ODA BULTUM UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTEMENT OF ACCOUNTING AND FINANCE

THE CONTRIBUTION OF MICRO AND SMALL ENTERPRISES IN POVERTY

REDUCTION (A CASE STUDY ON CHIRO TOWN)

A SENIOR RESEARCH PROPOSAL SUBMITTED TO ACCOUNTING AND FINANCE

DEPARTMENT IN THE PARTIAL FULFILLMENT OF BACHELOR OF ARTS
DEGREE IN ACCOUNTING AND FINANCE

PREPARED BY: ID №;

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 1,Fatima Mohammed.....................2645/13

February 13/ 6/2015

CHIRO, ETHIOPIA

ABSTRACT
The MSEs are also an important force to generate employment and more equitable income
distribution, to activate competition, exploit niche markets, enhance productivity and technical
change, and through all of these stimulate economic development. Micro and small enterprises
(MSEs) in Chiro town doesn’t show necessary performance level and some of the enterprise
objectives of this study were to identify the factors affecting the contribution of micro and small
enterprise. The significance of this study was to help the owner or manager of the micro and
small business enterprise to know the importance of proper record of modern accounting and
reporting on the growth of the business and to implement their day to day operations of the

10
organizations as well as most of the micro and small enterprises will be generated a high profit
and it builds a good business performance by improving the accounting and reporting. It also
provides useful information researched concerning problem facing small business and develop
strategically to minimize that problem. The relevant data for this study was obtained from the
primary sources collected through structured questionnaires and unstructured interview.

The researcher was used simple random sampling techniques for the purpose of the study. The
study has used both descriptive and explanatory research designed. Data for the analyses
collected both from primary and secondary sources where the primary through questionnaire and
focus group discussions. the study has used simple random sampling technique which were out
of total number of small business was registered randomly selected, the person either the owner
or any one employ in the sector. The study has identified that the external factors affected
contribution of MSEs and their existence could improve the normal operation of micro enterprise
and small enterprise.

Key words: Micro and small enterprises, contribution, Chiro town.

LIST OF ABRIVATION

CSA Central Statistical Authority

Ksh Cash

FMSEDA Federal Micro and Small Scale Enterprise Development Agency

MSES Micro and Small Scale Enterprises

MOTI Ministry of Trade and Industry

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UNIDO United Nation Industrial Development

RMSEDA Regional Micro and Small Enterprise Development Agency

MUDC Multiple Unit Door Control

Table of Contents
ABSTRACT....................................................................................................................................................II
LIST OF ABRIVATION...................................................................................................................................III
CHAPTER ONE:-INTRODUCTION..................................................................................................................1
1.1 Background of the Study..................................................................................................................1
1.2 Statement of the Problem...............................................................................................................2
1.3 Research Questions...........................................................................................................................3
1.4 Objectives of the Study......................................................................................................................4
1.4.1General Objectives of the Study..................................................................................................4
1.4.2 Specific Objectives of the Study..................................................................................................4

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 1.5 Significance of the Study.............................................................................................................4
1.6 Scope of the Study.........................................................................................................................4
1.7 Limitation of the study...................................................................................................................5
1.8. Working Definition........................................................................................................................5
1.9. Organization of the paper.............................................................................................................5
CHAPTER TWO:- REVIEW OF LITERATURE...................................................................................................6
2.1. The Meaning of Poverty and its Measurement................................................................................6
2.2. Concept and Definition of Small Enterprises....................................................................................7
2.3. Measurement of performance of MSES...........................................................................................9
2.4. Characteristics of MSES..................................................................................................................10
2.5. Types of MSES.................................................................................................................................10
2.6. The Role of MSES in Reducing Poverty...........................................................................................11
2.7 Empirical Study on Contribution of MSES in Poverty Reduction......................................................11
2.8 Conceptual Framework....................................................................................................................12
2.9. Problems and Constraints of MSES Development in Ethiopia........................................................13
2.10. Prospects for MSES Development in Ethiopia...............................................................................14
CHAPTER THREE:-RESEARCH METHODOLOGY...........................................................................................15
3.1 Description of the Study Area........................................................................................................15
3.2 Research Design and Strategy.........................................................................................................15
3.3. Data Source and type......................................................................................................................16
3.3.1 Primary Source of Data.............................................................................................................16
3.3.2 Secondary Source of Data.........................................................................................................16
3.4. Target Population and Method of Sampling...................................................................................16
3.4.1 Target Population.........................................................................................................................16
3.4.2 Method of Sampling.................................................................................................................16
3.4.3. Sample size..............................................................................................................................17
3.5. Methods of Data Analysis.............................................................................................................17
REFERENCES..............................................................................................................................................19
APPENDEX 20

