COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMICS
Role of Micro and small scale enterprise in generating income in
case of Adigrat city
A Senior Essay Submitted to Department of Economics of Adigrat university
in Partial Fulfillment of the Requirement for Degree of Bachelor of Arts (B.A)
in Economics

Prepared By: Tasew Tamane

Advisor: Hailay Tsigab(Msc)

June, 2015

Adigrat, Ethiopia

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Acknowledgment
First and for most, I would like to thank almighty God for giving me the strength to bring my
long time dream and effort into reality. Then I would to like to express my deepest gratitude and
appreciation to my advisor, instructor Hailay Tsigab, who really sacrificed his previous time in
reading and reviewing so many drafts and final out of my work. This paper indeed, could not
have been written without unstinting and gracious support, commitment, constructive criticisms
and advice.
I am also indebted to express my thanks to my lovely mother Zewde Jaleta,Tamane Erena my
father, Getachew Jaleta my uncle and all my families as well as friend giving love and support
during my three years stay at under graduate school and research work.
Finally I thank all those assisted me with ideas, comments, and contacts are too numerous to
mention your names here, your countless contributions have not for gotten

II
 Abstract
Low income is one of the present situations in urban cities of Ethiopia. The government of
Ethiopia has formulated a policy to mitigate the overwhelmed problem by fostering micro and
small enterprises. In this thesis an attempt is made to assess that role of MSEs in income
generation in Adigrat city, Tigray. During the study, primary data were collected from 122
MSEs. In addition secondary data were collected from Adigrat MSEs Office. Questionnaire and
interview were used as data collection instruments. For data analysis, descriptive statistical
tools such as tables, frequency distribution, and percentage and focus group discussions were
used to describe the responses on the role of MSEs. The study revealed that there is growth rate
of MSEs in Adigrat city and it shows more growth in the last five years. MSEs have great
contribution to income. Most of the MSE workers get average monthly income less than 1000birr
before they start business. However most of them get average monthly income above 500 birr
after they start business enterprise. Most of the MSEs also face constraints during operation and
start up time and the major constraints are in their order is financial shortage and unable to get
access and affordable house rent. To conclude MSEs have great contribution in providing
income to the workers of MSEs. Based on the major findings a number of policy
recommendations are drawn. Among these access credit has vital role in growing MSEs. Giving
work place, providing trainining and business development service would help MSEs to produce
and sell products and generate income easily.

Key words: Micro and Small scale Enterprises (MSEs), Income, Microfinance Institutions (MFI), Credit,
Sole Ownership, cooperatives.

III
 Acronyms
BDS-Business Development Service

CSA -central statistics agency

FeMSEDA- Federal development agency for micro and small scale enterprises

IGAs - Income generation activities

MEIFED - Micro enterprises laying the foundation for economic development

MSEs - Micro and Small Scale Enterprises

NPD- New Product Development

PRP - Poverty Reduction Program

PASDEP - Program for accelerated sustainable development and to end poverty

SBM- Small business managements

U.S.A- United State of America

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 Table of contents
Title Page
Acknowledgment ….............................................................................................................I

Abstract.................................................................................................................................II
Acronyms …........................................................................................................................III
Table contents ..........................................................................................................…...,...IV
List of tables …....................................................................................................................VI
CHAPTER ONE: INTRODUCTION …..................................................................................1
1.1. Background of the study................................................................................................1
1.2. Statement of the Problem...............................................................................................2
1.3. Objective of the Study...................................................................................................3
1.4. Research Questions........................................................................................................3
1.5. Significance of the Study …..........................................................................................3
1.6. Scope of the Study …....................................................................................................4
1.7. Limitation of the Study ….............................................................................................4
1.8. Organization of the Paper...............................................................................................4
CHAPTER TWO: LITERATURE REVIEW........................................................................5
2.1. Definition of MSEs........................................................................................................5
2.2. Common Characteristics of MSEs …............................................................................8
2.3. Characteristics of MSEs in Ethiopia.............................................................................11
2.4. Problems of MSES in Ethiopia …................................................................................11
2.5. Importance of MSEs …................................................................................................12
2.6. Steps For Success of MSEs ….....................................................................................12
CHAPTER THREE: RESEARCH METHODOLOGY......................................................14
3.1. Description of the Study Area.....................................................................................14
3.2. Sources and Data Types …........................................................................................15
3.3. Sample Size determination.........................................................................................15
3.4. Sampling Techniques..................................................................................................16
3.5. Method of Data Analyses …......................................................................................16

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CHAPTER FOUR: DATA ANALYSES AND INTERPRETATIONS.............................17
4.1. Demographic Characteristics of Respondents...........................................................17
4.2. Enterprise Information …...........................................................................................21
4.3. Income Generations …...............................................................................................28
4.4. Constraints ….............................................................................................................30
CHAPTER FIVE: CONCLUSIONS AND RECOMMENDATION...............................32
4.1. Conclusion.................................................................................................................32
4.2. Recommendations……………………………………………………………..........33

Bibliography...............................................................................................................................36

Appendix...................................................................................................................................VII

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 List of Tables

Table No. Page No

Table 2.1.Definition of MSEs in Different Country.......................................................6
Table 2.2.Definition of MSEs in Ethiopia.......................................................................8
Table 4.1.Gender, Marital Status and Religion of Respondents …...............................18
Table 4.2.Age Distribution of Respondents...................................................................19
Table 4.3.Education Level of Respondents.....................................................................20
Table 4.4.Business Types …...........................................................................................21
Table 4.5.Year of Establishments....................................................................................22
Table 4.6.Form of Ownership …....................................................................................23
Table 4.7.Source of Fund to Start Business …...............................................................24
Table 4.8.Reason to Engage on MSEs ….......................................................................25
Table 4.9.Support provided by Government at start-up..............................................…26
Table 4.10.Initial Capital Category of Respondents.......................................................26
Table 4.11.Current Capital Category of Respondents....................................................27
Table 4.12.Average Monthly Income before Engaging On MSES.................................28
Table 4.13.Average Monthly Income after Engaging On MSES....................................29
Table 4.14.Use of Income Gained from Enterprise.........................................................30
Table 4.15.Constraints......................................................................................................31..

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 CHAPTER ONE

1. Introduction

1.1 Background of the study

At this moment the importance contributions of the micro and small in stimulating development
hence growth is almost acknowledged particularly in those developing countries of Asia, Lain
America and Africa. The real reason that developing countries government should given more
emphasis is for micro and small scale enterprises is due to existence level of high unemployment
rate and low per capital income. The government attention to solve these problems needs to
recognize that MSEs are most emerging private sector in developing country (Hall Berg, 2001).

Micro and small scale enterprises have a vital role to the development of communities by
generating income and employment opportunities and changing the structure of the business and
society. This change is accompanied by the growth and increase in output levels which allows
more wealth to be divided among various participants. This MSEs also increase the national
income development and it is also believed to be able to fill the gap that exists between the poor
and the rich in developing countries regarding to income. Successful small are the primary
engine for economic development such as income growth and poverty reduction in many of the
developing countries. This business can also build foundation for stable communities and gender
equality (MELFED, 2004).

Ethiopia is one of the developing countries where MSEs are widely spreading. This is to reduce
high employment rate, generate income and alleviate poverty. In this country, MSEs are the
second largest employment generating sector next to agriculture. More than 1.3 million people in
the country are engaged in MSEs Sectors (Liedholm, 1989)

According to a survey conducted to central statistics agency, unemployment rate for urban area
of country was about 20.5% while that of rural area was only 26% in Ethiopia. Among the nine
(9) Ethiopian regions, Tigray is one where MSEs are widely expanding. Adigrat is one of the
Tigray regions Zones, which is found around the border of Eritrea. This town is one of the faster
growing towns in Tigray region. The growth of MSEs in this town is increase from time to time

8
to success the plan of the Ethiopian government. There are five types of MSEs in Adigrat town.
These are:- Service, Trade, Agriculture, Manufacture and Construction.

