WISDOM COLLEGE

COLLEGE OF BUSINESS & ECONOMICS

DEPARTMENT OF BUSINES MANAGEMENT
ROLE OF MICRO AND SMALL BUSINESS ENTERPRISE IN POVERTY
ALLEVIATION (CASE STUDY IN AMBO TWON)
A RESEARCH PROPOSAL SUBMITTED TO DEPARTMENT OF
BUSINESS MANAGEMENT IN PARTIAL FULFILLMENT OF
REQUIREMENT FOR B,A DEGREE IN BUSINESS MANAGEMENT

ADVISOR:- (mstr misganu)

Name.................ID NO
1,Abdibor Firisa.........001/13
2,Dereje Negesa........054/13
3, Ebise Tashoma......039/13
4,Alamitu Gizachow...004/13
5,meti Bayisa..............018/13
6, warkinash Bulto.....0

MAY, 2023
Burayu, ETHIOPIA
Abstract
This research takes its case study on roles of micro and small
business enterprise Micro and Small Scale Enterprise on poverty
question and its major constraints that hinders the development of
the sector in Ambo town. For this purpose simple random samples
that includes 20% of the Micro And Small Scale Enterprise in the
town have been taken to explore the role of the sector specially in
employment creation and income improvement and to assess the
major constraints that in habits the sector not to develop like
infrastructural problems, availability of sufficient capital to run the
business, credit facilities, Co operative activities and other related
problems, on the performance of micro and small business
enterprises in the study area.

Interview questionnaire (schedule) is the dominant data collection

tool that will be use for the study along with interview. Both
primary and secondary data form the operators (owners) of the
Ambo town Administration respectively replenished the information
need of business and from trade, industry and development bureau
the researcher for the completion of the study.

Conclusions and recommendations are suggested driving

inferences that indicate the role of the sector, the impact of
variables considered on the performance of Micro and Small Scale
Enterprise and how the problems should be solved after the data
collected is processed, analyzed and carefully interpreted to arrive
at feasible findings.

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 Table of Contents
Abstract.....................................................................................................................I
Table of Contents.....................................................................................................II
CHAPTER ONE......................................................................................................1
1. INTRODUCTION................................................................................................1
1.1. Background of the Study...............................................................................1
1.2. Statements of the Problems...........................................................................2
1.3.Research Question..........................................................................................3
1.4. Objectives of the study..................................................................................3
1.4.1. General Objectives.................................................................................3
1.4.2. Specific Objective..................................................................................4
1.5. Significance of the Study..............................................................................5
1.6. Scope of the Study.........................................................................................6
1.7 Organization of the Study..............................................................................6
CHAPTER TWO......................................................................................................7
2. REVIEW OF RELATED LITERATURE...........................................................7
2.1. Characteristic of Micro and Small Scale Enterprise.....................................7
2.2. The Micro and Small Scale Enterprise Development Strategy...................10
2.3.Political Factors Affecting Micro and Small Scale Enterprise Development
............................................................................................................................11
2.4 Arguments for the Success and Fall of Micro and Small Scale Enterprise..12
CHAPTER THREE................................................................................................15
RESEARCH METHODOLOGY..........................................................................15
3 RESEARCH METHODOLOGY........................................................................15
3.1 Material Data................................................................................................15
3.2 Area of the Study..........................................................................................15
3.3 Source of Data..............................................................................................15
3.4 Method of Data Collection..........................................................................16
3.5 Method of Sampling....................................................................................17
3.6 Method of Data Analysis..................................................................................17
3.7 Time Schedule.............................................................................................17
3.8 Cost Budget.................................................................................................17
References..............................................................................................................18

