Associate Professor, Dept. of NREM, Mekelle University, Ethiopia. E-mail: afianand@gmail.com
Online published on 7 September, 2015.
One of the problems poor people in the rural and urban areas face is lack of capital. Formal banking procedures marginalize the poor borrowers out of the picture. Poor borrowers want small and uneconomic sums which are exposed to high risks through the eyes of the formal banking system. Shumacher's book on ‘Small is Beautiful’ observed the importance of small units. Economic participation has to be increased by opening a large number of small industrial ventures to provide employment opportunities and to achieve balanced regional development. The promotion of micro enterprises requires multi-faceted intervention which presupposes deeper understanding of the structure and composition of the micro enterprise sector and flow of finance. It is argued that micro-finance interventions and other financial services help low income people to improve household and enterprise management, increase productivity, smooth income flows and meet their consumption costs, enlarge and diversify their business as well as increase their incomes. Against this background, an attempt has been made to assess whether micro finance and micro enterprises have any influence on economic welfare of the target group or not. Also the study explored the credit gap, repayment behavior of borrowers as well as the problems faced by micro enterprises. Primary data were collected from fifty sample micro enterprise owners who have availed the loan from micro finance institutions and started their ventures. The results reveal that due to micro finance intervention and starting of micro enterprises, the owners were able to increase their wealth by means of increase in income, employment and asset creation. Also it is observed that majority (48%) of them availed the loan for business purposes. The overall demand and supply analysis shows that 74 percent of the total amount was contributed by the MFIs and the majority (54%) of borrowers reported that the required amount of loan was not sanctioned by the micro finance institution. Further, the majority of borrowers incurred borrowing cost such as transport cost, incidental cost and indirect cost between Birr 50 and 100 to avail the loan. The repayment behaviour of borrowers is quite encouraging. From the analysis it is concluded that Micro Finance and Micro Enterprises are moving hand in hand and ultimately they are likely to increase the standard of living of the poor people as well.
