Small Scale Enterprises Development

CHAPTER TWO: LITERATURE REVIEW AND RELATED THEORIES ON MSES

2.1 Literature Review on MSEs in Other Countries

Under this topic review of different journals or articles all over the world investigated in relation to factors affecting MSE’s performance in Ethiopia. While review is made different variables are considered in the study such as marketing factors, financial factors, infrastructural factors, were considered in the study based on the following previous studies.

Thescholar Ray (2010) who conducted a research in Kenya explored the contribution of Micro enterprises to the African countries GDP ranges from 15-70% and they can diversify goods and services, and significance proportion of households earns some or all of their income from micro and small enterprises. The drawback of this study was that it focused only on contribution of MSEs overlooking factors affecting its performance. Another study conducted in 2005 in Kenya shows that small and micro enterprises sector contributed by creating new jobs to citizens which accounts over 50 percent (Micheal et al., 2009). According to the same writer the constraints faced by the sector such as most lacks sufficient capital, little or no access to credit for expansion, most suffer from poor infrastructure, insecurity, extremely competitive market, and unfavorable institutional environment.

There are again previous empirical studies conducted from 1998-2007 in Egypt under the issue of ‘micro and small finance and employment creation in Egypt in 2009’ in the University of Cairo. According to the study, there were constraints encountered in the study area, like minimum outreach of the MSF due to much number of enterprises existed i.e., more than 3.5 million enterprises existed there, the number of NGOs dealing with MSF were low in number, low capacity of management and marketing skill etc are among the many constraints. On the other hand, this same study revealed that 80-90% of total new jobs in Canada are associated with small firms.

A study made in Indonesia shows that low level of education, lack of market research and information on the opportunities of the business, lack of capital, lack of infrastructure, poor environmental conditions and lack of effective marketing linkage are the constraints encountered by MSEs in Indonesia (Dipta, 2004 cited in Adil, 2007). However, this study confined itself only to one country and its applicability in another country is questionable.

Nevertheless, millions of people participated in this productive activity and small scale enterprises employ 88.6 % of people working in the private sector. They contribute significantly to the development as 39.4% of Gross Domestic Product comes from these enterprises (Rudjito, n.d).

Osotimehin, K.O., et, al made research in 2012. The study was done to examine the challenges and prospects of micro and small scale enterprises development in Nigeria with a title of “An Evaluation of the Challenges and Prospects of Micro and Small Scale Enterprises Development in Nigeria”. The study used a survey to evaluate the impact of risk management strategies on micro finance institutions’ financial sustainability.The study was conducted in Lagos State, South Western Nigeria with the use of questionnaire, personal observation and interview to gather relevant data that was statistically analyzed.

To sum up, the study revealed, there has been a phenomenal growth in the number of small and medium ventures for past few years. The main reasons for small and medium enterprise growth in Nigeria is mainly due to the people’s quest to be self-employed and not because it is easy to establish or manage. But the performance and effectiveness of small and medium scale enterprises in Nigeria has been perpetually low despite government institutional and policies support to enhancing the capacity of the enterprises. The result of the empirical analysis goes to prove that small and medium scale enterprises growth in Nigeria has been prevented by structural and environmental challenges. Financial constraints and Lack of management skill hamper the efficient performance of micro and small scale enterprises in Nigeria.

Moreover, the problem of establishing small and medium ventures include the lack of capital, operating equipment, poor business environment, the scarcity of accommodation on the other hand, the inherent problem in managing small and medium business ideas, lack of efficient preservation system and poor environmental sanitation lowered the sudden growth of the enterprises in Nigeria. These include lack of financial support from the government and financial institutions, seasonal fluctuation in the availability of local goods among others. Lack of capital has been identified as the most serious problems of establishing small and medium enterprise is lack of capital as other problems can be solved with capital.

In view of this, the study recommend that government and other non-governmental organization should regularly organize seminars for potential and actual small and medium enterprise operators on how to plan, organize, direct and control their businesses, and that micro, small and medium enterprises operators’ should device effective marketing strategies and good management customers relations at all times.

Nancy G. K, Mohamed S.B. (2014) conducted a research on determinants of loan repayment in small scale enterprises in Kenya’s riobangi Division, Nairobi County. These researchersfound that loan repayment is a critical factor for MSE growth which is further affected by personal characteristics such as education level, family size, amount of loan applied and business experience of the respondents have a positive relationship to loan repayment. Age, interest rate and change in gender had an inverse relationship to loan repayment according to their finding. This study confined itself only to one factor that is loan repayment as a critical Challenge for MSEs growth.