Abstract:
The main aim of this study was to analyze the determinants of SMEs' access to finance in the
Gamo zone, Ethiopia. A descriptive and Explanatory research design was employed, and a
quantitative research approach was used. To achieve the intended objective, primary data were
collected from a sample of selected 216 SMEs and 16 Financial institutions using a
questionnaire. The samples of SMEs were selected using a stratified sampling technique. Finally,
after collecting the relevant data, the data were analyzed using descriptive statistics and the
econometric tool of binary logistic regression. The regression result revealed that access to
finance is significantly affected by education level, financial literacy of the manager, collateral,
size, age of the enterprise, and financial institution-enterprise relationship. Similarly, the
descriptive result of the supply side indicates, SMEs-specific factors like lack of adequate
collateral; lack of adequate information about SMEs (asymmetry information), and the high
transaction cost of lending are major obstacles underlined by financial institutions to their
limited engagement with SMEs. Considering the significant challenges SMEs face, all
responsible bodies are recommended to take measures to improve SMEs' access to finance.
Specifically, the Government is recommended to improve SMEs' access to finance by introducing
an extended Credit Guarantee fund that reduces the excessive demand for collateral security. In
addition to this, SMEs are also recommended to improve their quality through efficient
utilization of available human and material resources.
