COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

ROLES OF CREDIT PROVISION ON PROFITABILITY OF SMALL

ENTERPRISES (IN THE CASE OF HARAR CITY ADMINISTRATION)

A RESEARCH PROPOSAL SUBMITTED TO DEPARTMENT OF

ACCOUNTING AND FINANCE IN PARTIAL FULFILLMENT FOR
BACHELOR OF ART DEGREE IN ACCOUNTING AND FINANCE

BY:Hayat mohammed sani

ID No;562/11

ADVISOR: Dawit A.

June,2021
Haramaya, Ethiopia
 ABSTRACT
This study will be conducted to examine the roles of the credit provisions on the profitability of
small enterprises in the Harar City Administration. Thus, in order to conduct this study
descriptive survey design was adopted. The nature of this study was also quantitative and
qualitative. Primary and secondary sources was been used. Primary sources of data will obtain
from the target populations of the study by using of questionnaires and interviews while
secondary sources of data was collected from published material related to the topics under
discussion. The target population of this study is comprises all of the registered small
enterprises in Harar City Administration.

Table of Contents
ABSTRACT......................................................................................................................................i
CHAPTER ONE...............................................................................................................................4
1. INTRODUCTION....................................................................................................................4
1.1 Background of the Study........................................................................................................4
1.2 Statement of the Problems......................................................................................................5
1.3. Objectives of the Study..........................................................................................................6
1.3.1. General Objective..........................................................................................................6
1.3.2. Specific Objectives........................................................................................................6
1.5. Significance of the Study.......................................................................................................7
1.6. Scope of the Study.................................................................................................................7
CHAPTER TWO..........................................................................................................................9
2. REVIEW OF RELATED LITRATURE..................................................................................9
2.1 Meaning of Credit...................................................................................................................9
2.2 Importance’s of Credit............................................................................................................9
2.3 Microfinance Institutions Credit Provision...........................................................................11
2.4 Concepts of Profitability in Small Enterprises.....................................................................12
2.6 Microfinance Credit and Financial Performance of Small Enterprises................................14
CHAPTER THREE....................................................................................................................15
3. Research Methodology...........................................................................................................15
3.1 Research Design...................................................................................................................15
3.2 Sources and Types of Data.............................................................................................15
3.3 Sampling Design...................................................................................................................15
3.3.1 Population of the Study...............................................................................................15
3.3.2 Sampling Size and Techniques....................................................................................15
3.3.4 Method of Data Collections...............................................................................................16
3.3.5 Method of Data Analyses and Presentation.......................................................................16
CHAPTER FOUR..........................................................................................................................17
4. TIME AND BUDGET BREAKDOWN................................................................................17
4.1 Time Plan..............................................................................................................................17
4.2 Budget plan...........................................................................................................................17
REFERENCES...........................................................................................................................18
APPENDIX....................................................................................................................................19
 CHAPTER ONE

1. INTRODUCTION

1.1 Background of the Study

The definition given by the Central Bureau of statistics, 2004 is that” Small Enterprises constitute
of semi organized and an unregulated activity largely undertaken by self-employed persons in the
open marketing, stalls, in undeveloped plots or streets within urban areas and centers. They often
pay fees to the municipal or local councils.

Small-scale enterprises have become an important contributor to Ethiopia’s economy. The sector
contributes to the national objective of creating employment opportunities, training
entrepreneurs, generating income and providing a source of livelihood for the majority of low-
income households in the country, accounting for material amount of GDP (Eshetu and Mammo,
2009). Had this sector been provided proper emphasis, the sector has a high potential for
contributing to meet the objective they were envisaged for. Yet the majority of entrepreneurs in
this sector are considered creditworthy by most formal credit institutions as per the report of

Credit provision is absolutely crucial to the success of Small enterprises’; it directly impacts on
their day-to-day operations, and, in turn, their profitability (Lam & Burton, 2005).Credit can have
a negative effect on firm survival. In unstable economies with high macroeconomic volatility, a
sudden increase in nominal interest rates can put a firm in financial difficulties which can force it
to downsize or even close down. ( Nkurunziza, 2004).

Micro financing credit is a credible and effective instrument for poverty alleviation and as such
its contribution to economic growth and performance of SME‟s (Akinyemi; cited in Onuba,
2008).