There are 8153 overall such MSEs with the total number of 8563 proprietors engaged in this
enterprises Therefore these enterprises are distributed across all of the 'kebeles' of the town
(Adigrat MSEs office, 2015).

1.2. Statement of the problems

Diversification of household’s means of income has been the strategy of many governments in
order to tackle multi-dimensional pressure of poverty on its people since many years ago. In
Ethiopia, a little bite rate, such strategy to diversity household’s source of income in reducing the
intensity of poverty as part of poverty reduction program (PRP) since two decades ago. One of
the strategies by which attempts has been made to diversity households income generation
activities and providing initial capital are through micro finance credit and saving institutions.
Those individuals organized under MSEs are supported by the government and non-government
organization (NGOs) like micro –finance institution until they will be self –sufficient and can
normally lead their own lives.

The role of micro and Small scale enterprises is of course key and self supporting through
income generation and basic needs supplies, many such enterprise have achieved macro and
large scale enterprise level that can manage huge money and capital. MSEs Activities are meant
for creating job opportunities as means of self employment for mainly poor / low income/
individuals and unemployed people (St merry, 2005).

Despite suitable government policy environment and clear strategies, micro and small scale
enterprises may not address the problems of poverty and vulnerable income sources. In other
words, they may fail to sustainable play their role due to companion side factors and might not
achieve the indeed poverty reduction and sustainable income generating objective. Due to these
reasons, joint efforts of government institutions in minimizing poverty stresses may not be
address easily. Thus concerned bodies not only provide initial finance and but also provide
advocacy services together with continuous supervision and follow up services to guide the
beneficiaries.

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In Adigrat town, there are different types of enterprises that have been established under
institutions of micro and small scale enterprises with national objective of poverty reduction
through creating sustainable income generation by proprietors. In this town, many studies are not
conducted on the role of MSES in generating income. Therefore, this study is designed to assess
the overall role of MSEs in providing sustainable means of income generation and employment
for proprietors. Accordingly, the following are suggested to be met at the end of the study.

1.3. Objective of the study

1.3.1. General objective of the study

The main objective of this study is to assess the role of micro and small scale enterprises in
generating income in Adigrat town.

1.3.2. The specific objective of the study

To investigate major factors that hindering the performance of MSEs in Adigrat

To analysis the effect of micro and small scale enterprises on household income in Adigrat

To suggest policy and recommendation for promotion of MSEs in order to play more roles
in the study area.

1.4. Research questions

What are the types MSEs established in Adigrat town?

What are the major factors that hinder the performance of MSEs in Adigrat town?

How micro and small scale enterprises are eliminate poverty in the study area?

How do MSEs Play significant role in securing sustainable income generating in Adigrat
town

1.5. Significance of study

The studies of micro and small scale enterprises at national or regional level have general
significances at border geographical scale. The study at small scale geographical areas like at
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local areas (urban) town level have specific significance at household and individual that benefit
from being organized. According the result of this study, it is expected to reveal the overall status
and role of MSEs and major factor affecting the achievement of the objective of these
enterprises. Doing so, the study forward suggestion for practical measure to be taken by the
concern institution and bodies that enable them assessed beneficiaries further generate their
income and sustainable work with increased benefits. Moreover, there are no such studies
conducted in Adigrat town. Therefore, this study is expected to close research gap by providing
basic information mainly about the performance of micro and small scale enterprises in the town.

1.6. Scope of the study

This study gives generalization on the role of MSEs in Adigrat town. It covers services, trade,
urban agriculture, Manufacture, and Construction. In this study sample gained from MSEs with
registered capital less than 500,000 birr excluding consultancy times.

1.7. Limitation of the study

In conducting this study the researcher face some problem. Some of the respondents are not be
willing to give information on their income. Respondents also show a tendency of
underestimating their income and capital; this is because they fear tax and other related
problems. The information from office and documents are not adequately enough. There also the
problem of language to communicate with many respondents during the time of questionnaire.
There is also insufficient of references materials and lack of adequate computers and internet
services.

1.8. Organization of the Paper

The research paper has been prepared in five chapters. The first chapter is introduction; which
includes statement of the problem, objectives, methodology, significance of the study, scope and
limitation of the study. Literature review is second chapter and the third chapter deals with
research methodology. Results obtained are discussed in chapter four and finally chapter five
presents the summary, conclusion and recommendation of the study.

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 CHAPTER TWO
2. Literature review

2.1. Definition of MSEs

According to St. Merry (2011), MESs is specific form of small enterprise. It almost involves
business with informal characteristics, such enterprise usually includes small service business,
bakeries, Metalworking business .etc. the lower in the MSEs Category is one person business.
The upper limit is often fairly arbitrarily drawn at business with maximum capital about us dollar
5000. This definition usually refers to the category set by most developed countries. Moreover,
this group (MSEs) provides most jobs in the industrial sector of many developing countries, vary
administration. MSE is one which is independent owned and operated and not dominant in its
field of operation. According to this definition there are two approaches of defining MSEs. These
are size criteria and economic or control criteria.

a. Size criteria

Though the criteria used to measure the size of business may vary, the following criteria are
commonly used to measure the size of business. These are: Sale value, Number of employee,
Asset size, Insurance enforce, Value of deposit

b. Economic or control criteria

The definition of MSEs referring to economic criteria cover market share, independence and
personalized management. Three characteristics should be satisfied in order to categorize
business firm as MSE. These characteristics are:

1. Market share: - the market share of small firm is not large enough to enable it influence the
price of national goods sold to any significant extent.

2. Independence: - the owner of MSE is independent in that he/she has full control over
business.

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 3. Personalized management: - it is the owner who actively participate in all aspect of the firm
management, and in all major decision making process. Thus, these are little or no devolution or
delegation of authority.

2.1.1. Definition of MSEs in different countries

To determine the size of enterprise, Hailay (2003) gives the following category of industry and
criteria. Micro and small enterprises are defined in several countries within their different
purposes and intention. Thus, definitions depend on the government policies. There are different
MSEs, which have different technological advancement or know how, the nature of the raw
materials use and the market they have for their product

Table2. 1: Definition of MSEs

Country Category of industry Criteria

Ethiopia Micro enterprise (ME) Investment paid up capital not exceeding
Br 20,000
Small and medium enterprise
Investment paid up capital Br 20,000-
France MSE <500
50,000employees
USA Very small enterprise 10-499 employees
Indonesia Micro enterprise <20 employees

Small enterprise 20-99 employees

Medium enterprise 100-499 employees

Ghana Micro enterprise 1-4 employees

Small enterprise 5-29 employees

Source Hailay, 2003

These different classes of enterprises seen in the above are different with their developmental
advantages and with respect to their impact of policy and policy change. Thus it makes
problematic to speak or define MSEs in universally accepted way (Drik 1994, cited in Ephrem

13
2005). However the yardsticks more or less applied by most countries singly or in combination
are capital investment in plant and machinery, number of workers employed and volume of
production or turn over business (Hewaliyan, 2002)

According to Jean-Luc Camilleri (2005) In Africa, MSEs will be divided in three levels. The
enterprises whose capital is less than Euro 100- MSEs that are small and survival business in
particular engaged in the field of trade. Their potential accumulation or growth is almost zero.
The enterprises whose capital is between Euro 100 and Euro 700- These emerging enterprises
sometimes have premises and sufficient technical knowledge like traditional blacksmiths and
carpenter. Their technologies are simple, their tools basic and their needs mostly in working
capital but also in equipment (Jean-Luc Camilleri,2005).

