Lease Financing Participation and Its Impact on the Small and Medium Enterprises: In Case of Kellem Wollaga Zone, Oromia Regional State, Ethiopia

The main aim of this study was to investigate the Factors affecting of lease financing participations and its consequences on the income of SMEs by focusing on SMEs side factors that constraint SMEs from lease financing participation. Leasing is a financing in kind for production and service purpose by which a leaser provides specified capital goods on financial lease or hire purchase agreement basis to a lessee, without collateral, for a specified period of time and collects in return a certain amount of periodical payments over the specified period. Lease financing is an alternative means to finance SMEs that missed sector in Ethiopia. The study used both qualitative and quantitative method. Both primary and secondary data was used as evidence for the study. In identifying the respondents from the study population purposively selection method was adopted. Based on this, 286 sample SMEs were drawn from total population of 1000 SMEs in the study area. The collected data were analyzed through descriptive statistics, Probit model, Heckman two stages model and also Propensity Score Matching (PSM). Factors affecting lease financing participation identified by probit model; whereas Heckman two stages was used to evaluate the effect intensity of SMEs in lease financing and finally, PSM Propensity score match was used to examine the consequence of lease financing participation on the income of SMEs. The study found that Experience of SME managers, Size of SMEs, capital of SMEs, access to market, Credit worthiness of SMEs, and Business feasibility are significantly and positively affected SMEs participation decision. The estimates of Heckman second stage showed income of respondents was a robust and the result of the study showed that capital of the SME was significantly increased SMEs income from lease financing project. Therefore, lease financing practice should be encouraged by government and nongovernment organizations through supporting training of SMEs’ managers, creating awareness about lease financing services, making available accessibility of Market for their product as well as to gate raw materials for their production process, provide training on different issues in order to increase SMEs participation in lease financing thereby improving their income level so that it can be taken as an alternative development strategy.