Small Enterprises have been recognized as being great contributors to the Ethiopian economy
offering both employment and platform for innovative ideas. They form a larger percentage of
the businesses that operate in the country as compared to their medium and large counterparts.
They are however challenged by many constraints that hinder their performance and
consequently their growth. One of the main constraints that have been highlighted over the years
is lack of finance (Kebede, 2014).

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Microfinance encompasses the provision of financial services and the management of small
amounts of money through a range of products and a system of intermediary functions that are
targeted at low-income clients (Kebede, 2014). Microfinance or micro credit has therefore been
associated with helping empower the low-income earners to account properly and independently
for their small businesses.

Microfinance credit can play a pivotal role in economic growth. Banks and lending institutions
provide the services that allow people to save and invest available assets and resources, which
further supports and strengthen economic activity. Within underdeveloped communities, the role
of microfinance institutions provides the credit access and financial services needed to develop
income earning businesses. Within any society, microcredit financial services provide a means
for people and businesses to obtain credit and manage available assets on a continuous basis
(Kebede, 2014).

1.2 Statement of the Problems

Accessing credit is considered to be an important factor in increasing the development of Small
enterprises. It is thought that access to credit increases income levels, employment and thereby
alleviates poverty. It is believed that access to credit enables poor people to overcome their
liquidity constraints and undertake some investments. The effects of access to credit financing on
profitability is not clear and has been a source of discussion with some authors arguing that
access to credit financing enhances profitability while others argue the cost of financing nets off
the benefits thereof. From an economic view, expanding credit financing access holds the
promise of increasing profitability by spurring investment in under-funded enterprise (Kebede,
2014).

From the previous studies little focus has been laid on the impact of microfinance credit on the
financial performance of SMEs. No study was conducted to investigate roles of the credit
provision plays on the profitability of small enterprises in the Harar City Administration.

development and emergency of small firms the basic and the one that seek attention is access to
finance (Ayyagors, Demirguc-Kunt and Maksimovic, 2006) Improving the availability of finance
facilities to this sector is one of the incentives that have been proposed for stimulating its growth
and the realization of its potential contribution to the economy (by establishing saving and credit
institutions) but the need of small scale business for finance became complicated when they grow

4
and involve in innovative activities. Despite this emphasis, the effects of existing institutional
problems, especially the lending terms and conditions on access to credit facilities, have not been
addressed. In addition, there is no empirical study indicating the potential role of improved
lending policies by the financial institutions in alleviating problems of access to finance.
Knowledge in this area, especially a quantitative analysis of the challenges small business are
facing in access finance is lacking for the financial markets of Ethiopia.

Small businesses in Ethiopia access to funding for their businesses to flourish on a sustainable
basis. Although, small businesses promote the development of an economy, it has not been given
adequate recognition that corresponds with intensity of its contribution. It is noteworthy to state
that both financial and non-financial services provided by microfinance banks and institutions
have greatly assisted small businesses in Nigeria and have enhanced the distribution of business
skills and the sharing of innovative ideas. The implication of this study is that, micro-financing
significantly promotes businesses by reducing the resource gap for small businesses. Micro-
financing has a huge potential for increasing the performance of small businesses through the
frequent contributions in micro-financing and provision of non-financial services. Therefore, this
study needs to fill gap of microfinance on the profitably of small enterprise.

Therefore, the purpose of this study was to investigate the roles of credit provision plays in the
growth of the small enterprisers and how provision of credit influences the growth and
profitability of small enterprises with the aim of providing answers to the following basic

1.3. Objectives of the Study

1.3.1. General Objective
The general objective of this study is to examine the roles of the credit provision plays on the
profitability of small enterprises in the Harar City Administration.

1.3.2. Specific Objectives

The specific objectives for conducting this study are:

 To assess the extent of credit financing in the small enterprises in Harar City.

 To identify the roles of credit provision on the financial performance of small enterprises
in Harar City.

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  To identify the role of credit provision on the operational performance of small
enterprises in Harar City.

1.4. Research questions:

 What is the extent of credit financing in the small enterprises in Harar City?