The enterprises whose capital is between Euro 700 and Euro 10, 000, in this area, activities are
not seasonal but permanent enterprises such as welders operate with fixed premises and more
sophisticated technologies which require relatively important investments. The dynamic micro
enterprises with high potential growth can be assimilated to small enterprises (Jean-Luc
Camilleri,2002)

2.2.2. Definition of MSEs in Ethiopia

In Ethiopia, the ministry of Trade and Industry (1997) adopted official definition of micro and
small enterprises as follows.

MSEs are enterprises which are independently owned and operated, and not dominant in their
field of operation. Micro enterprises are business enterprises found in all sectors of the Ethiopia
economy with total fixed assets of birr 20,000 and lesser, except high –tech consultancy firms
and other high –tech establishments. And , small enterprises are business enterprises with a paid
up capital of more than birr 20,000 but not more than birr 500,000 excluding high tech
consultancy firms and other high –tech establishment (MOTI, 1997)

And currently , the Ethiopia Federal Development agency for micro and small enterprises
(FeMSEDA, 2010 ) to give more relevant working meaning s of the MSEs, has modified the
previous definition shown in the following table by considering the combination of man power
and total asset bases together.

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 Table 2.2. Definition of MSEs in Ethiopia

No Types(level of business Sector Manpower Total asset in birr

involvement)
1 Micro enterprise Industrial ≤5 ≤100,000
Service ≤5 ≤50,000
2 Small enterprises Industrial 6-30 >100,000 but
≤ 1,500,000
Service 6-30 >50,000 but
≤ 500,00
Source: FeMSED

2.2. Common Characteristic of MSEs

There are assumptions that are common characteristics of MSEs. These common characteristics
are; they have few employees, give low income, not experience much growth and do not produce
for markets outside their local environment (Eversole, 2003).

2.2.1. Employment Generation

Available evidence suggests that micro enterprise do not show growth in terms of number of
people employed (Mead. D.C and Liedlholm.C, 2000).While small firms experience both high
job creation and destruction rates, it appears that job destruction during recession is lower in
small enterprise than in large enterprises perhaps due to greater wage flexibility in small firms
(Snodgrass & Biggs 1998). In contrast, large firms offer better in terms of wages, fringe benefits,
good working conditions, opportunities for skill enhancement and job security (Snodgrass
&Biggs, 1998)

According to the study made by liedlholm (2002), the closures rate for MSEs of developing-
countries in Africa and Asia is occurred in the early years of firm’s existence. In Kenya,
Botswana, Swaziland, and Zimbabwe, over 50 percent of the small firms get closed within three
years of start up. Ibid page 22 added that ’’Since small firms have higher gross job creation and
destruction rates than large enterprises, small firms may offer less job security than large firms.
In the US for both new and already existing jobs, Jobs durability increases with firm size’.

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2.2.2. Location and Survival Rate of MSEs

Location can play a central role in determining MSEs Survival. MSEs located in urban or
commercial areas are more likely to survive than their counter in rural areas. Those that operate
in commercial districts or on road sides typically show greater growth rates than those that are
based on their home, although it can vary at the country level (Liedlholm, 2002).

2.2.3. Gender and MSEs

According to op.cit based on the study of the nine countries; in five of these countries women
outnumber men as owners and operators of MSEs. Those small firms tend to be concentrated in
relatively specific activities like beer brewing, knitting, dress making, crocheting, cane work and
retail trading. Ibid page 5 added that MSEs headed by women are more likely to be based out of
their homes. Home based MSEs tend to be hidden to markets and because most homes are not on
streets that people pass.

2.2.4. Labor Distribution in MSEs and Large Enterprises

Small firm expansion boosts employment more than large firm growth, because small firms are
labor intensive, coinciding with the factor market structure of most developing countries. Many
analysts argue that within industries, for a given scale of production, small firms are more labor
intensive than large firms. However there are some evidences suggests that enterprise scale is an
unreliable guide to labor intensity because many small firms are more capital intensive than large
firms in the same industry. Labor intensity exhibits more variation across industries than among
firm size groups within industries (MSE DEGPR, 2006). According to the study made by
Sondgrass & Biggs (1998) depicted that ‟ The fact that small firms employ a large share of the
labor force in developing countries may be a more reflection of the product composition of
production in those countries than inherent labor intensity of small firms’’.

2.2.5. Income generation

While there are many exceptions to the basic pattern, the evidence suggests that larger employers
offer better jobs in terms of wages, fringe benefits, working conditions and opportunities for
skills enhancements as well as job security. In low-income countries, small enterprises have

16
much lower productivity levels than larger firms which lead to lower wages and non wage
benefits. There is some evidence that this divergence in labor productivity and wage rates
between small and large firm's narrows as countries become more developed in terms of
industrialization (Snodgrass and Biggs 1998).

According to the study of Daniel Agyapong in Ghana, the role of MSEs and entrepreneurship in
economic growth and development involves more than just increasing per capita output and
income; it involves initiating and constituting change in the structure of business and society
(Hisrich, Peters & Shepherd, 2008). This change is accompanied by growth and increased
output, which allows more wealth to be divided by the various participants. Change and
development is facilitated according to one economic growth theory that is by innovation
(Hisrich et al., 2008).

Innovation is not only key in developing new products (NPD) or processes but also in
stimulating investment interest in new ventures being created. This new investment works on
both the demand and supply sides of the growth equation; the new capital created expands the
capacity for growth (supply side), and the resultant new spending utilizes the new capacity and
output (demand side). According to these writers, the development of innovation and its
commercialization through entrepreneurial activity, help stimulate generate enough incomes that
promote economic growth. Similarly, small entrepreneurial ventures have been found to-have a
relationship with economic prosperity as they serve as sources of government tax revenue,
contribute to gross domestic product, providing of employment, facilitating the distribution of
goods and services, providing of flexible specialized goods and services as well as serving as the
source of industrial innovation (Buame, 2004). The World Bank as reported in Beck, Demirguc-
Kunt & Levine (2003) supports MSEs development programs based on the argument that MSEs
make special contributions to developing economies by generating the needed income necessary
for alleviating poverty.

2.2.6. Efficiency and Innovation in MSEs

Efficiency and innovation is one of the determinants in MSEs Survival. Sondgrass and Biggs
(1998) stated that; “There has been a substantial difference detected in economic efficiency
among enterprise of varying sizes. It is often argue that small firms are more innovative,

17
particularly when they follow “niche strategies” using high product quality flexibility and
responsiveness to customer needs as a means of competing with large scale mass producers’’.

Measures of enterprise efficiency vary greatly both within and across industries. Those that
varies are labor productivities or total factor productivities. Among the total factor productivities;
financial market, imperfections such as information asymmetries, transaction costs and contract
enforcement costs are particularly affecting the poor who lack collateral and credit histories not
to work efficiently (Beck, et.al, 2004 cited in MSE Degpr, 2006). Joseph Schumber (1995), a
remarkable analyst and advocate of capitalism, asserted that the hall mark of capitalism is
innovation. The only survivors are those who constantly innovate and develop new products and
process to replace the old ones (Brown and Latour, 2004 cited in Kelly D. Edmison 2004).

2.2.7. Market Linkage

In a study made by MSE DGPR (2006), it is described that “Market linkages amongst small
firms are quite limited. The majority of small firms sell directly to final consumers although
some use contracting and clustering. ‘’The study of Millhold (2002) suggests that those MSEs
that sell to traders and manufacturing firms are more likely to grow than other MSEs sells to
final consumers and in view of (Small Enterprise Assistance Funds, 2004) that “Smaller business
may import fewer intermediate goods. A greater amount of products are purchased from labor-
intensive MSEs which may produce a large local multiplier effects”. This in turn can lead to
increased opportunities for locally sustainable growth and employment.