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CHAPTER ONE:-INTRODUCTION
1.1 Background of the Study
It is widely accepted that MSES play a vital role in socio economic development of a country
as a means for generating sustainable development and income. However, MSES play an
important role by providing the founding ground for medium and large scale enterprises and
in the process of contributing to the reduction of poverty. MSES make a significant
contribution to the socio-economic life of the country by way of supporting people to earn
money and make a contribution to family income and by supporting basic goods and services
for local consumption (FMSEDA, 2006:13).The aim of MSES development and the
provision of MSES services are to enable the entrepreneurs to take advantage of market
opportunities and improve the access to skill development opportunities that strength
entrepreneurial capabilities (UNIDO, 2002).

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 In general, the provision of MSES in the country is increasingly becoming more important
due to the fact that they use what the country possesses and less of what it lacks plus to that
their role in employment creation for the majority of peoples. Because of the potential of
MSES for economic development by creating market for local products and utilization of
local raw materials and knowledge, more attention has been given to the sector. In the past,
the importance of MSES as a vehicle to address the challenges of unemployment, growth and
poverty was not properly acknowledged in Ethiopia. Now a days the government give
emphasis and began to pay due attention to the promotion and development of MSES (Lee
Water A. and Shaw, 2008).

Ethiopia is one of the countries with this condition and relaying up on MSES help as an
engine to drive economic development, elimination of unemployment and poverty and the

failure of these business in Ethiopia indicates that they are in dire need of assistance. In1990,
the federal government of Ethiopia has developed a strategy for the development and
promotion of MSES. The primary objective of the strategy is creating suitable environment
for MSES, given such an enabling environment, it is expected that hundreds and thousands of
MSES will themselves be responsible for the operation, growth and progress of their
enterprises (MOTI, 1997).

1.2 Statement of the Problem

The dynamic role of MSES in developing countries is as an engine through with the growth
objective of those countries can be achieved and recognized as a major source of employment
and income in a growing number of developing countries. Since 1990, MSES undertake its pilot
activities; one of its objectives is reduce poverty and stimulating the Ethiopian economic growth
giving priority to MSES. (MOTI, 1990).

The number and rate of development of MSES in Ethiopia is not growing as needed. This could
be attributed to several factors. The businesses environment in which MSES are operating today
in different considerable changes have taken place in the world economic order during the past 2
and 3 decades. The growing intensity of global competition affects the growth of MSES and
developing economies. It is a great importance to understand the factors, characteristics and
patterns of the changes that are taking place in the domain of MSES, combining with this a

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vision of how things might develop better in the future in order to specify measures that might be
done to help bring about the desire outcome. Knowing an important part of this sorting out
involves a better understanding of the contribution (benefit) of MSES to reduce poverty and the
growth process of taking place among MSES(Lee Water A. and Shewa, 2008).

Despite MSEs are contributing a lot in changing people’s standard of living in Ethiopia, the
situation in Chiro town has lack of organized and well-coordinated support systems that cater for
the sector, thus MSES operating in the area have been confronted by various problems which are
of structural and institutional in nature. To start with, lack of infrastructure is the first and the
most pressing problems facing small enterprises for startup as well as survival of the business.
Several MSES have contributed to reduce poverty in Ethiopia over the past 2 and 3 decades. As
it has been clearly explained above there are numerous studies, reports and findings of different
aspects of MSES contribution. However, the contribution of these MSES in poverty reduction
has not been satisfactorily and comprehensively assessed and the contribution of MSES in
poverty reduction is not well addressed. So, the researcher believed that there are little or not
enough conceptual studies regarding to the contribution of MSES in Chiro town. Therefore, the
aim of this study was to assess (investigate) the contribution of MSES to reduce poverty (MOTI
1997).

1.3 Research Questions

The following basic research questions will be answered at the end of the study. The research
questions were:

• What are the contributions of MSES to reduce poverty?

• To what internal factors affect the contribution of MSES to reduce poverty?

• To what external factors affect the contribution of MSES to reduce poverty?

• What internal factors affect contribution of MSES to reduce poverty in Chiro

town?

• What external factors affect contribution of MSES to reduce poverty in Chiro

town?

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1.4 Objectives of the Study
1.4.1General Objectives of the Study
The general objective of the study is to identify factors affecting the contribution of micro
and small enterprises in Chiro town.

1.4.2 Specific Objectives of the Study

 Determine the factors affecting contribution of MSEs in Chiro town?
 Examine the internal factors affect the contribution of Micro and small enterprises?
 Examine the external factors affect the contribution of Micro and small enterprises?
 Determine the measurement of the performance of the Micro and small enterprises?
 Examine the performance of Micro and small enterprises reporting in business?