 What are the roles of credit provision on the financial performance of small enterprises in
Harar City?
 What are the roles of credit provision on the operational performance of small enterprises
in Harar City?
 What are the challenges of credit provision for the small enterprise in the Harar City
assess the challenges of credit provision for the small enterprise in the Harar City.

1.5. Significance of the Study

The study will help selected small enterprises to better understand the roles of credit provisions
on the profitability of small enterprises in order to implement better and effective programs in the
future. More so will better expose possible areas of improvement in micro financing in Harar
City.

The study was useful to the government in policy making regarding the financing of the Small
Enterprises through micro finances and other financial institutions. The policy makers will obtain
knowledge on the best mechanisms that should be adopted to finance the small enterprises. This
study will therefore to act as a guide in designing appropriate policies that would guide selected
small enterprises in financing the Small Enterprises.

The study will have great importance to other researchers and academicians who can find it
useful in providing information on the small enterprises of credit provision on the profitability of
small enterprises in Harar as a whole. It will also be of significant to researchers as it provides
basis upon which further studies can be carried out on broad subject microcredit financing of
small enterprises.

1.6. Scope of the Study

This study is mainly focused on investigating the roles of the credit provision plays on the
profitability of small enterprises in the Harar City Administration. It will better and exhaustive

6
for the study is a chance of incorporating all types of small enterprises found in Harar City.
However, the scope of this study is limited to only industrials manufacturing sectors because of
lack of time and financial constraints it does not includes services, constructions and other
related. On the other hand the data is restricted merely on the secondary data because of
inaccessibility of primary data.

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 CHAPTER TWO

2. REVIEW OF RELATED LITRATURE

2.1 Meaning of Credit

According to Onyeagocha (2001), the term credit is used specifically to refer to the faith placed
by a creditor (lender) in a debtor (borrower) by extending a loan usually in the form of money,
goods or securities to debtors. Essentially, when a loan is made, the lender is said to have
extended credit to the borrower and he automatically accepts the credit of the borrower. Credit
can therefore be defined as a transaction between two parties in which the creditor or lender
supplies money, goods and services or securities in return for promised future payments by the
debtor or borrower. Credit means a provision of, or commitment to provide, funds or substitutes
for funds, to a borrower, including off-balance sheet transactions, customers’ lines of credit,
overdrafts, bills purchased and discounted, and finance leases (Onyeagocha, 2001).

Credit is one of the many factors that can be used by a firm to influence demand for its products.
Credit has been given various definitions by different authors. The international dictionary of
management defines credit as “borrowing” up to certain amount given by financial institutions
like the bank to an individual of an organization”. “By credit, we mean the power which one
person has to induce another to put economic goods at his deposal for a time on promise or future
payment. Credit is thus an attribute of power of the borrower.” “Credit is purchasing power not
derived from income but created by financial institutions either as on offset to idle income held
by depositors in the bank or as a net addition to the total amount or purchasing power.” (Tamrat,
2012).

2.2 Importance’s of Credit

Credit plays an important role in the gross earnings and net profit of small enterprises and
promotes the economic development of the country. The basic function of credit provided by
small enterprises is to enable an individual and business enterprise to purchase goods or services
ahead of their ability. Today, people use a loan for personal reasons of every kind and business
venture too. The great benefit of credit with small enterprises is probably very low interest rates.

8
Exchange of ownership: Credit system enables a debtor to use something which does not own
completely. This way, debtor is provided with control as distinct from ownership of certain goods
and services.

Employment encouragement: With the help of bank credit, people can be encouraged to do
some creative business work, which helps increasing the volume of employment.

Increase consumption: Credit increases the consumption of all types of goods. By that, large-
scale production may stimulate which leads to decrease cost of production, which in turn also
lowers the price of product which in result rising standard of living.

Saving encouragement: Credit gives encouragement to the saving habit of the people because of
the attraction of interest and dividend.

Capital formation: Credit helps in capital formation by way that it makes available huge funds
from able people to unable people to use some things. Credit makes possible the balanced
development of different regions.

Development of entrepreneurs: Credit helps in developing large-scale enterprises and corporate

business. It has also helped the different entrepreneurs to fight with difficult periods of financial
crisis. Credit also helps the ordinary consumers to meet requirements even in the inability of
payment. One can borrow money and grow business at a greater return on investment than the
interest rates of loan.