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III
 CHAPTER ONE

1. INTRODUCTION

1.1. Background of the Study

Reducing and eventually eliminating absolute poverty is perhaps the primary
challenge of the currently in Ethiopian policy makers. The incidence of poverty
manifests in many forms. It’s most direct expression being low levels of income and
consumption. The World Bank estimated the per capital income of Ethiopia to have
been about 100 in the year 2002. Thus less than half the average for the world’s low
level income countries. The average income for the low income countries in the same
year was $400 while the average for Sub-Saharan Africa was $500 world
development reports 2002. (2003 p-3) Developing micro and small scale enterprises
play a significant role in improving the deterioration of living standard of the people
and narrow the development gap of the country with the other world.
Micro and small enterprises are characterized by having greater inter and intra sect
linkages, uses local raw materials and labor intensive technologies, have potential
from competition, one that have a relatively small share of the market and is managed
by its owners or part owners in a personalized way and not through the medium of
formalized management structure. It is independent in a sense that it doesn’t part of a
larger enterprise and that the owners/managers should be free from outside control in
taking their principal decisions.
In Ethiopia micro enterprises are defined as those business enterprise with a paid up
capital of not exceeding birr 20,000 and employ five (5) to nineteen (19) persons high
technical consultancy firms and other high technical establishments. Around the
world micro and small business enterprises are increasingly seen as the creators of
new jobs. The flexibility and dynamism of micro and small enterprises have made
them more competitive and adaptable than large firms, many of which have been
forced to down size and restructure. The benefits of business net works and
commercial linkage between micro and small enterprises are now recognized as
effective and efficient means of doing business as we enter new currently.

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So since micro and small business are major feature of the economic hands cape in
most developing countries to day the contribution of these enterprises to the creation
of jobs and to the alleviation of poverty has been recognized by many third world
governments. In Ambo town it was in 2004 that the cities macro and small enterprise
established as office and started to work some facility for the sector like co-operating
them, giving some training s, facilitating credit services for operators.
But the development of micro and small scale interposes in Ethiopia is so slow that
little attention was given to the development of the sector in the previous
governments. Are there any reasons behind the poor performance of the sector? To
address this problem this study would be systematically assess the main constraints
that are pushing back micro and small enterprise from rapid expansion done to
accelerate its development and enhances economic development of the country in
general and Ambo town in particular.
Despite these encouraging measures taken, the overall performance of Micro and
Small Scale Enterprise is not significantly increased.

1.2. Statements of the Problems

Different policy impact and regulatory challenges of micro and small scale
enterprises in Ethiopia showed us that, different constraints faces the Ethiopian micro
and small scale enterprises such as high taxation, in adequate business premise,
shortage of capital. Inadequate market, lack of credit access, infrastructural problems
and others.
This study attempts to deal with that whether the specified problems done by previous
study on Ethiopian case are really the problem in Ambo town? In what extent the
problem is faced and also to assess other factors that haven’t taken to consideration in
the past study, such as production and market place problems, co-operative problem,
society’s attitude towards the Micro and Small Scale Enterprise operators and other
related problems will be assessed. Like the majority of the remaining developing
towns of Ethiopian, Ambo is a town where the majority of people live under absolute
poverty. It is unhidden fact that the limited numbers of large and medium scale
enterprise are labor saving a long with rapidly rising population of the town which

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has made it impossible for large and medium scale enterprise a lone to provide
gainful employment and sufficient income to pull the majority of its population out of
its miserable existence. This calls then for assessing options especially for
development of micro and small enterprises. But the Micro and Small Scale
Enterprise sector in Ambo town hasn’t given due consideration either by
governmental or non-governmental organizations. This makes the micro and small
scale enterprises to face different challenges and shut down their business sectors.
This increased number of unemployment and poverty in this town and make the
development of the sector to lag behind.
The question is there fore, how to promote the Micro And Small Scale Enterprise in
Ambo identifying their key constraints that have been and are bottle necks to the
development of the sector and what should be done to address these constraints and
put the sector in the rapid growth path is the facial point of this paper

1.3.Research Question

1) What are the attitudes of users to wards credit?

2) Is there coordination with credit institution?
3) What is significance of micro finance and small business in
poverty alleviation?

1.4. Objectives of the study

1.4.1. General Objectives

The general objective of the study is to assess constraints of micro and small business
enterprises in Ambo town and also to know how much the enterprise is playing a role
in reducing poverty at the specified area.