1.5 Significance of the Study

This research can be useful for other researchers as an insight to think broadly and conduct
research on what is not included here. In addition to this, it can help government policy makers
of Chiro town to take appropriate measure where it becomes necessary. The research also
believes that the result of this study was having the way of the institutions, also for the institution
and serves as reference for other research.

The study also helps to indicate the direction for latter researcher work on the area. After the
problem is identified, it has a significant to help the owner /managers/ of the micro and small
business enterprises to know the importance of proper record of modern accounting and
reporting on the growth of the business and to implement their day to day operations of the
organizations as well as most of the micro and small business enterprises will be generated a
high profit and it builds a good business performance by improving the accounting and reporting
(that means change the single entry to double entry accounting system) through a good
understanding of the benefit and importance of modern accounting and reporting on the growth
of the business from will be research

1.6 Scope of the Study

Geographically, the research was conducted on Chiro town, which is found in eastern Ethiopia in
Oromia region. The study assessed the contribution of MSES in Chiro town. This study

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delimited to internal and external factors affecting contribution of MSES formally registered
under profit, capital, and number and ignoring other contribution measurement.

1.7. Working Definition

The definition of micro and small enterprises around the globe vary from country to country and
depend on the phase of economic development as well as their prevailing social condition. The
definition uses number of full time employee, total asset, net asset and paid capital, and annual
turnover as criteria independently or in combination (Haily 2007).The development of micro,
small, and medium enterprises depends on individuals or a group of peoples that have certain
factors such as innovativeness, family background, government support programs, and training
or education. According to Kenya’s definition of micro and small enterprises used two criteria
such as number of employee and the company’s annual turnover. Accordingly, the micro
enterprises number of employees less than 10 and annual turnover not exceeding ksh 500,000,
and small enterprise has less than 50 employees and annual turnover between ksh 500,000 to
5million (Kyrystyna, Mirmulstein, and Ramalho, 2010).

According to Ethiopia’s Federal Micro and Small enterprises Agency the improved definition of
micro enterprises is an enterprise operates with 5 peoples including the owner and/or their total
asset is not exceeding Birr 500,000 for service sector. Small enterprise is those enterprises hired
6up to 30 employee or total asset amount Birr. 100,000 up to 1.5 million birr industry sector and
50,000 up to 500,000 for service sector (GFDRE, 2011).

1.8. Organization of the paper

The study was organized in to the following five (5) major chapters. The first chapter introduced
back ground of the study, specifies the objectives, scope and limitation and the significance of
the study. The second chapter presented the review of related literature. The third chapter
explained about the methodology of the research. Chapter four outlines data presentation,
analysis and interpretation of the data. The remaining chapter five summarizes, concludes and
suggests some recommendations about the study.

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CHAPTER TWO:- REVIEW OF LITERATURE
2.1. The Meaning of Poverty and its Measurement

Poverty is one of the vital concerns in most countries weather developed, developing or less
developed. Some of the basic issues that need to be identified
Before discussing poverty reduction in general what is meant by poverty, why there are poor
people and how they can be identified (Wikipedia 2003).
A wealth of literature focuses on discussing the meaning of poverty and identifying the most
appropriate indicators which can be used to measure its magnitude on the national and
international levels. However, it is indicated that there is no optimal definition to describe
poverty, or a measurement technique to compare poverty across countries or among different
parts of a country (sirageld in, 2007).
Development studies specialized in poverty related issues indicate that at the beginning of the 20
century. Poverty standard was based on estimates of the minimum level of nutritional and food
requirements. Extreme (absolute) poverty refers to the lack of income necessary to satisfy basic
food needs usually defined on the basis of minimum calorie requirements. Over all (relative
poverty) refers to the lack of income necessary to satisfy essential food and non-food needs such
as clothing, energy, and shelter. Human poverty refers to the lack of basic requirements to
sustain basic human capabilities such as: illiteracy, malnutrition, abbreviated life span poor
maternal health illness from preventable disease and lack of access to goods and services and

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infrastructure (energy, sanitation, communication and drinking water) necessary to sustain basic
human capabilities (UNIDO, 2002).

2.2. Concept and Definition of Small Enterprises

There is no commonly accepted definition of MSES, rather many institutions and scholars define
it in different perspectives. The MSES sector everywhere is characterized by highly diversified
activities which can create employment opportunities for a substantial segment of a population.
This implies that the sector is a quick remedy for unemployment and poverty problem. The
realization of a modest standard of living through curbing unemployment and facilitating the
environment for new job seekers and self employment requires a direct intervention and support
of the government and other concerned stock holders. Hence in order to channel all necessary
support and facilitates to this diversified sectors, a definition is needed to categorize the sector
accordingly (MesgebuAmsalu 2013).