Easy payment: With the help of various credit instruments people can pay without much
difficulty and botheration. Even the international payments have been facilitated very much.

Elasticity of monetary system: Credit system provides elasticity to the monetary system of a
country because it can be expanded without much difficulty. More currency can be issued
providing for proportionate metallic reserves.

Priority sector development: Credit helps in developing many priority sectors including
agriculture. This has greatly helped in rising agriculture productivity and income of the farmers.
Banks in developing countries are providing credit for development of SSI in rural areas and
other priority sectors too.

9
2.3 Microfinance Institutions Credit Provision
In the context of microfinance institutions, credit provision refers to lending (creating access to
credit service) money to borrowers either in long term or short term bases whereby the borrower
is required to repay the principal and the interest, if any, to the lender as per their agreement.
Credit is a borrowed fund with specified term for repayment. The major issues raised in
connection to credit provision are: loan size, loan term, interest rate, and grace period. Loan size
is one of indicator of the depth and width of outreach in microfinance institutions. As loan size
increases to the level that it attracts the well to do (those with relatively better economic status),
MFIs may not be able to reach the active poor (Okumu, 2007).

(Okumu 2007), states that an alternative to directly targeting low- income clients is to use design
features that promote self – exclusion of the better offs. One such design feature is the use of
small loans. Richer people are less likely to be interested in accessing small loans. Loan term
(credit term) is the duration for which the loan stays outstanding. The length of the duration and
the pattern of repayment are the other factors that should be considered by MFIs.

Most MFIs’ clients business is seasonal particularly those engaged in agricultural activities earn
income in a particular periods of a year and need credit when their agricultural activities is about
to start to purchase farm inputs. Therefore, matching the period of credit extension with the
clients’ peak business periods and collection pattern during the clients earn income from their
business is very essential both for the clients and the institutions. Loans should be based on the
cash patterns of borrowers and designed as much as possible to enable the client to repay the loan
without undue hardship. This helps the MFI avoid potential losses and encourages clients both to
manage their funds prudently and to build up an asset base.

Tamrat F. (2012), states that provision of loans by MFIs should match with the schedule of
revenue activities of their clients. If loans are provided during the period when their client’s
business activities are low, the loans could be used for the purpose other than the specified
business which might be unproductive and it would be difficult for the client to repay it back. Not
only the loan provision but also the loan collection schedule of MFIs should be in line with the
period when their clients could have profits from their business (not at start of their business or at
the time when the profit is used for other purposes.) Through with appropriate matching of the
loan provision and collection schedules with the clients’ business activities and profit schedule, it
is possible to reduce the default and delinquency risk of loans.
10
Microfinance credit can play a pivotal role in economic growth. Banks and lending institutions
provide the services that allow people to save and invest available assets and resources, which
further supports and strengthen economic activity. Within underdeveloped communities, the role
of microfinance institutions provides the credit access and financial services needed to develop
income earning businesses. Within any society, microcredit financial services provide a means
for people and businesses to obtain credit and manage available assets on a continuous basis
(Copestake, Bhalotra, and Johnson, 2001).

Microfinance credit is a source of financial services for entrepreneurs and small businesses
lacking access to banking and related services. The two main mechanisms for the delivery of
financial services to such clients are relationship-based banking for individual entrepreneurs and
small businesses and group-based models, where several entrepreneurs come together to apply
for loans and other services as a group (Diagne and Zeller, 2001).

Indeed, given asymmetric information problems (pre- and post-lending), high-risk environments
and the presence of important transaction costs, banks are usually absent of the rural world in
developing countries. There, credit-constrained households rely on informal money lenders for
example landlords, local traders, small businessmen, who typically have more information on
borrowers and accept as collateral goods or services that a bank would not. It has usually been
observed that they charge high interest rate and that they fail to serve all potential borrowers
(Ahmed, Adams, Chowdhury and Bhuiya, 2000).

Most microfinance programs make use of some form of group-lending schemes, such as peer
selection and monitoring, regular public repayments and joint liability. With group lending
schemes, explicitly uses joint liability, though it applies to any mechanism that implies some peer
screening, monitoring or enforcement (Barnes, 2001). Under joint liability, individual borrowers
have to form groups to apply and all group members are held collectively responsible for the
repayment of each other’s debt. Several authors have proposed various explanations for the new
opportunities that this mechanism might offer (Coleman, 2006).

