Factors Affecting Income of Micro and Small Scale Enterprises Members in Abaya Wererda, Oromia Region

Abstract Broad-based growth and transformation through the promotion of micro and small scale enterprises (MSEs) has been robustly underscored in various development plans in Ethiopia, but the level of income generating capacity and improvement of livelihoods remain a concern. In order to make the MSE sector the engine of economic growth and main source of income to the micro and small scale enterprises (MSEs) members, it is important to understand what factors determine the income of micro and small scale enterprises (MSEs) members in the context of Abaya wereda in Oromia region. Therefore, the main objective of this study is to investigate the factors affecting the income of micro and small scale enterprises (MSEs) in Abaya wereda in Oromia region. The survey was conducted on twenty eight randomly selected enterprises and two hundred twenty one MSEs members included in the survey were selected using simple random sampling techniques and three purposefully selected town administrations. The data were collected through a structured questionnaire, interview and analyzed using descriptive methods with the aid of Statistical Packages for Social Sciences (SPSS V 20). Binary logistic regression model was employed to test and to analyze the factors affecting the income of MSEs. The findings of the study indicate that MSEs struggle from a host of socio cultural factors and of external factors including limited management skills, lack of access to credit, limited market facilities and lack of working premises. Moreover, structural bureaucratic burden, high interest rate and high collateral requirement are the major constrains hindering the income of micro and small scale enterprises. The results of this research also indicates that there is a divergence between policies and directives issue and their actual implementation frame work consisting of appropriate action programs, schemes, and regulatory acts. Hence considering the importance of MSEs in income generation and poverty alleviation potential the concerned bodies should promote basic facilities to MSEs, especially through improving access to credit, relaxing credit constraints, working premises and improving regulatory environment, enhance the potential for MSEs for creating more income to the sector will be compromised.