2.3. Characteristics of MSEs in Ethiopia

Despite the diverse nature of MSE activities Ethiopia, majority of them are concentrated into
three main broad sectors. These are:-Manufacturing, Trade and Service. (CSA, 2002)

2.4. Problems of MSEs in Ethiopia

It is believed that the problem related to the lack of adequate working premises , raw material
shortages, insufficient working capital and ineffective marketing encountered by small industries
resulted in the failure of the expansion of this business . Whereas the same rate of problems,
when experience by the informal sector operators, have the effect of preventing their expansion

18
almost from the beginning of their operation. For instance, the result of survey studies conducted
on the “urban informal sector” indicate that most the informal business operators about 30%
expressed that their first major difficult when starting their operation was lack of sufficient
capital. This situation according to their response becomes more critical when they intend to
expand their business (CSA, 2007).

Many studies have indicated that the problems of MSEs are diverse. Limit market, Health
problem, lack of premises, lack of raw materials and limited capacity major problems that MSEs
encountered especially as a creative industry.

2.5. Importance of MSEs

Developing countries are devoting attention to development of MSEs in a variety of ways. The
following are some of vital roles that MSEs can play in the socio-economic developments (Kula,
2011).

MSEs are considered to be a greatest value in building up a local production attraction and
providing economic growth and also considered as a means of creating employment
opportunity and achieve a fairer distribution of natural resource, income, knowledge and power.
MSEs help to promote urban industrialization and etc

2.6. Steps for success of MSEs

According to St.Merry (2009), business owner or managers are required to take certain step to
the success of MSEs including the following:

A. Determinant of objective

The objective or goals usually give purposes and direction to the management process. Thus,
determinations of objectives are very essential and pre-requisite for the success of business
firm. Organizations without objectives are purposeless.

19
 B. Planning

Palling which is considered as the essence of business , involves analysis of the potential
problems and determine solution with reference to the pre-established objectives planning is
non ending function of the business owner.

C. Sound Organization

The existence of and sound organization is vital for the achievement of the firm objectives.
The firm should be equipment with sufficient number of personnel with the requirement,
talent and skill. Thus, human resource, machine and materials must be properly combined and
coordinated so that the intended objectives can be successfully accomplished

D. Research

There is a need for continuous improvement in the method and technique of production to
meet every charging character of demand. As a research is systematic search for new
knowledge, it has a significant contribution in helping the find out new method of production,
improving the quality of products, introduced new products etc.

E. Adequate finance

The successes of much business greatly depend on the availability adequate finance for both
long- term and short-term activities designed. As a result the business Owen is requirement of
the firm and makes to correctly estimate the financial requirement to secure the proposed
financial resources.

F. The General Role of MSEs

MSEs is improving the living standard of house hold through mobilization of saving and
provision of credit. Hence, it is expected that the income of client house hold would increase.
Contributions of micro and small scale enterprise to the creation of jobs and to the alleviation
of poverty has been recognized by many 3 rd would country and has been given prominence in
many development plans as well as in the strategies of many donors (chibwe, 2008).

20
 CHAPTER THREE

3. Research methodology

3.1. Description of the study area

Adigrat is the second largest city in the Tigray region of Ethiopia. It is located in the northern
part of Ethiopia. It is closed to the border between Ethiopia and Eritrea, Approximately 35 km
from Ethiopia border. It is found at a distance of 898km from Addis Ababa and 125km from
Mekelle, the regional capital city. Its astronomical location is 14º20’ north latitude and
39º29’eaast longitude.

The weather is neither too hot nor cold so, it is favorable for life. Between June and august, it has
high level of rain fall. The coldest months are between October and December. The driest
seasons are January to April.

Population

It has an estimated population of 72631 people Based on the 2007 national census conducted by
the central statistics agency of Ethiopia (CSA). This town has a total population of 57,588 of
whom 26,010 are men and 31,578 are women.

Religion

The majority of the habitants practiced Ethiopian orthodox Christianity, 94 percent, 3.02 percent
and 2.68 percent are Christian (orthodox, Catholics and Muslim respectively.

Language and Ethnicity

In the tigrai regional state 96.55% of populations are speaks Tigrigna.TheTigrigna language is
classified as belonging to the Semitic branch of the Afro-Asiatic family of languages. Most other
residents hail from other Afro-asiatic speaking communities, including the Amhara, Irob, Afar,
Agaw and Oromo. There are also a majority of Nilo-saharan speaking like Kunama and Dilates.

21
Socio-Economic characteristics

Most of the urban economy is depend on trade. In Adigrat there are 17 manufacturing Industries,
around 195 wholesale traders,2350 retail traders and also there are1381 service traders and
around four fuel stations. In this town there are many financial institutions like bank including
government bank and private bank and financial institutions. These institutions have key role to
develop the city. Various developments efforts have been undergoing in this city. Particularly the
achievement realized in the area of education, health, road, construction, telecommunications
service, electricity and water supply are commendable. The start of Adigrat University is also
believed to further strengthen capacity and development of the city (G/giorgis and Muruite,
2011)

3.2. Sources and Data Types

The research has relied on both qualitative and quantitative types of data. Concerning sources of
data, both primary and secondary sources have been used in generating valuable and relevant
data. Primary source: primary data has been collected through field work survey. Information on
the status of employment, income and other data has been collected from the MSEs Owners,
employees, and from process owner of office of adigrat MSEs. Researcher used interview
questionnaire and focus group discussions.

Secondary sources: In this study, secondary data has been collected from officially published and
unpublished materials. Reports, statistical bulletins, brochures and other material have been used
for other necessary information.

3.3. Sample size Determination

There are several methods to determine the sample size. These include using a census for small
populations, imitating a sample size of similar studies, using published tables and applying
formulas to calculate a sample size. This study applied a simplified formula provided by
Yamane(1967) in order to determine the required sample size at 95% confidence level, degree of
variability of= 0.5 and with the level of precision of= 9% is:-

22
 N
n= Where, n= desired sample
1+ N ( e ) 2

N= Target number population

e= level of precision =9%=0.09

8563 8563
2= =122
1+ 8563 ( 0.09 ) 1+ 8563 ( 0.0081 )

According to the above formula, the sample size will be a minimum of 122. And this research
paper surveyed to 122 respondents.

Determinining the sample size by using this formula used to save time and reduce the cost.

3.4. Sampling Techniques

In this study samples are taken from workers of MSEs. For these workers sampling technique
has been used through stratified random sampling. Here five sectors of MSEs are taken. Those
are trade, service, manufacturing Industry, urban agriculture, and Construction sectors. In these
sectors there are 6563 populations. Out of this 3063 are service, 2930 are trade, 1121 are urban
agriculture, 822 are construction, and 531 are manufactures enterprises. From these different
sectors or each stratum, the sample has been selected depending on their the percentage of
population .This means for service 35.78%,Trade 34.2%, urban agriculture 13.09%, construction
9.6%, and 7.3% for manufactures. Depending on their percentage 43 respondents from service
sector,42 respondents from trade sector,16 respondents from urban agriculture,12 respondents
from construction, and 9 respondents from manufacture enterprises. In this case respondents are
randomly selected from each sector. From those 122 samples, 38 of them are cooperatives and
the rest 84 are sole (individual owned) enterprises. This in order to compare and contrast
individually owned and cooperatively owned enterprises.

3.5. Method of Data Analysis

Descriptive data analysis method is used to analyses and interprets the primary and secondary
data. In the process of analysis, tabular presentation and percentage explanation will be used.