1.4.2. Specific Objective

 To identify the major constraints of the enterprise that need immediate
solution and that will be solved in the long run.
 To show the role of the sector in improving the income level of the people.

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  To show the contribution of the sector in reducing unemployment level in the
specified areas.
 To recommend what should be done to solve the problem of the sector.

1.5. Significance of the Study

This study would be used as a reference for studies that are going to
the place in this area regarding micro and small scale enterprise.
The result of this study is important for micro and small business
operators in Ambo town and for concerned governmental bodies in
that:-
 Identify the different problem that faces the micro and small
business operators in Ambo town and propose the problems to
the concerned government and non-government bodies in order
to search solution for the problems.
 Give suggestions and recommendation for those engaged in the
enterprise how they solve minor problems by them selves.
 After studying the share of the sector in improving the income
level of the poor people and reducing unemployment in the
town. Propose such benefits of the sector to the concerned
governmental bodies to give considerable attention on the
expansion of the sector.
 It is also used as a reference for further researchers that will be
done on this area.

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1.6. Scope of the Study
The study would be limited in Ambo town. This town is select because, it is one of
the towns in which macro and small enterprises hasn’t developed and given due
consideration by government and non-government organizations.

The study uses only 20% of micro and small enterprise registered in the Ambo town
trade, industry and development bureaus and included those operators in merchandise
activities in small scale industries and those in municipal activities and excluded
those who works in different hotels and cafeterias because of time limitation and
assessed the constraints and role of the Micro and Small Scale Enterprise in the town.

1.7 Organization of the Study

The paper is organized as follow:-Chapter one contain backgound of
study,background of organization,problem statement, research question, general and
specific objectives of the study,scope of study,organation of study,and limitation is
included while chapter two reviews the related literature on micro and small
enterprises then chapter research methodology, Four data presentation and analysis
and chapter five recommendation and colluding remarks are give.

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 CHAPTER TWO

2. REVIEW OF RELATED LITERATURE

2.1. Characteristic of Micro and Small Scale Enterprise

Micro and small enterprise are generally seen as labor intensive capital saving and an
effective means of creating most of the new jobs in the world.
There are many reasons for this Micro and Small Scale Enterprise are flexible and
adoptable to a rapidly changing technological lands scopes by providing goods and
services in small batches with rapid delivers. They complement the activities of large
scale enterprises and work in symbiosis with it in turn Micro and Small Scale
Enterprise frequently need the activities of other entrepreneurs creating business built
on vowed added products and services. Small enterprises more over generate more
innovation per research dollar than large corporation in a number of sectors of the
economy. In developing countries the state clearly has role in increasing functioning
telecommunications system connection to utilize and accessible transportation as well
as in educations a number of skilled workers, technicians and managers. In most
developing countries exports are continued to a small percentage of micro and small
enterprise with the majority continuing to operate at low quality and technical levels
and facing serious management and marketing barriers. It is more vulnerable to
currency fluctuation and protections in export markets. Those enterprises operating
productivity in dynamic information, rich market places, frequently interacting with
buyers and seller can often acquire both technologies for improved productivity and
needed. Skills to survive in volatile export markets (Lalkaka & Bishop, 1996,
business incubators in economic development p 1-5).
Some characteristics of small firms that differentiate from large firms
are
One person: - The owner (manager) has an over whelming influence on the small
firms. Their views and values was influence all aspects of its activities. There is also
a risk of over dependency upon one individual for the well being of firm.
Small Firms :- are unlikely to be able to exert much influence on the market. They
are price takers in the classic economic sense and are likely to face significant

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competitions. Small firms likely to operate in a single markets or limited range of
markets probably offering a limit range of product or services. Issued in 2003, clearly
state that private sector will be the engine of industrial development. It also indicates
that promotin Likely to be over reliant on small number of consumers.