However, there is no single and universally accepted definition of a small enterprise. This is so
because the criteria and ways of categorizing enterprises as micro and small from institution to
institution depending essentially depend on the countries level of development. Even with in the
same country, definitions also change overtime due to changes in price levels, advance in
technology or other considerations. Firms differ in their level of capitalization, sales and
employment. Hence definitions that employ measures of size( number of employees, turnover,
profitability, net worth…) when applied to one sector could lead to all firms being classified as
small, while the same size definition when applied to a different sector could lead to a different
result (Mukras M. S 2003) .

UNIDO, gives alternative definition for developing countries, accordingly, it defines MSES as
the business firms with less than five (5) employees and small enterprise as the business firms
with five to nineteen (5-19) employees(UNIDO,2002).

In Ethiopia there is no uniform definition at the national level of a common understanding of the
MSES sector. Ministry of Trade and Industry (MOTI) and CSA have defined MSES separately.
While the definition by MOTI uses capital investment, the CSA uses employment and favor
capital intensive technologies as a yardstick. The definition used by MOTI, which uses capital

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investment as a yardstick, has been developed for formulating MSES development strategy in
1997(MOTI, 1997).

According to the MOTI adopted official definition of MSES which are found in all sectors of
the Ethiopian economy, are as follows;

• Micro enterprises are business enterprises found in all sectors of the Ethiopian
economy with a paid up capital (fixed asset) of not more than birr 20,000 but
excluding high technology consultancy firms and other high technology
establishments.

• Small enterprises are business with a paid up capital of more than birr 20,000 but not
more than birr 50,000 but excluding high technology consultancy firms and other
high technology establishments.

Based on the number of workers, MSES may be categorized as follows:

• Up to19 workers- micro and very small enterprises.

• Between 20-100 workers-small enterprises.

• Between 101-500 workers-medium enterprises.

• Above 500 workers –large enterprises (MOTI, 1997).

The Central Statistical Authority (CSA) has attached various definitions to enterprises based on
capital, level of technical and technological capacities. In 2003 the CSA based its definition on
MSES on the size of employment and extent of automation for small scale enterprises and used a
combination of these criteria for defining such enterprise. Accordingly, it has defined small scale
manufacturing as establishments engaging less than 10 persons. Enterprises in the micro
enterprise category are sub divided into informal sector operations and cottage industries.
Cottage and handcraft industries are those establishments performing their activities by hand and
using non power driven machines. The informal sector is defined as house hold type
establishment or activities which are non-registered enterprises and cooperatives operating with
less than 10 persons (CSA, 2003).

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According to regulation, “Micro Enterprise” means an enterprise having a total capital, excluding
building, not exceeding birr 50000 in the case of service sector or not exceeding birr 100000 in
the case of industrial sector and engages 5 workers including the owner, his family members and
other employs. The same regulation defines, “Small Enterprises” as an enterprises having a total
capital, excluding building, from birr 50001-500000 in the cases of service sector or birr
100001-1500000 in the case of industrial sector and engages 6-30 workers including the owner,
his family members and other employs (Art.2(2)( FMSEDA, 2006).

2.3. Measurement of performance of MSES

Performance definition is not common for all scholars. The measure of performance of MSES
are performance indicators which are commonly used to help an organization define and evaluate
how successful in terms of making progress towards its long term organizational
objectives(Gibson 1990).Li, Zang and Chan (2005) uses three indicators for performance
measurement of efficiency, growth, and profit. The business performance is the phenomenon of
multiple aspects that are difficult to quantify (Sanchez and Marin, 2005). A variety of the
literature shows that both quantitative and qualitative indicators have limitations and
recommended to used interchangeably. Measuring quantitatively: such as ROI, profit, sales, and
so on. While qualitative measurements are often called as performance indicators, performance
measurement is using the approach of a certain scale of performance variables such as
knowledge and business experience, the ability to offer quality products and services, the
capacity to develop new products and processes, the ability to manage and work in groups, labor

Productivity, and corporate responsibility to the environment. Sanchez and Marin (2005)
measured the performance of small and medium enterprises with reference to the three aspects
namely profitability, productivity, and market. While Lee and Tsang (2001) using

performance effort represented by the growth venture consisting of sales growth, the growth of
the company's assets, and profit growth.Based on review of related literature, performance of
micro and small enterprises (MSEs) measured in terms of increase in profit, capital growth and
increase in number of employees for this study.