23
 CHAPTER FOUR

4. Data analysis and Interpretation

This chapter deals with four sections. The first section contains a summarized description of the
personal characteristics of the respondents and the second section contains enterprise
characteristics. The third income generation and the constraints of MSEs are examined under the
fourth sections of this chapter. Constraints that affect the performance of MSEs are described
under the last section of the chapter.
The data are collected and then analyzed in response to the problems posed in the first chapter of
this study. The findings are based on the responses of the employees of the sample MSEs
collected with the help of a structured and semi structured questionnaire, focus group discussion
and in depth interviews conducted with selected owners of MSE and the MSEs Support office
officials as well.
4.1. Demographic Characteristics of sample Respondent
4.1.1. Gender, marital status and Religion

Different studies show that the demographic characteristics of an individual have a significant
role in his/her entrepreneurial behavior and performance of the business enterprise he/she runs.
Proper management of business organizations often depends on the educational background of
the individuals in charge. Taking this into consideration, therefore, owners’ level of education,
age, gender, and marital status of the respondents are shown to indicate the general demographic
conditions of the respondents under the sector.
According to the survey made by the researcher table 4.1 below, 46.5 percent of the respondents
of service sectors, 42.9 percent of Trade, 87.5 percent of the urban agriculture sectors,
66.7Construction, and 66.7 Manufacture owned individually or cooperatively is owned by males,
and 53.5 percent of the service sector, 57.1 percent of the Trade sector, 12.5 percent of the U.
agriculture sector, 33.3 Construction, and 33.3Manufactur owned individually or cooperatively
are owned by females.

24
Table 4.1: Gender, Marital Status and Religion of Respondents
Gender Service Trade U. Constructio Manufacture Total
agriculture n .
Fre % Fre % Fre
. % Freq % Freq % Fre %
Male q
20 46. q
18 42. q
14 87.5 8 66.7 6 66.7 q
66 54.
Female 23 5
53. 24 9
57. 2 12.5 4 33.3 3 33.3 56 3
45.
Marital 5 1 7
status
Married 16 37. 18 43. 10 62.5 3 25 4 44.4 51 41.
2 0 8

Unmarrie 20 46. 15 35. 4 25 7 58.6 5 55.6 51 41.

d
Divorced 3 5
7.0 4 5
9.5 - - 1 8.3 - - 8 8
6.5
Widowed 4 9.3 5 12 2 12.5 1 8.3 - - 12 9.8
Religion
Orthodox 38 88. 92. 15 93.7 10 83.3 9 100 111 91

Muslim 2 44.6 1 82.4 - - - - - - 3 2.5

Catholic 3 7.0 2 4.8 1 6.3 2 16.7 - - 8 6.5
Protestant - - - - - - - - - .
Source; own survey, 2015 Note: Freq=Frequency and U= urban
According these Survey, the numbers of male owned MSEs are more than the numbers of MSEs
owned by female which are 54.3 percent and 45.7 percent respectively. This is due to the urban
agriculture; manufacturing and the construction sectors selected by the researcher to be studied
are highly dominated by male. With regards to marital status, both married and unmarried
respondents are equal. Both are 48.1 percent. The rest 6.5 and 9.8 percent of respondents are
Divorced and widowed respectively. With regards to their religion, the majorities (91 percent)25
are orthodox followers and the rest 2.5 percent are Muslim and 6.5 percent are catholic. There is
no respondent who follow the protestant.
4.1.2. Age distribution of the respondents
Table 4.2 below, presents the age distribution of the respondents and clearly shows that majority
of them fall in the working age group. Such productive work force is often believed to be an

25
engine for the overall development of a country. Being dominantly filled by a working age group
alone, however, will not prove the sector’s important instrument for the economic development
of the country. In order for the sector to play a significant role in the economy, other issues such
as capital, land, skill, natural resources have a significance roles. With this reservation, therefore,
it can be drawn that majority of the MSE workers age are youth who has better energy and speed
that would help to produce more is among the ones the country’s desired economic development
can be attained.

Table 4.2. Age distribution of respondents

Age Service Trade U.agricultur Constructio Manufactur Total

categor e n e
y
Fre % Fre % Freq % Fre % Fre % Fre %
q q q q q

18-23 10 23. 7 16.7 2 12.5 3 25 2 22.2 25 19.

2 7

24- 29 21 48. 19 45.2 6 37.5 5 41.67 3 33.3 54 44.

8 3

30-35 6 14 8 19.0 8 50 2 16.67 2 22.2 26 21.

4 9

36-41 4 9.3 3 7.4 - - 2 16.67 2 22.2 11 9.1

Above 2 4.6 5 11.9 - - - - - - 7 5.7

42 5

Total 43 100 42 100 16 100 12 100 9 100 122 100

Source: own survey, 2015 Note: Freq=Frequency and U= urban

As can be shown in table 4.2 above, the majority of the workers of MSEs are in the age range of
24-29, which represents 44.26 percent of the respondents. The rest 21.9 percent, 19.67

26
percent,9.01 percent and 5.7 percent of the respondents are in the age range of 30-35, 18-23, 36-
41 and above age 42 respectively

4.1.3 Educational Level

The questionnaire included information on educational level of respondents to identify the skill
of the respondent based on their level of education. Understanding the level of respondents‟
education helps in identifying and determining the development approaches to be followed
(Aklilu.W, 2010). High level of human capital and research and development are positively
associated with the performance of firms. They promote the growth of firms from low level of
activities to large and better enterprises (Aklilu.W. 2010).

Table 4.3: Education level of respondents

Educatio Service Trade U.Agricultur Constructio Manufactur Total

n Fre % Fre % eFreq % nFre % eFreq % Fre %
Illiterate -q - -q - - - -q - - - -q
Read and - - - - 1 6.25 - - - - 1 0.8
write 2
9-12 11 25.5 10 23.8 2 12.5 2 16.67 1 11.2 26 21.
Diploma 19 44.1 20 47.6 10 62.5 7 58.3 4 44.4 60 349.

1st degree 13 830.2 12 28.5 3 18.75 3 25.0 4 44.4 35 228.

Above 1st - - - -7 - - - - - - - -7
degree
Total 43 100 42 100 16 100 12 100 9 100 122
Source: own survey.2015 Note: Freq=Frequency and U= urban

From Table 4.3 above, it can be observed that the majority’s respondents have diploma education
levels (44.9 percent). Next to diploma educational level, the respondents with grade 9-12, and
first degree holders’ Read and write accounts for 21.31percent ,28.7 percent and 0.829 percent
of the sample respondents respectively. It can be clearly observed from the below table that

27
majority of the MSE operators (around 78 percent of total respondent) have diploma and 1 st
degree level of education.

From this survey, the researcher identify that there is no illiterate respondents. This is because of
the majority of MSEs Workers have diploma and above educational levels.

4.2. Enterprise Information

4.2.1. Business types that respondents works in

Table 4.4; Business types of respondents

Business types Frequency(number of Percentage

workers in MSEs)
Service 43 35.24
Trade 42 34.42
Urban agriculture 16 13.24
Construction 12 9.8
Manufacture 9 7.37
Total 122 100
Source: Own survey, 2015

According to the above table (4.4) 35.24 and 34.42 percent of respondents are worked under the
service and trade respectively. The rest 13.24 percent, 9.8 percent, and 7.37 percent of
respondents are worked under urban agriculture, construction and manufacture respectively. As
this study, most of peoples are participated on service and trade. This is because Both of this
services are more profitable than the other sectors.

4.2.2 Year of Establishment

In this study, MSEs established five years earlier are the focus of the study. According to Table
4.5 below, majority of established MSEs are recent establishments. 69.7 percent of the MSEs
were established in the year between2009-2014. The rest (30.3 percent) are established before
2009. This is because government gives priority to micro and small scale enterprise in order to
solve the problem of low income and unemployment. By evaluating the five sectors most of the
respondents of manufacturing sector (88.9 percent) are established earlier than other.

28
Construction sector (83.3 percent), Agriculture (81.25), service (67.5 percent), and trade sector
(59.6 percent) are established in the year of2009-2014). Majority of the trade sector (40 percent)
are established in the year before 2009, and this shows that among the five sectors, trade sector is
the youngest sector

Table 4.5: Year establishment

Year of Service Trade U.agricultur Construction Manufacture Total

Establishm e
ent
Freq % Freq % Freq % Freq % Freq % Freq %

Before2009 14 32. 17 40. 3 18.7 2 16.7 1 11.1 37 30.