 The fundamental principle that interventions by take holders stated in the

strategy are as follows.
 Support to the MSE operators will be based on the agricultural development
led-industrial (ADL) and private sector development.
 All support service should as much as possible is based on fees.
 Addressing marketing problems of MSE operators will be given due
considerations.
 Emphasis will be given to the advancement of who men.
 The staff of the support institutions should be adequately skilled and trained.
 The private sector will be involved in supply of commercial boost to MSE
operations.
Their view and volume will influence all aspects of its activities. There is also a risk
of over dependency up none individual for the well being of the firm. Small firms are
not public companies. This means they often have problems in raising capital and this
can significantly constrain their choice of strategies. Indeed, for many small firms
seeking to grow, raising finance can become a major strategic issue and relationships
with finance institutions such as banks can becomes a major resources issue. (Jim
dewhurts and paul burns small and entrepreneurship. 1996 p. 5).
Most Small Firms:- are unlikely to be able to exert much influence on the market.
They are price takers in the classic economic sense and are likely to face significant
competitions. Small firms likely to operate in a single markets or limited range of
markets probably offering a limit range of product or services.
Issued in 2003, clearly state that private sector will be the engine of industrial
development. It also indicates that promotin Likely to be over reliant on small
number of consumers.

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  The fundamental principle that interventions by take holders stated in the
strategy are as follows.
 Support to the MSE operators will be based on the agricultural development
led-industrial (ADL) and private sector development.
 All support service should as much as possible is based on fees.
 Addressing marketing problems of MSE operators will be given due
considerations.
 Emphasis will be given to the advancement of who men.
 The staff of the support institutions should be adequately skilled and trained.
 The private sector will be involved in supply of commercial boost to MSE
operations.
Their view and volume will influence all aspects of its activities. There is also a risk
of over dependency up none individual for the well being of the firm. Small firms are
not public companies. This means they often have problems in raising capital and this
can significantly constrain their choice of strategies. Indeed, for many small firms
seeking to grow, raising finance can become a major strategic issue and relationships
with finance institutions such as banks can becomes a major resources issue. (Jim
dewhurts and paul burns small and entrepreneurship. 1996 p. 5).

2.2. The Micro and Small Scale Enterprise Development Strategy

The industrial development strategy of the federal government of Ethiopia g Micro
and Small Scale Enterprise is one of the important instruments to create productive
private sector. The primary objective of national micro and small enterprise
development strategy of Ethiopia (issued 1997) is to create enabling ligament strategy
of and entrepreneurship and that the government will give due emphasis and priority
to promote this sector. The primary objective of national micro and small enterprise
development strategy of Ethiopia (issued 1997) is to create enabling legal
Institutional and other supportive environment for the development of Micro and
Small Scale Enterprise.

The specific objectives include

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  Facilitate economic growth and bring about equitable develop.
 Create long-term jobs.
 Strengthen co-operation between Micro and Small Scale Enterprise.
 Promote exports and.
 Balance preferential treatment between Micro and Small Scale Enterprise and
bigger enterprises. The fundamental principle that guide interventions by stake
holders stated in the strategy are as follows (Quoted on oromia micro and
small enterprise development and promotional strategy. 1999.p 10-11).
 Support to the MSE operators will be based on the agricultural development
led-industrial (ADLI) AND PRIAVATE SECTOR DEVELOPMENT.
 All support service should as much as possible is based on fees.
 Addressing marketing problems of MSE operators will be given due
considerations.
 Emphasis will be given to the advancement of women
 The staff of the support institutions should be adequately skilled and trained.
 The private sector will be involved in supply of commercial Boost to MSE
operations.

2.3. Political Factors Affecting Micro and Small Scale Enterprise

Development

Designing and implementing appropriate economic policies strategies and legal and
regulatory frameworks are prerequisite for creating an enabling environment to
promote MSES.
Policies and regulations during the Dirge era were openly aimed at curtailing (it not
eliminating) the private sector. Restrictive policies such as faking a selling on
industrial capital, introducing one-man one license rule avoiding the sate and
parasitical organizations in availing foreign (which discouraged the participation of
the private sector in the economy) were in place. In generally, the legal requirements
to obtain license during the Dirge to were bureaucratic which discouraged the
participation of micro and small enterprise operators. The tight foreign exchange