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2.4. Characteristics of MSES

According to Mulugeta Charewube (2012) MSES have many characteristics which make them
pivotal in accelerating economic growth, these characteristic includes the following:
• Their flexibility makes them best suited to environment constantly changing. They adapt
quickly to various factors that play a large part in daily management.
• MSES use new materials, new methods of production, new markets, new sources of
materials’ and even new forms of organizations, making them innovate in character.
• Since they are fairly labor intensive, MSES provide an economic solution by creating
employment opportunities in urban and rural areas at relatively low cost of capital
investment.
• Decentralization and disposal of industries allows of a balanced growth of the economy
as a whole. MSES use indigenous raw materials and promote intermediate and capital
goods. So, they contribute to faster economic growth in transitional economy.
• Finally, because they are mostly set up by individuals they provide an out let for
expression of the entrepreneurial spirit.

2.5. Types of MSES

The concepts of informal and formal enterprises are the other terms need some contextual
definitions. To begin with, although there is no universally accepted definition of what
constitutes an informal enterprise, there is consensus that they are small scale and operate outside
registration tax and frame works. Accordingly, informal enterprises are defined as establishments
which are mainly engaged in the production of marketed goods and services but formally
unregistered at any government agencies to undertake their business and hence have no licenses.
On the other hand, formal enterprises are defined as establishments principally engaged in the
production of marketed goods and services but formally registered at respective government
agencies to undertake the business and hence have licenses to operate (Bigsten A. et.al, 2000,
CSA, Huysmans, R. 2001-2002).Therefore, both formal and informal MSES were within the
growth oriented sectors. In view of that, brief definition of each are given here just to indicate
their contextual usage in this study “initial capital” is defined here as the original investment or
money used to start the enterprises. These initial funds or capital may be come from micro
finance loan, city government grant, owner’s personal savings, or any other relatives and family

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contributions. Current capital, on the other hand, is part of enterprise’s capital available during
the survey. Usually current capital is understood as asset minus current liability ( Nichter and
Gold Mark 2025, MC. Cormick 2008).

2.6. The Role of MSES in Reducing Poverty

The ability of MSES to benefit the poor depends to some extent on the mix of service offered.
The main financial services those clients need include the following: reaching poor women
pungently the head of households and providing them with their needs of different financial
services enhance the ability of the poor to help them in establishing work opportunities which
provide them with sources of income. MSES can also facilitate the provision and maintenance of
shelter, which poor people cannot obtain without help. The effectiveness of MSES in delivering
services that meet these needs can be improved through, facilitating intermediation between
informal and formal financial institution, increasing coverage of the poor expanding access for
disadvantage groups and enhancing the outreach and sustainability of the institutions (Nelson,
1999).

2.7 Empirical Study on Contribution of MSES in Poverty Reduction

Based on the reviewed of past studies conducted on micro and small enterprise the internal
(personal entrepreneurial characteristics) and external business environments affect contribution
of MSES. The situation of poverty in Ethiopia is one of the highest in the world. Current
international thinking is in the tune with a view that acknowledges MSES as a tool to fight
poverty in the long run. Poverty reduction is simply not going to happen by government fiat but
only though private sector dynamism. The evidence directly linking MSES to economic vitality,
even in the most developed economies. There are suggestions of greater employment
opportunities for poor, low skill workers and broader social impacts. The movement to support
MSES development internationally reflects a return to promoting poverty reduction by investing
in private sector driven strategies by all of the major multilateral agencies. Poverty reduction
strategies(PRS) currently being formulated in many developing countries places a more
pronounced emphasis on the contribution that the private sector will have to make compared to
the over reliance on the social agenda that can characterize earlier poverty reduction
strategies(Perumal K. and Prasad N .D 1998).

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According to Lee water A. and Shaw. 2008), the major contributions of MSES for poverty
reduction are listed as follows:

• For employment creation

• Lower investment cost per job
• poverty reduction in both urban and rural areas
• A venues for indigenous entrepreneurship
• Tapping of savings
• Utilization of domestic technology
• Increasing converge of the poor by expanding access to establish their own related MSES
activities

2.8 Conceptual Framework

The conceptual framework shows the role of small business in poverty reduction (alleviation),
economic growth and job creation has emerged as an important topic not only for policy but also
for academic research. The importance of MSES arises in view of the dismal performance of
previous policies that emphasized large scale industrialization. Recent economic reforms have
also created opportunities for the fledgling small business and thus generated interest in small
business research initiatives. It is generally agreed that encouraging the development of small
business is an effective way of fostering growth and poverty reduction, despite conflicting
evidence obtained in several studies (Mukras M. S 2003).