5 4 5 3

2009-2015 29 67. 25 59. 13 81.2 10 83.3 8 88.9 85 69.

5 6 5 7

Total 43 100 42 100 16 100 12 100 9 100 122 100

Source: own survey, 2015 Note: Freq=Frequency and U= urban

4.2.3. Form of Ownership

According to the below table many people (68.7 percent) engaged on Micro and Small Scale
Enterprises in the form of sole ownership. Around 31.1 percent of workers of Micro and small
Scale Enterprises have cooperative form of ownership. According to the discussion during this
study large number of people wants to do his\her individually. This is because of that their profit
and income are more determined during they do in individual rather than in group or cooperative.
Since conflict is also raised during peoples do in group or cooperative, many of them preferred to
do in sole ownership or in individual

29
Table 4.6: Form of ownership of Business of respondents

Form of Service Trade U.agricult- Constructio Manufacture Total

ownership ure n
Fre % Fre % Fre % Fre % Fre % Fre %

Sole 29 67.4 31 73.8 12 75 7 58.3 5 55.6 84 68.9

Cooperative 14 32.6 11 26.19 4 25 5 41.7 4 44.4 38 31.1

Total 43 100 42 100 16 100 12 100 9 100 122 100

Source: Own survey, 2015 Note: Fre=Frequency and U=urban

4 .2.4. Source of fund to start the business

According to the below table (4.7) the source of the source of Fund to start business gained from
different institutions. In this table it is indicated that, around 39.34 percent fund gained from
Micro finance, 30.37 percent from banks, and 27.04 from government and 3.6 percent gained
from own saving. As indicated in above table most workers (39.3percent) of MSEs gained their
capital from micro finance. In this survey the fund gained from own saving is less. According to
discussion with workers of MSEs, this is because most of MSEs were students. So they did not
save income before and they are aimed to start business in order improve their level of income
after they are completed their education.

30
Table 4.7: Source of fund to start business Response

Source of Service Trade U.agricultu Constructi Manufactu Total

Fund re on re

Fre % Fre % Fre % Fre % Fr % Fre %

e
Loan from 2 4.7 - - - - - - - - 2 1.6
peoples
Loan from 18 41.9 16 38. 7 43.8 4 33.3 3 33.3 48 39.3
MF 1
Loan from 12 27.9 8 19 4 25 5 41.6 4 44.4 33 27
governme 7
nt
Loan from 11 25.6 16 38. 5 31.3 3 25 2 22.2 37 30.3
banks 1
From - - 2 4.8 - - - - - - 2 1.6
family
Total 4 100 42 100 16 100 12 100 9 100 122 100
3

Source: own survey, 20015 Note: Fre= Frequency and U=urban

31
4.2.5. The reason to engage on MSEs Business

Table 4.8; reason to engage MSEs

Reasons to Service Trade U .agricultu Construction Manufacture Total

start re
Fr % Fre % Fre % Fre % Fre % Fre %
For skill 13
e 30.2 9 21.4 4 25 6 50 5 55.6 37 30.3
For good 26 60.5 31 73.8 10 62.5 5 41.7 3 33.3 75 61.5
income
It need low 4 9.3 2 4.8 2 12.5 1 8.3 1 11.1 10 8.2
income to
start
Other - - - - - - - - - - - -
Total 43 100 42 100 16 100 12 100 9 100 122 100
Source, own survey, 2015 Note: Fre= Frequency and U=urban

As it is indicated in the above table 4.8, most workers of MSEs (61.5 percent) start business in
order to get good income. The rest 30.3 percent and 8.2 percent respondents start business in
order to get skill and low income to start business. According the discussion with the participants
of MSEs, most people are engaged on MSEs for the search of good income. Because of MSEs
workers are low income people before they are engaged on MSEs. So they want to improve their
standard living by improving their level of income.

4.2.5. Response for support provided by government at start up

From the below table 4.9, it is indicated that around 59.8 percent of respondents get support from
government during start up. However around 40.2 percent of respondents did not get the support
from the government. From this it is observed that there was no good support from government
for the proprietors micro and small scale enterprises at the start-up of the business.

32
Table 4.9; response on support provided by the government at start-up

Support Service Trade U. Construction Manufacture Total

provided agriculture
Fre % Fre % Fre % Fre % Fre % Fre %
Yes 15 34.9 12 28. 9 56.3 7 58.3 6 66.7 49 40.2
6
NO 28 65.1 30 71. 7 43.7 5 41.7 3 33.3 73 59.8
4
Total 43 100 42 100 16 100 12 100 9 100 12 100
2
Source, own survey, 20015 Note: Fe= Frequency and U=urban

4.2.6. Initial capital versus current capital

The below table (4.10) indicates that more of the amount of initial capital of the workers MSEs
to start a business ranges between 5,000-50,000 birr. Nonetheless most of the MSEs workers
(37.7 percent) were their initial capital between 5000-50,000. Others 30.3 percent, 22.2 percent
and 9.8 percent of respondent’s income ranges between 50,000-100,000 birr, above 100,000 birr
and less than 5,000 birr respectively.

Table 4.10; initial capital category respondents

Initial Service Trade U.agriculture Construction Manufacture Total

capital Freq % Freq % Freq % Freq % Freq % Freq %
Less than 3 7 6 14.2 1 6.3 2 16.7 - - 12 9.8
5,000
5001- 16 37.2 12 28.6 9 56.2 6 50 3 33.3 46 37.7
50,000
50,001- 13 30.2 11 26.2 6 37.5 3 25 4 44.4 37 30.3
100,000

33
Above 11 25.6 13 31 - - 1 8.3 2 22.3 27 22.2
100,000
Total 43 100 42 100 16 100 12 100 9 100 122 100
Source: own survey.2015 Note: Freq= Frequency and U=urban

When the sectors are compared, there is no major difference regarding to their initial capital.
Majority of sectors initial capital were between 5,001-50,000 birr, which were 37.2 percent, 28.6
percent, 56.2 percent, 50 percent and 33.3 percent for service, trade, urban agriculture,
construction, and manufacture respectively.

Table 4.11: current capital category of respondent

Current Service Trade U. Constructio Manufacture Total

capital agriculture n
Freq % Freq % Freq % Freq % Freq % Freq %
Less than - - 1 2.3 1 6.3 - - - - 2 1.6
5,000
5,00- 6 13.9 9 20.9 4 25 4 33.3 4 44.4 27 22.1
50,000
50,001- 18 41.8 15 35.7 6 37.5 5 41.7 2 22.2 47 38.5
100,000
Above 19 44.2 17 40.5 5 31.2 3 25 3 33.4 46 37.7
100,00
Total 43 100 42 100 16 100 12 100 9 100 122 100
Source: own survey, 2015 Note: Freq=Frequency and U= urban

According to the researcher survey, majority (38.5 percent) of the MSEs has a current capital
which is ranged between 50,001-100,000 birr and 37.7 percent of MSEs have current capital
above 100,000 birr. The rest of the respondents’ current capital is less than 5000 birr and 5001-
50,000 birr, which are 1.6 percent and 22.1 percent respectively.

By comparing the initial capital of the MSEs with current capital, there is significance difference
in capital amount invested. In the above table (4.10), most of the MSEs Workers (37.7percent)

34
 initial capital were ranged between 5,001-50,000birr. However, in above table (4.11), most of
MSEs Workers (38.5 percent) current capital is between the range 50,000-100,000 birr.