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control and heavy import restrictions (both in put and other commodities created
scarcity of imported commodities and corrupt and rent seeking business community.
Following the fall of the Dirge, drastic measures were taken to transform the
command economy to market led one, which are bound to affect MSES.
The main macro economic reforms that, directly or indirectly, affect the development
of MSEs includes:
- Adoption of market economy policy
- Deregulation of domestic policies
- Devaluation of the local currency.
- Privatization of public enterprises.
- Decentralization of power and the formation of regional state.
- Issuance of national micro and small enterprise strategy in 1997.
- Establishments of the federal micro and small enterprise development
agency proclamation No 33/98.
- Formulation of new labor low.
- Financial sector reforms including the opening of private banks,
insurance companies and micro finance institution.
-Monetary management and liberalization of interest rate and foreign
exchange market.
-Fisical policy reforms turn including tax reform budgetary
restructuring and reduction of government deficities.
- Introduction of investment laws to encourage private investment.
- Liberalization and promotion of foreign trade.
- Promotion of favorable economic environment and bilateral regional
and multi lateral international relations (Gebrehiwot Ageba and
Woldely Amha,2004,PP.4-5).
2.4 Arguments for the Success and Fall of Micro and Small Scale
Enterprise
According to Nicholas Siropolis in his book small business management 6 th edition
reasoned why small business succeed or fail.

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 I. Age:- Younger people who start a business have a great chance of failure
than older people do.
II. Capital:- Business that starts with too little investment by owners has a
greater chance of failure business with adequate investment by owners.
III. Economic timing:- Business that starts during recession have a greater
chance at failure than that start during prosperity.
IV. Education:- Propel with no college education who start a business have a
greater chance of failure than people with one or more years of college
education.
V. Experience:- Business run by people with out prior industry experience has
a greater chance of failure than business run by people with prior industry
experience. Similarly businesses run by people with out prior managerial
experience have a great chance of failure than business run by people with
prior menagerie experience.
VI. Marketing:- Business owner out marketing skill have a greater chance of
failure than owners with marketing skills.
VII. Parents:- Business owner whose parents didn’t own a business have a
greater chance of failure than owners whose parents did own business.
VIII. Partners:- A business started by one person has a grater chance of failure
than a business started by more than one person.
IX. Planning:- Business that do not prepare business plans have a greater
chance of failure than business that prepare business plan.

The growth and survival of small business firms could be viewed as out comes of the
economic process. Carl liedholm and Aonald C. Mead, 1999 in their small enterprises
and economic development in 20-21 identified some explanatory variable that affect
the micro and small enterprises some of these explanatory variables will arise at the
firm level while other could arise either inside the firm or external to it (at sectored
macro level). Both the growth and survival of small business firms could be depend
on several firm level variables paramount among these would be the age and initialize

11
of the firm. These would be hypothesized to be related to these dependent variables as
follows.
i. Firm age:- Reflecting the stage in the life cycle of the enterprises.
ii. Initial size would also be expected to be inversely related to these
variables. Firm growth and survival would also be expected to
influence by several factor external to the firm. These include
variables such as sector, location and macro-variable.
Factors internal to the firms, the individual level variables would also be
hypothesized to affect the survival and growth of micro enterprise. Prominent among
these would be the key variable relating to the entrepreneur, such as gender and
human capital.
iii. Gender: enterprise run by female enterprise news are hypothesized too grow less
rapidly and to be less likely to survive than those run by their male counter parts.
Vi. Human capital: - It is expected that entrepreneurs with higher levels of formal
education, technical training and experience would more likely to be grow and
survived than those with lower levels of human capital.

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 CHAPTER THREE

RESEARCH METHODOLOGY

3 RESEARCH METHODOLOGY

The methodology is the core of scientific research as it is the way through which
findings are to be achieved this is an essential prerequisite for the validity and
reliability of the result to be found out.
All the micro finance and small scale enterprise focus on poverty alleviation.
Therefore, may forget group of the study is that the poor people who are organized in
microfinance and small scale enterprise in Ambo Town.

3.1 Material Data

Date which is the raw information is the basic element in any research studies
because the more value and actual data will used in particular study they are more
reliable and dependable information development and result of the study.