In line with the study objectives, contribution of MSES Contribute to the economic growth of a
country by providing new jobs, introduction of innovation, simulate competition aid big business
and produce goods and services efficiently (Haily, 2007). It measured interims of profit, capital,
and number of employees, where dependent variables whereas the external and internal factors
affecting MSESs contribution were used as independent variables. Such factors includes;
political, legal, finance, marketing, opportunity seeking, systematic planning and monitoring,
information seeking, and self-confidence ( GFDRE, 2011).

2.9. Problems and Constraints of MSES Development in Ethiopia

The problems encountered and the constraints imposed on MSES have adversely affected its
growth and development. In developing countries the sector encounters a range of problems and
obstacles such as: legal impediments, inadequate capital, and lack of appropriate skill to operate

25
business. Although, there are similarities in the nature of problems faced by the sector, some of
the critical problem areas may be peculiar to the respective socio-cultural, political and economic
environments (Sigraled in 2007). The low level of capital that can be locally mobilized in a
resource deficit environment has also been one of the major obstacles to the sectors enhanced
operation. According to some studies small business respondents indicated that obstacles that
hampered business startups in the sector were unfavorable government regulation, lack of access
to finance and lack of training were the majority of business operators were self-thought. Other
problem areas also included poor urban land administration, bureaucratic inefficiency, the
tedious process and long procedures in issuing housing permits and the shortage of supply and
high cost of construction materials, shortage of regularities in the supply of inputs combined with
low demand for MSES sector products (CSA 2003).

According to a study on problems of micro- enterprise development in Ethiopia (FMSEDA,

2006), some obstacles and problems encountered were caused by factors such as the following.
• Unfavorable legal and regulatory environments
• Lack of access to institutional finance and business information
• Absence of business premises at affordable rent
• Inability to acquire business skills and managerial expertise
• Lack of access to appropriate technology and business infrastructure
• Discriminatory government policies and practice
The findings of CSA have also indicated critical problem areas that have adversely affected
MSES growth and development (MulugetaCharewube, 2012). This includes:
• Lack of smooth supply of raw materials
• Problem of government rules and regulations
• In adequate skill to operate a business
• Lack of sufficient capital and access to credit facilities

2.10. Prospects for MSES Development in Ethiopia

As we can understand form the discussions in the preceding sections attempts to deal with small
business issues would require serious strategic thinking and pragmatic approach. It may be vital
to emphasize on integrating the sector in to main stream development. Obviously, such as an
approach would be a serious challenge to those concerned with small business activities in the

26
development process. These factors should, therefore, be considered in order to encourage small
and micro business development and facilitate its integration in to the formal economy. The
small and micro business has to be supported by the government to develop its vision and
entrepreneurial capacity. Provision of sub-contracting policy can enhance its productive
engagements in wide range of activities and strengthen its relationship with the large business
(Peramel K. and Prasad 1998). Such an opportunity can help the sector in the following areas:
• Reducing obstacles for survival.
• Building sufficient knowhow and capital.
• Transfer of appropriate technology.
• Improving the capacity utilization of big enterprises.
• Helping the enterprises to reduce labor problem during economic
recession.
• Acquiring knowledge of local markets.

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CHAPTER THREE:-RESEARCH METHODOLOGY
3.1 Description of the Study Area
The study area, Chiro town is the capital of western Hararghe located in eastern part of Ethiopia,
Oromia regional state, at distance of 326 km from Addis Ababa. Chiro Would be boarded on the
South by GemechisWoreda, on the West by Tullo and DobaWoreda, on the North by Mieso, and
on the East by GubaKoricha. Chiro town would be located in western zone at a latitude and
longitude of 9°05′N40°52′E9.083°N 40.867°ECoordinates: 9°05′N40°52′E9.083°N 40.867°E
and an altitude of 1826 meters above sea level. It is the administrative center of the West
Hararghe Zonewith an elevation of 1716 matters above sea levels and located eastern part of
Oromia. Chiro has largest rural population than urban population.

According to Western Hararghe MSEs are also an important force to generate employment and
more equitable income distribution, to activate competition, enhance productivity and technical
change, and through all of these stimulate economic development. The capital of MSEs of Chiro
town become increased from year to year. These enterprise began with capital not more than
20000, but at current have large capital according to introduced with the employees of MSEs of
Chiro town. Therefore, the Manager of western hararghe has recognized and paid due attention
to the promotion and development of MSEs for they are important vehicles to address the
challenges of unemployment, economic growth and equity in the country.

3.2 Research Design and Strategy

Descriptive research design was employed to conduct this study. Because this design is clearly
describes the characteristics of a particular event by answering questions who, what, when and
how. And it insures the maximum reliability of data and minimum bias. Descriptive research
design could help the researchers to take both qualitative and quantitative measurements. The
quantitative measurement will be helped the researcher to use statistical method of measurement
in order to analyze and interpret the result obtained from questionnaire.