4.3. Income generation

4.3.1 .Monthly income before and after engaging in MSEs

As it is indicated from the below (table 4.12), most of MSEs Workers (35.2 percent), get the
average income between 501-1000 per month before they start the work of micro and small scale
enterprises. This is indicates that the income which is gained at the month was not enough for
this peoples and it is low. Because there was no good job which can generate income such like of
MSE. In this table, around 34.4 percent respondents get the income less than 500 and 5.7 of
respondents get the income above 2,00. The rest 15.6 percent and 9.1 percent respondents get the
income between 1,000-1,500 birr, and 1501-2,000 birr.

Table 4.12. Average monthly income before engaging in MSEs

Monthly Service Trade U. Constructio Manufactu Total

average agriculture n ring
Fre % Fre % Fre % Fre % Fr % Freq %
income
q q q q eq
Less than 500 17 39.5 15 35.7 4 25 3 25 3 33.3 42 34.4
birr
501-1,000 birr 13 30.2 17 40.5 6 37.5 4 33.3 3 33.3 43 35.2
1,000-1,500 7 16.3 5 11.9 3 18.8 3 25 1 11.1 19 15.6
birr
1,501-2,00 4 9.3 3 7.4 2 12.5 1 8.3 1 11.1 11 9.1
birr
Above 2,000 2 4.7 2 4.8 1 6.3 1 8.3 1 11.1 7 5.7
Total 43 100 42 100 16 100 12 100 9 100 12 100
2

35
 Source; own survey, 2015 Note: Fre= Frequency and U=urban

According to below table (4.13), the researcher observed that most of respondents gain the
average income above 500 birr after they start their business. The numbers of workers that gain
the income less than 500 are very low. This refer to the number of workers’ income increased
after they are started work in the MSEs. From this table, it is indicated that most of MSEs’
workers (27.9 percent) gain the average income between 1000-1500 birr per month, and the rest
21.3 percent, 18.0 percent, and 14.7 percent get the income above 2000 birr, 1500-2000 and less
than 500 birr respectively.

Table 4.13; average monthly income after starting business

Monthly Service Trade U. Constructio Manufactu Total

average agriculture n ring
income Fre % Fre % Fre % Fre % Fr % Freq %
q q q q eq
Less than 500 8 18.6 6 14.3 2 12.5 1 8.3 1 11.1 18 14.7
birr
501-1,000 birr 7 16.3 10 23.8 2 12.5 2 16.7 1 11.1 22 18.0
1,000-1,500 8 18.6 14 33.3 6 37.5 4 33.3 2 22.2 34 27.9
birr
1,501-2,00 8 18.6 6 14.3 3 18.8 2 16.7 3 33.3 22 18.0
birr
Above 2,000 12 27.9 6 14.3 3 18.8 3 25 2 33.3 26 21.3
Total 43 100 42 100 16 100 12 100 9 100 12 100
2
Source: own survey, 2015 Note: Freq=Frequency and U= urban

According to the researcher survey, when it is compared the monthly income gained before and
after the engagement on MSEs Work, there is significance different. Before they are starting
the business, most of respondent (69.6percent) gain the average income less than 1000 birr per
the month. However after they start the MSEs Work, most respondent (67.2 percent) gain the
average income above 1000 birr per month. This is the inverse of the income gained before

36
starting the work of enterprise. From both the table (14) and (15), the researcher concluded that
micro and small scale enterprises have the significance role in generating the income for the
society.

4.3.2. The use of income gained from enterprise

According to table 4.14 below, most of the MSE workers (36.1 percent) use their dividend for
house hold needs. Around 27.0 percent of the workers of these MSEs Use their profit to create
new business and 25.4 percent of respondents save their profit. The rest of the MSE workers
(7.4 percent and 4.1 percent) use their profit for medical expense and entertainment respectively.

Table 4.14; Use of income gained from enterprise

Use of Service Trade U.agricultur Constructio Manufactur Total

income e n e
Fre % Fre % Freq % Fre % Freq % Fre %
q q q q
Create 13 30. 11 26. 5 31.3 2 16.7 2 22.2 33 27.
business 2 3 0
Household 12 27. 17 40. 7 43 5 41.7 3 33.3 44 36.
needs 9 5 1
For saving 13 30. 10 23. 3 18.7 3 25 2 22.2 31 25.
2 8 4
Medical 4 9.3 2 4.7 1 6.3 1 8.3 1 11.1 9 7.4
expense
For 1 2.3 2 4.7 - - 1 8.3 1 11.1 5 4.1
entertainme
Total
nt 43 100 42 100 16 100 1`2 100 9 100 122 100
Source: Own survey, 2015 Note: Freq=Frequency and U= urban

37
 From the above table it can be concluded that majorityof workers (53.1 percent) income is
used for household needs and for creating other business branch and this realize the role of
micro and small scale enterprises contributions in generating the income of the house hold
and the society as a whole.

4.4. Constraints

The researcher has divided the constraints: internal and external. The internal factors can be
during start up or operations, which hinder the normal functioning of MSEs, include: limited
human capital (the skills, schooling, technical know-how and motivation of employees), lack of
working capital, the utilization of obsolete technology and poor location. The external factors
can be during start up or operations which affect the normal functioning of MSEs, include: low
access to financial service and low business development services, limited market and poor
supply of economic infrastructure and public Services. Low business development service
include training, consultancy and advisory services, marketing assistance, information,
technology development and transfer, business linkage promotion, and linkages to finance and
financial services.

Table 4.15; constraints of MSEs

Constraints Service Trade U. Construction Manufacture Total

agriculture
Fre % Freq % Freq % Freq% Freq % Freq %
q
Market 13 30.2 12 28.6 4 25 2 16.7 2 22.2 33 27.0
problem
Lack of 14 32.5 11 26.2 8 50 7 58.3 5 55.5 45 36.9
capital
Lack of 7 16.3 10 23.8 2 12.5 1 8.3 1 11.1 21 17.2
techniques
Lack of 9 20.9 9 21.4 2 12.5 2 16.7 1 11.1 23 18.8
training
Other - - - - - - - - - - - -

38
Total 43 100 42 100 16 100 12 100 9 100 122 100
Source; own survey, 2015 Note: Freq=Frequency and U= urban

According to the above table (4.15), majority of respondents (36.9 percent) have the problem of
lack of capital. The rest 27 percent, 18.8 percent, and 17.2 of MSE workers have the problem of
market, training, and techniques respectively. This survey indicated that there are some
problems which hinder micro and small scale enterprises from generating income Adigrat city.

CHAPTER FIVE

5. Conclusions and Recommendations

5.1. Conclusions

Micro and small scale enterprises have the major role in income generation, distribution of
income and in reducing unemployment in Ethiopia in general and in Adigrat town in particular.
Many people in Tigray particularly in adigrat are employed and get income by working in these
organizations. Besides employment and income contribution, they played a great role in
economic development of the city by supplying different goods and services to the community.

This study focuses on role of MSEs in generating income generation in Adigrat city by
reviewing five sectors. The sectors are service, trade, urban agriculture, construction and
manufacturing. This study also intended to investigate the performance and problems associated
to MSEs in the study area. In this study about 122 samples from MSEs Workers have been
covered by survey study. The sample size is taken from each sectors depending on the number of
population participated in it and respondents are taken randomly from all population. These
different sectors were taken in order to show a comparison among sectors and provide a good
sample size representative of MSEs.

A majority of owners of MSEs are between the age of 24-29 and this covers 44.8 percent of the
total workers response and majority of the workers of MSEs (33.2 percent) are in the age range

39
of 24-29. From this it can be drawn that majority of the MSE workers age are among the ones the
country’s desired economic development can be attained by.

Diploma is the level of education for majority of MSE workers, which in percentage accounts
for 49.2 percent of the workers. Majority of the MSEs workers have less than 1 st degree level of
education. With regards to the establishment of the MSEs, 69.7 percent of the MSE
establishments are recently established between 2009-2015and the rest are established before
2009 years.