2.4 Concepts of Profitability in Small Enterprises

Profitability is the state or condition by which a business enterprise exceeds its overall revenue
from its total expenses. Gross profit is calculated by deducting the cost of sales of a business
from its sales revenue (turnover). Operating profit is then derived by taking away overhead

11
expenses from gross profit. A business must achieve profitability in order to sustain its
operations. Profitability measures the efficiency of a business enterprise. Profitability differs
from one firm to another depending on specific factors like the level of capital investment and
managers’ characteristics as well as the industry factors like level of competition and regulation.

Profitability is necessary for firm survival in the long run in a competitive environment, but not a
precondition for growth. Long-term profitability derives from the relations between cost and
revenue. A low-profit firm will lack the finance for expansion, but a high-profit business may
have funds for further investments leading to expansion. A business proprietor may trade
profitability today against profitability tomorrow. Sequential investment projects may require
initially lower profits in order to obtain higher future pay-offs from greater market penetration.
The management’s time preference is likely to determine the inter-temporal profit trade-off
(Foreman, Gerry, and Morgan, 2006).

Profitability is positively related to growth and has over time been used as an indicator of firm’s
growth. The rationale is that a profitable firm is able to achieve growth in market share, number
of products, employees and assets base. It is unlikely that firm growth can be sustained without
profits being available for reinvestment in the firm. Enterprise growth is a multidimensional
construct operational zed by a variety of growth measures which include sales, value of net
assets, profit, number of workers, and market share among others. In addition, factors such as
overall satisfaction and non-financial goals of the owners are also very important in evaluating
performance, especially among privately held firms (Ngugi, 2013).

Profitability is the primary goal of all business ventures. Without profitability, a business cannot
sustain itself in the long run. Some authors hold that growth is the very essence of
entrepreneurship. This makes the relationship between Profitability, growth and entrepreneurship
a relevant question. Other scholars make differences in sales growth the criterion for
distinguishing between entrepreneurial and non-entrepreneurial. Often suggested indicators are of
growth are growth in Profits, sales, number of employees, assets, physical output and market
share (Ngugi, 2013).

While profits are universally relevant they reflect many other aspects of a firm apart from its size.
Besides, it is perfectly possible for a large and/or growing firm to be unprofitable (Davidsson,
Steffens & Fitzsimmons, 2005). Return on assets (ROA) of a firm measures its operating

12
efficiency in generating profits from its assets. An indicator of how profitable a firm is relative to
its total assets. ROA gives an idea as to how efficient management is at using its assets to
generate earnings. ROA is derived by dividing a firm's net income by its average total assets.
ROA is displayed as a percentage. Sometimes this is referred to as return on investment.

2.6 Microfinance Credit and Financial Performance of Small Enterprises

Microfinance credit is important for the growth and development of Small and Medium-sized
Enterprises (SMEs). However, access to microfinance credit is still a challenge to most SMEs,
especially those in developing economies and it is also still a key issue both within the private
and public sectors. Microfinance programs provide small-scale financial services to low-income
individuals. Loans are designed to foster sustainable economic empowerment and capacity
building for people in developing economies in order to enlarge capacity and increase their
profits leading to financial performance. Unfortunately, microfinance and microcredit programs
have come under criticism recently following out of control lending practices by unmonitored
and irresponsible organizations.

Lending that led to unmanageable debt for many individuals, microfinance’s credit highly
contributes to financial performance since owners of small and medium businesses with collateral
can easily access credit for expanding their businesses (Diagne and Zeller, 2001). Micro
financing credit is a credible and effective instrument for poverty alleviation and as such its
contribution to economic growth and performance of SME’s (Akinyemi, 2008). Financing of
small and medium scale enterprises are vital instrument for the alleviation of poverty in society.
Therefore, SMEs play a crucial role in nation building, and providing them with the needed
facilities would assist in bridging the gap between the rich and the poor (Ahmed, 2000).