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3.3. Data Source and type
The data to access the role of MSEs in poverty reduction will be collected from primary and
secondary data.

3.3.1 Primary Source of Data

In order to realize the target, the study well designs interview and questionnaire as best
instruments. This was completed by the owner managers or operates of the enterprises. Besides,
face to face interviews with the MSES operators and the relevant owner manager who heads in
the enterprises in the selected areas in order to avoid bias to; identify the role of the sector in
improving the income level of the people in Chiro town, Show the contribution of the sector in
reducing unemployment level in Chiro town. The primary data was collected and used in this
studied questionnaires, interview and observation methods. Primary data were the main pillar of
this study.

3.3.2 Secondary Source of Data

Secondary data was used to recommend what shall be done to solve the problem of the sector
and to identify whether the government makes consideration to improve role of small business
enterprise or not. The secondary data includes; a variety of books, government report and
newspaper, internet, and also relevant data was extricated from statistical bulletin prepared by
the central and federal offices of MSES.

3.4. Target Population and Method of Sampling

3.4.1 Target Population

The target populations for this study are the employees and manager of MSES of Ethiopia in
Chiro town. The researcher was used simple random sampling techniques for the purpose of the
study. This was the number of sample population is easily administers and manages. According
to Chiro town MSES agency report 2018, there are 1053 MSES in the city. Of them 42%
servicing giving, 18% are involved in trading, 11% in manufacturing, 6% involved in
agriculture, 23% are involved in city construction.

3.4.2 Method of Sampling

The sampling technique was simple random sampling. This means out of the total number of
micro and small business enterprise will register randomly selected, the person either the owner
of the business or any one employ in the sector. From each of micro and small enterprise select

29
and interview the structure questionnaire will prepare in order to control basis. According to the
above sample size, each strata sample was taken using proportionate stratified sampling method
because the population is heterogeneous and this technique includes every population element to
be included the study in their proportion to total population. So, service sector=0.42*42=17,
trade sector=0.18*42=8, manufacturing=0.11*42=5, construction= 0.23*42=9,
agriculture=0.06*42=3, total=42.

Table 3.1 The number of respondents participated on different sectors

No Types of sector Number of respondents Number of respondents

participated on sector in percentage
1 Service sector 17 42%
2 Trade sector 8 18%
3 Manufacturing 5 11%
sector
4 Construction 9 23%
sector
5 Agriculture 3 6%
5 Total 42 100%
Source: own survey 2011

3.4.3. Sample size

The population for this study includes all level of manager and employees working in different
departments. Because the researchers were supposed to get accurate data from this departments.
MSEs of Chiro town has 42 employees. From 42 employees of the bank the researchers used 41
employees, Manager of the branch.

3.5. Methods of Data Analysis

After data has been collected, data analysis was made. The researchers used the data to describe,
analyze and examine the finding of the study. The data collected were organized, summarized,
and described by using words, numbers and percentages. After the data have been collected and
analyzed, the researchers present the data by using percentages and tables.

30
The data were collected through questionnaires and interviews from the sample were statistically
presented. The data was analyzed to using the descriptive technique and qualitative and
quantitative in nature. The responses from the respondents that were using the above methods
have organized and interpreted and the results were used frequencies, percentages, graphs and
charts in a sensible way.

31
CHAPTER FOUR

4. TIME AND BUDGET SCHEDULE

4.1. Time Schedule

No Activities Jan Feb Mar Apr Jun Jully

1 Title selection Xx

2 Proposal xx
Xx
writing

3 Second xx
Proposal
writing

Proposal xx
submission

4 Data Xx
collection

5 Data Xx
processing and
analyzing

6 First report draft Xx

7 Submission report Xx

32
8 Presentation date xx

33
Time work plan or time schedule is a time table explaining how the researcher expected to carry
out his project. It is a plan in a term of months and expected completion.

4.2. Budget Schedule

Activities Unit Unit cost/birr Total

cost/Birr

Transportation 10 3 30

Typist 26 10 260

Pay for food, tea by researcher 4 40 160

Pen 4 10 40

Pencil 1 5 5

Paper 1pad 200 200

Printing cost 32 5 160

Subtotal cost 846

Contingency [10%] 150

Total cost 996

REFERENCES
FMSEDA, 2006, Contribution to Family Income and Supporting Basic Goods and Services for
Legal Consumption.