Regarding to the income, most of peoples start to get high level of income after they are engaged
on MSEs. When they are started business they have no income and at this time they are
improving their income from time to time. This shows that most of the workers of MSEs are
benefited from the enterprise which they are working in.

Generally, the findings of the study show that MSEs are still playing an important role in
generating income and securing sustainable livelihood of the people in the study area. However
MSEs have still serious problems which affected their performance. For instance, the
respondents mention the problem like lack of access credit, lack of continuous and appropriate
training, shortage of capital, and lack of the market for their products. These problems have been
hindering the roles of MSEs in the study area.

5.2 Recommendations

Based on the major findings mentioned in the analysis, a number of policy

recommendations have been drawn with the view to improve the role of micro and small
enterprises in contribution to income generation.

 Expanding financial institutions: -The respondents informed they lack sources of

finance for further improvement of their enterprise. Thus, the government should
expand financial institutions so as to encourage micro and small scale enterprise.
Since credit from individual source is major source of credit for MSEs, its system
and terms of lending should be further studied and supplied. Moreover, the rate of
loan interest should be at a reasonable one. Micro finance should be consulted for
this purpose.

40
 Provision of Work place: -The construction of market sheds and common facility
centers at suitable locations by assistance of the government, donors and private
sector could help to address this problem. Thus, government with support from
donors could engage in constructing shades for MSEs to address the problem of work
place, coupled with measures to encourage private investors to engage in
construction of premises suitable for entrepreneurs. In this regard, the government
should provide certain incentives for private investors such as tax relief for some
time and availing of lease-free land, etc. Creating work premises would benefit
MSEs in reducing costs of high rent, reducing displacement, reducing closures of an
enterprise. In addition, if MSEs have a constant work place, they can draw long year
strategic plans regarding expansion of the business.

 Studying market situations: -Government and other concerned bodies should

search market for the products of MSEs. They have to study the problems of market
and solve the problems like price instability and illegal retailer which are competing
them. With regard to marketing support, the following measures need to be
encouraged by the government.

1. Linking MSEs with medium and large firms to serve as market outlets.

2. Provision of training on quality improvement and cost reduction modalities.

3. Provision of information on market opportunities & appropriate/improved

technologies.

4. Construction of display centers and provision of advertising support.

5. Establishment of market information centers.

 Inviting the private consultancy and training: -Consultancy and training are
essential in promoting MSEs. The concerned bodies therefore should encourage
provision of training and consultancy service for people who want to involve in
MSEs; because, such consultancy and training provide them with technical and
vocational skills for their further development of MSEs. In case of this provision of
BDS such as training technical and managerial, advisory and counseling services is

41
 very crucial for sustainable growth of MSEs. In this regard supportagencies need to
tailor their training and an advisory service to meet the specific needs and situation of
MSEs. Support organizations can also play facilitating roles by referring and linking
MSEs to other organizations for special skills training. The managerial trainings can
be how to record, how to do the debit and asset etc. The technical training should be
given depending on the type of the business and sector so that it will help MSEs to
supply goods and services in quality and quantity thereby get demand for their
products. Both these trainings should be given to new as well as existing MSEs.

 Identifying real causes of capital shortage: -MSEs need assistance in identifying

the real cause of their capital shortage since lack of capital has many serious
problems such as low saving, inefficient financial management etc.

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 Bibliography

 Efrem Amdework. (2005), Policy environment to stimulate micro and small

enterprises development in Tigray. Erasmus University). Rotterdam, The Nether
lands.

 Jean-luc camilleri (2005) Micro and small enterprises and micro finance in Africa.

 Moti, (2011, Ministry of trade and Industry, micro and small enterprises
development strategy, Addis Ababa, Ethiopia.

 Hall Berg,( 2001) contributions of the micro and small in stimulating development,
Ethiopia

 Lied holm.c. (1993), the structure and growth of MSEs in southern and Eastern
Africa.

 MELFED,( 2004),role of micro and small scale enterprises in developing country

 St. Merry (2011), MESs form of small enterprise and its role.

 Aklilu,W.(2010). Analysis of Marketing Practices in Micro and Small Enterprises

(MSEs) in Tigrai

 Eversole, R. (2003). My business pays me: laborers and entrepreneurs among the self
employed.USA

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  Hailay, G. (2003). Entrepreneurship and Small Business Managment. Ethio-
Central Printing Press.Mekelle.

 Daniels, L. andMead, D.C. (1998). The contribution of small enterprises to

household‟s income and national income in Kenya. Economic development and
cultural change,

Appendix

ADIGRAT UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMICS

QUESTIONARIES ON: THE ROLE OF MICRO AND SMALL SCALE ENTERPRISE IN

GENERATING INCOME INCASE OF ADIGRAT TOWN.

This questionnaires are forwarded for the participants of MSEs(workers of micro

enterprises)

 Any information you provide for the purpose of this study will be treated confidentially
and will not be attributed to any particular.

1. Fill the following background information.

Woreda____________

Kebele ___________

Interviewer name____________

Interview date____________

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 2. Fill the following personal information.

2.1. Sex: A. Male B. Female

2.2. Age:- _____

2.3. Marital status:-

A. Married C. Divorced E. Other__________________

B. Unmarried D. Widowed

2.4. Religion:-

A. Orthodox C. Protestant E. Other (specify it)_________

B. Muslim D. Catholic

2.5. Educational level

A. Illiterate D. 9-12 G. Second degree

B. 1-8 E. Diploma H. Above second degree

C. Read and write only F. First degree

3. Enterprise related Questions.

3.1. What is your type of enterprise or business? _________________________

3.2. When does this enterprise started? ____________________________________

3.3. What is the form of ownership of this enterprise?

A. Sole B. cooperative C. other (specify it)___________

3. 4. What are the principal sources of fund to start business? (Rank them on their percentage)

A. Loan from other peoples D. Loan from banks

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B. Loan from micro finance E. From family

C. Loan from government F. Other (specify it) __________________

3.5. What is your major reason to engage in this business? (By rank)

A. For the acquiring skill D. Other (specify it) ______________________

B. Expectation of good income

C. Requires low start-up capital

3.6. Do you get any support from government during start-up of your enterprise?

A. Yes B. No

3.7. What was your capital when you start up your enterprise? ___________ in birr.

3.8. What is your current capital? _____________ in birr.

4. Income Related questions:

4.1. What is your monthly average income before you start your business or enterprise?

A. Less than 500 D. 1501-200

B. 501-1000 E. Above 2000

C. 1001-1500

4.2. What is your monthly average income after you start your business or enterprise?

A. Less than 500 D. 1501-2000

B. 501-1000 E. Above 2000

C. 1001-1500

3.3. For what purpose do you use your income? (By rank)

A. Create business

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 B. Use for household needs

C. Medical expenses

D. Use for entertainment

E. Children education

F. Put into saving

G. Other(specify it)________________

. 5. Constraints

5.1. What are the factors which hinder or affect the performance of your enterprise in particular
and overall micro and small scale enterprises in this town (By the rank)?

A. Market problem

B. Lack of capital

C. Lack of asses credit

D. Lack of techniques(technology)

E. Lack of training

F. Other(specify it)_________________________________________________

5.2. From the above question (question number 5.1) which one is the most constraint of micro
and small scale enterprises? Why? _________________________________________________
_____________________________________________________________________________
___________________________________.

Discussion part

1. Do you think that micro and small scale enterprises are the source of income? In what way it can
generate income? __________________________________________________________________

___________________________________________________________________________________

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_______________________________________________.

2.What are the opportunities that you are think regarding to your enterprises?

_______________________________________________________________________________

__________________________________________________________________________________

_______________________________________.

3. Is this enterprise improving your living standard?

_____________________________________________________________________________________
______________________________________

THANK YOU FOR YOUR COOPERATION!!!

ADIGRAT UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMICS

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Uffee …!!!!, Waan na gargaarteef
galatakee yaa waaq!!!!!!

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