Financial and Non-Financial Growth of MSEs: The Role of Microfinance in Aksum Town

Abstract

Micro and small enterprises (MSEs) are vital for creating jobs and reducing poverty in the developing world, and Ethiopia is no exception. Despite their considerable impact on the economy, these enterprises often struggle with numerous challenges, including limited access to capital and a lack of financial and management skills. While numerous studies have explored the influence of microfinance institutions (MFIs) on the financial growth of MSEs, the non-financial aspects of their development remain largely unexplored. This study aims to analyze the role of MFIs in both the financial and non-financial development of MSEs in Aksum town. To achieve this, primary data was gathered from 253 MSEs selected randomly in the town through surveys, interviews, and focus groups. The participants were MSE operators, both those who have and have not received loans from MFIs. The study employed descriptive and inferential statistics, to process and analyze the data, presenting findings in tables and charts. Linear regression was utilized to identify the determinants of revenue and profit growth, while binary logistic regression helped determine factors influencing the likelihood of MSEs adopting new technology, expanding markets, and developing new products. The study found that both MFI-related and unrelated factors significantly impact the revenue, profit growth, and non-financial development of MSEs. Therefore, it suggests an integrated strategy such as improving access to capital, enhancing finance, and supporting technological adoption that addresses both financial and non-financial factors to enhance the overall development of MSEs.