34
CSA, (2003), Report on Urban Informal Sector Sample Survey, Statical Bulletin Number 282,
A.A, Eth.
Mulugeta charewube (2012), Factors Affecting the Contribution of MSES in Arada and Lideta
sub Cities, AA, a Project Submitted to the School of Graduate Studies of AAU,
Unpublished.
FDRE (2005), MSES Poverty Reduction Strategy, AA, Ethiopia FDRE, Ministry of works
office.
FDRE, MOTI, (1997), MSES Development Strategy, AA, Ethiopia Growth and progress of the
MSES .
Lee water A. and Shaw A. (2008), the Role of MSES to Reduce poverty, Cambridge University.
MezgebuAmsalu, (2013), Markets Strategies for MSES in Ethiopia Realization Modest Standard
of living through curbing unemployment.
Mukras, M.S, (2003), Poverty Reduction Through Strengthen MSES, Botswana, Journal of
African Studies, 17 (11):58-64.
Mulugeta ChareWube, (2012), Factors Affecting the Performance of Women Entrepreneur in
MSES in 2011.
Nichter and gold mark , 2025; MC cormick, 2008 Central Satisfaction Authority to Reduce
Poverty.
Haily (2007) AND Gold Mark (2015) Factors Affect the Contribution MSES to Reduce Poverty
Reduction.
LEE. Water A. and Show.2008, Promotion Development of MSES to Reduce poverty Reduction.
Krystyna, Mirmulstein, Ramalho,( 2010), and GFDRE, (2011) Micro and small enterprises
Agency report.

APPENDEX
ODAA BULTUM UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS

35
 DEPARTMENT OF ACCOUNTING AND FINANCE
QUESTIONNARIES

INTRODUCTION:

Dear Respondent,

I’m a graduate student in the department of accounting and finance, Rift ValleyUniversity.
Currently, I’m undertaking a research entitled “The contribution of MSES to reduce poverty in
Chiro town”. You are one of the respondents selected to participate on this study. Please assist
me in giving correct and complete information to present a representative finding on the current
status of MSES in Chiro town. Your participation is entirely voluntary and the questionnaire is
completely anonymous. Finally, I confirm that the information you share me will be kept
confidential and only used for the academic purpose. No individual’s response will be identified
as such and the identity of persons responding will not be published or released to anyone. Thank
you in advance for your kind cooperation and dedicating your time.

Sincerely yours,

NB:

• No need of writing your name

• Possible to give more than one answer

General information of the respondent

Objective I: - Personal information

1. Sex a. male □ b. female □

36
 2. Age a. 15-30 □ b. 31-45 □ c. 46-55 □ d. >55 □

3. Educational background a. Illiterate □ b. from 1-8 grade □ c. from 9-12 grade □

d) Diploma □ e) degree and above □

4. Marital status a. married □ b. unmarried □ c. divorced □ d. widowed □

5. What is your Family size………

Objective II: - main information

1. What is the measurement of performance of the contribution of MSEs to reduce poverty?

a. Efficiency□ b. Growth □ c. Profit□
2. What are the Factors that influence the performance of micro and small enterprise to
reduce poverty?
a. Internal factor □ b. External factors□

3. What is the reason to start the contribution of micro and small enterprise?

a.Personal aspiration c. to gain more benefit d. do to opportunity

b. because I have a dream/aim e. if other specifies….
4. To what extent does stigma contribute to the experience of living in poverty in western
Hararghe?

Please specify your reason……

5. How, why and where have poverty rates among minority ethnic groups changed?

Please specify your reason. Is there any blocks to challenge institutional discriminations
towards people in poverty?

a.Yes □ b. No □
6. If your answer for question of the above is yes why?
Please specifies your reason?

7. You initial numbers of employees are?

a. Less than 5 Labors □ c. 11-30 Labors □

37
 b. 5-10 Labors □ d. above 30 Labors □

8. Present number of employees in your MSEs is?

a. Less than 5 Labors □ c. 20-70 Labors □

b. 5-20 Labors □ d. above 70 Labors □

9. Which technological factor is more affect the performance of MSEs?

a.Lack of appropriate technological inputs

b. Lack of enough technological skills

c.The in accessibility of new technological products

d. Use of in appropriate technological products

10. Have you had any experience about performance of MSEs to reduce poverty?
a.Yes □ b. No □
11. If your answer for question of the above is yes why?

Please specifies your reason?

12. Do you accept that the performance of MSEs is advantageous in your business to reduce
poverty?

Yes □ No □

Please specifies the reasons?

15. How the performance of MSEs reporting in your business activities?

High □

Medium □

Low □

Objective III: -Interview with the manager of MSEs

38
1. What are the problem did you face while running the contribution of MSEs to Reduce
poverty?
2. Are there any benefits from poverty?
3. What is the relative scope and capacity of different levels of government to affect
poverty?

39