Micro-finance activities usually involve; Small loans, typically for working capital, Informal
appraisal of borrowers and investment, secure savings product. Microfinance clients are typically
self-employed, low-income entrepreneurs in both urban and rural areas. Clients are often traders,
street vendors, service providers (hairdressers, tricycle operators), small restaurant operators,
artisans and cottage industries. Usually, their activities provide a stable source of cash flow and
income often from more than one activity.

13
 CHAPTER THREE

3. Research Methodology

3.1 Research Design

In order to conduct this study descriptive survey design was applied. A research design is the
conceptual structure within which research is conducted; it constitutes the blue print for the
collection, measurement and analysis of data. The descriptive design is found to be suitable
because it addresses major objectives and research questions proposed in the study adequately.
The researcher is used questionnaires to collect data from small enterprises operators, which
would analyze by using descriptive statistics.

3.2 Sources and Types of Data

The sources of data was been gathered from primary and secondary sources. Primary sources of
data are obtained from the target populations of the study by using of questionnaires. Secondary
was collected from different books, internet and different organization document.

3.3 Sampling Design

3.3.1 Population of the Study
The target population of this study is comprises all of the registered small enterprises in Harar
City Administration. Thus, study targeted all the 2020 Gc registered small enterprises. The
accessible populations for this study arebe the registered and operating businesses in 2020/21.
This is because these small enterprises are so strong in providing the necessary credit services.

3.3.2 Sampling Size and Techniques

In order determines sample size from target populations the researcher will use simple random
sampling techniques. Simple Random sampling technique gave equal chance for all target
population to participate to this study. It is also save time and cost since the target populations of
the study is large. The targeted population is mainly the member of small enterprise and the
beneficiaries of the credit services

The sample sizes for this study was 92 respondents who consisted of owners and managers of
small enterprises. A multistage sampling procedure with simple random sampling was used to
select small enterprises for the survey. Small enterprises will randomly selected resulting in a
sample size of 92.
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3.3.4 Method of Data Collections
This study will involve the collection of primary data from selected owners and managers of
small enterprises in Harar City by using of questionnaires. Questionnaires was used to collect
primary data form respondents and its advantage is covering a large number of respondents easily
and quickly. The use of the questionnaire is justified because it is an effective way of collecting
information from a large literate sample in a short period of time and at a reduced cost than other
methods. Also questionnaires is used for this study is includes both close ended and open ended.

3.3.5 Method of Data Analyses and Presentation

The data that was collected through questionnairewas analysed by using descriptive analysis
techniques. Hence, such data are presented in tabulation, charts, graphs percentage and
description of the result from data presentation and analysis. Therefore, the data are analysed by
using descriptive analysis method.

15
 CHAPTER FOUR

4. TIME AND BUDGET BREAKDOWN

4.1 Time Plan

'X'' Represents the month that activity is doing
No Activity May June
1 Topic Selection

2 Preparation of proposal

3 Collection of useful material

4 Data Collection

5 Data Analysis and writing of X

final research
6 Submission of research X

Table 4.1 Time breakdown

4.2 Budget plan

Item Quantity Per unit (Birr) Total Cost (Birr)

Equipment and Paper 1 package 130.00 130.00

stationary Pens 6 5.00 30.00
Pencil 1 2.00 2.00
Binder 1 20.00 20.00
Total Cost - - 182.00
Personal cost Transportation 2 days 200.00 1200.00
Typist 1 200.00 200.00
Overall total cost - - 1582

Table 4.2 Budget break down

16
 REFERENCES
Ahmed, M. Adams, M. Chowdhury, M. and Bhuiya, A. (2000).Gender, Socioeconomic
Development and Health-Seeking Behavior in Bangladesh.Social Science and Medicine, 51 (3):
361-371.

Alexander, M., and Hall, L., (2003).Access to credit and the effect of credit constraints on Costa
Rican manufacturing firms. Research Network working paper, Inter-American Development
Bank, Newyork.

Barnes, C. (2001). Microfinance Programme Clients and impact: An Assessment of Zambuko

Trust, Zimbabwe. Report Submitted to USAID assessing the impactof microenterprise services
(AIMS).

Coleman, E. (2006). Microfinance in northeast Thailand: World Development, 34 (9): 1612-1638.

Copestake, J. Bhalotra, S. and Johnson, S. (2001). Assessing the impact of Microcredit: a

Zambian case study.Journal of Development Studies, 37 (4): 81-100.

