and job creation, particularly in rural communities. Financial intermediation is a driver of economic development: an expansion of credit to the private sector actually allows businesses to invest in productive capacity, thereby laying the foundations for sustainable growth. However, Ethiopia lags behind its peers in this area (Figure 5). In 2011, credit to the private sector in Ethiopia was equivalent to about 14 percent of GDP, compared to a regional average of 23 percent of GDP. Moreover, while the global trend is towards the collapse of the banking sector. Public banks dominate the Ethiopian banking system, and this makes Ethiopia an exception in sub-Saharan Africa and the developing world, where banking systems have much higher shares of private and foreign participation. State-owned banks, which mainly focus on financing large companies, dominate the credit market share in the banking sector. The share of private banks in outstanding credit loans fell from 39 percent of market share in 2009/10 to 32 percent in 2011/12, while that of public banks increased from 61 to 68 percent. hundred during the same period, from 2009/10 to 2009/10. 2011/12. Table 2 indicates that total disbursements of public banks almost tripled in the last three years between 2009 and 2012, with public banks (particularly the Commercial Bank of Ethiopia) focusing on financing public infrastructure projects to large scale. At the same time, the lending capacity of the Development Bank of Ethiopia was strengthened through the introduction of NBE vouchers, while new annual credit disbursements from private banks increased by only 28 percent. hundred during the same period. Despite the general trend towards disintermediation, the Ethiopian financial sector continues to have the potential to be an engine of growth. The banking sector remains stable, well capitalized and continues to be very profitable. Figure 6 shows how the Ethiopian banking sector ranks above the SSA average in terms of profitability measured on the basis of return on capital./