3.2 Area of the Study

The study is carried out in Ambo Town which is found in Oromia

regional state, which is 225 km away from Addis Ababa.

3.3 Source of Data

The information required to carry on this study is the identification of

factors that challenges the development of micro and small
enterprises and to know the role of enterprises in alleviation of
poverty, especially increasing the income level of the poor and
reducing unemployment in Ambo Town. The information is essential
in order to compare the benefit of the micro and small business
enterprise has with.

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The constraints it faces on its development. Te information is also
necessary in order to search for solution how the challenges be
solved.
So it was variables the study included is that:
i) Demographic factors: In this part sex, age education and
materials status of the micro and small business operators identified.
ii) Infrastructural condition: In this case the fulfillment of
infrastructure for micro and small scale enterprise operators is
observed and also the impact of shortage infrastructure on small scale
enterprise is identified.
iii) The problems of working place for production and marketing
was assessed.
iv) Capital: under this source of finance, accessibility to credit, fund
requirement for operations, the availability of sufficient capital for
going the business was identified.
v) Training activities: This includes productivity improvement
trainings; marketing techniques method cost minimization and profit
maximization. The study will identified whether this training are
available or not.

3.4 Method of Data Collection

The method that will be use to collect both primary and secondary data based up on
the source of data from the source of data by using personal interview, direct
communicational and questionnaires.
Secondary data is collect from various documents analysis of periodical reports of
micro finance and small scale enterprise development in Ambo Town carried out by
the association of micro and small scale enterprise published and unpublished
documents are to be used to collect secondary data by considering their accuracy and
reliability.

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3.5 Method of Sampling
The data are collected from those who engaged in micro and small
business enterprises. The sampling techniques which the researcher
used to collect the primary data is simple random sampling. Out of
the total number of micro and small business enterprises which
registered under the cites trade, In industry and development bureau
which equals 648, 20% of the sector which totally equals 130 were
randomly selected and one person either the owner of the business or
any one employed in the sector from each MSE selected and
interviewed the structure questionnaire prepared. The total number
of micro and small scale enterprises was gained from the citys trade,
industry and development bureau.

3.6 Method of Data Analysis

After gathering all the required qualitative data the analysis to tables charts,
percentage, graphs and etc. Finally the data analyzed will be presented in
understandable way then conclusions drum and allowed interpretation. Among the
society lack of raw materials and use of traditional equipment is also mentioned as
one of the problems that hinders their development.

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3.7 Time Schedule

Activity May 15-30 June 1-15 June 15-30 July August

Chapter One
Of Research

Litereture
Review

Methodology
And Design
Data Analysis
And
Presentention

Research
Conclusion
And
Recommandati
on

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 3.8 Bubget Cost

NO EQUIPMENT Material in no_ Price for each total

1 laptop 1 35000 35000
2 pen 3 20 60
3 For document 120 5 700
print and copy

4 Sample question 50 5 250

paper print and
copy

5 Transportation 1500 1500

cost

6 Paper( A4) 50 2 100

Total - - - 37610

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References
1. Cari Liedholm and Donald C. Mead 91999), Small enterprises and economic
dev elopement 1st edition.
2. Lalkaka and Bishop (1996), Business incubators in economic development.
3. Paul Burns and Jim Dewharst (1996), Small business and entrepreneurship 2 nd
edition.
4. Michae minas (1994). The informal and formal sector enterprises dynamics of
linkages under policy reform.
5. Vonsant Deslia (2003), Small scale industries and entrepreneurship.
6. World Bank Economic review (2004).
7. Central statistic Authority (2000/1) Report on small scale manufacturing
survey Addis Ababa.
8. Central statistical Authoriy(1997),Iformal sector servey,Addis Ababa.
9. Gebre Hihot Ageba and Wolday Amha(2004) policy impact and Regulatory
challenges of Micro and Small Enterprise(MSE) in Ethiopia.
10. Lokesh Koul (2003),Methodology of Educational Research (3rd revied edition)
11. Wevotaw Befebih(Dr)(2004) Private sector development in Ethiopia Addis
Ababa.

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