Davidsson, D., Frederic, W., Johan, D., (2006). Entrepreneurship and the Growth of Firms

Diagne, A., and Zeller, M. (2001).Access to Credit and its impacts in Malawi.
ResearchReportNo.116 Washington DC, USA: International Food Policy. (IFPRI).

Aldaba M., 2012. "Small and Medium Enterprises` (SMEs) Access to Finance: Philippines,"
Discussion Papers DP 2012-05, Philippines: Philippine Institute for Development Studies.

Foreman, J., Gerry, M., and Morgan, B., (2006). Growth and Profitability of Small and Medium
sized Enterprises: Some Welsh Evidence.

17
 APPENDIX
HARAMAYA UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE
Dear Respondent,

The purpose of this questionnaire is to collect primary information for a study is conducted on the
topic, “Roles of Credit Provision on Profitability of Small Enterprises: Case of Harar City”
as partial fulfillment of (BA) Bachelor of Art Degree in Accounting and Finance at Haramaya
University. To this end, I kindly request you to provide me genuine information, to the best of
your knowledge, so that the findings of the study was legitimate you cannot be identified from
the information you provide, and no information about yourself or your business was given to
anyone because the study is purely academic research. Therefore, please answer the questions
freely.
Thank you for taking your time to help me.

Instructions

 Do not write your name on this questionnaire.

 Please place a tick (√) in the box of your preferred answer and or a narrative answer in the
space provided below each question.

Section A. Respondent Demographics

1. Gender: Male  Female 

2. Age: 20 – 29  30 – 39  40 and above 
3. What is the highest level of education you have attained?
Primary education  High school or diploma 
Secondary education  University degree 
Other specify…………
4. What position are you holding currently?
Owner  Line Manager 
Partner  Director 
Other (specify)......................

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Section B. Small Business Enterprises Information’s
5. What is your line of business?
Manufacturing  Service 
Trade  Food Processing 
Other (Please specify).......................
6. How long have you been in this business?
Below 1 year  6-9 years 
2-5 years  10 and above years 
7. Kindly indicate the number of employees in your Enterprise
Less than 10 people  Above 20 
11-20 people 
8. What is your small enterprises legal formation?
Sole proprietorship  Limited company 
Partnership  Other (specify).....................

Section C. General Questions Related to the Study

1. What is the main source of your business capital?
Microfinance institutions 
Loans from banks 
Own savings 
Friends and Relatives 
Self 
Others (Please specify)…………….....

19
2. Please indicate the proportion of funds your business obtained from the following;
3. The statements here below are to help in assessing the roles of credit provision in small
business enterprises

(Please tick most appropriate of: strongly disagree=1, Disagree=2, Not sure=3, Agree=4 and
strongly agree =5)

R o l e s o f C r e d i t P r o v i s i o n 1 2 3 4 5
Credit facilities have assisted small business enterprise to expand business
Trade credit has been influential in increasing the sales volume of small business enterprise
Bank overdrafts have assisted small business enterprise to increase the profitability
Bank loans have helped small business enterprise to establish new branche s
Trade credit have helped small business enterprise to increase the profitability
Trade credit has helped small business enterprise to operate
Bank loans are important to small business enterprise growt h

4. How would you rate business performance after accessing credit from MFIs?
Very muchimproved
Improved
Notimproved/same
Worse
much worsened 
5. How do you compare the difference between the change in Net Income level and asset
accumulation before and after receiving microfinance credit?
………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………

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6. The statements here below are to help in assessing the challenges of credit provision. (Please
tick most appropriate of: strongly disagree=1, Disagree=2, Not sure=3, Agree=4 and
strongly agree =5)

I t e m 1 2 3 4 5
s
Inadequate loan able to fund for small busines s
Strengthen collateral requirement by small busines s
Lack of incentive for banks to lend small busines s
Negative perception of small business lendin g
H i g h i n t e r e s t r a t e

7. Are you satisfied with the current effort being made by MFIs to address the above
constraints? Yes  No 
8. If no, please give your opinion on what should be done by MFIs and the stakeholders to
eliminate the above challenges:
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………

9. In your view what should be done by MFIs to facilitate their role in serving the Small
business enterprises?
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………

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