ARSI UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMIC

DEPARTMENT OF MANAGEMENT MBA PROGRAM (MBA)

DETERMINANTS OF MICRO AND SMALL ENTERPRISES (MSEs) GROWTH IN

ADAMA CITY

By: HANAN GEMECHU

Advisor: DR. MESSELE KUMILACHEW

A Thesis Proposal Submitted to Department of Management for Partial

Fulfillment of the Requirements of Masters of Business Administration
(MBA)

February, 2023

Assela, Ethiopia
 DECLARATION

I, HANAN GEMECHU, declare that the work included in this research proposal is my own work
carried out by me under the guidance of my advisor. The research proposal has not been
submitted for any other purpose to any other higher education institution/s.

I also declare that I have adhered to all principles of academic honesty and integrity and have not
misrepresented or fabricated or falsified any idea/data/fact/source in my research proposal
submission and the sources used are duly acknowledged. I understand that any violation of
academic integrity will be cause for disciplinary action by the University.

Name of the Student: ____________________________________________

Signature of the student: __________________

Date: _____________________________

)a

I
 CERTIFICATION

This is to certify that the above statement made by the MBA candidate under my advisee is
correct to the best of my knowledge as an advisor. Hence, I attest the student can submit the
research proposal to the department for further evaluation by examiner/s.

Name of Advisor: Messele Kumilachew Aga (PhD)

Signature of the Advisor:

Date: 28/01/2023

II
 Contents
DECLARATION ................................................................................................................................................................................................................... I

CERTIFICATION................................................................................................................................................................................................................. II

LIST OF ACRONYMS AND ABBREVIATIONS............................................................................................................................................................V

ABSRACT ............................................................................................................................................................................................................................. VI

CHAPTER ONE ................................................................................................................................................................................................................... 1

INRODUCTION ................................................................................................................................................................................................................... 1

1.1. Background of the Study ............................................................................................................................................................................................... 1

1.2. Statement of the Problem .............................................................................................................................................................................................. 4

1.3. Basic Research Questions.............................................................................................................................................................................................. 6

1.4. Objectives of the Study.................................................................................................................................................................................................. 6

1.4.1. General Objective ....................................................................................................................................................................................................... 6

1.4.2. Specific Objective ....................................................................................................................................................................................................... 6

1.5. Significance of the Study.............................................................................................................................................................................................. 6

1.6. Scope of the Study ......................................................................................................................................................................................................... 7

1.7. Organization of the Study.............................................................................................................................................................................................. 7

CHAPTER TWO................................................................................................................................................................................................................... 8

REVIEW OF LITRATURE ................................................................................................................................................................................................. 8

2.1.1. Determinants of MSE’s Growth ................................................................................................................................................................................ 9

2.1.2. Growth Definition and its Measurement ................................................................................................................................................................. 10

2.1.3. Factors Affecting Growth of MSEs ......................................................................................................................................................................... 11

2.2. Empirical Review......................................................................................................................................................................................................... 15

2.3. Theoretical Background on Micro and Small Enterprises ........................................................................................................................................ 16

2.4. Conceptual Framework................................................................................................................................................................................................ 19

Figure 2.1 Schematic diagram of conceptual frame work ................................................................................................................................................ 20

CHAPTER THREE............................................................................................................................................................................................................. 21

METHODOLOGY OF THE STUDY ............................................................................................................................................................................... 21

3.1. Description of the Study Area ..................................................................................................................................................................................... 21

3.2. Research Design ........................................................................................................................................................................................................... 21

3.3. Research Approach ...................................................................................................................................................................................................... 22

3.4. Sources of Data ............................................................................................................................................................................................................ 22

3.4.1. Primary Data ............................................................................................................................................................................................................. 23

3.4.2. Secondary Data ......................................................................................................................................................................................................... 23

3.5. Data Collection Technique ........................................................................................................................................................................................ 23

3.6. Target Population and Sampling Techniques ............................................................................................................................................................ 24

3.6.1. Target Population ...................................................................................................................................................................................................... 24

3.6.2. Sample Size ............................................................................................................................................................................................................... 24

3.7. Instrument Construction .............................................................................................................................................................................................. 25

III
3.8. Validity and Reliability of the Study .......................................................................................................................................................................... 26

3.8.1. Validity of the Instrument ........................................................................................................................................................................................ 26

3.8.2 Reliability of the Instrument ..................................................................................................................................................................................... 26

3.9. Methods of Data Analysis ......................................................................................................................................................................................... 26

4. BUDGET AND SCHEDULE ................................................................................................................................................................................. 27

4.1. Time schedule .................................................................................................................................................................................................... 27

4.2. Financial Requirement ....................................................................................................................................................................................... 28

References............................................................................................................................................................................................................................ 29

IV
 LIST OF ACRONYMS AND ABBREVIATIONS
CSA Central Statistics Agency

ECSA Ethiopian Central Statistics Agency

MoTI Ministry of Trade and Industry

MSDA Micro and Small Enterprises Development Agencies

MSEs Micro and Small Enterprise

SPSS Statistical Package for Social Science

OECD Organization for Economic Cooperation and Development

COC Center of competence

ICT Information communication Technology

VIF Variance inflation factor

MFIs Microfinance institution

V
 ABSRACT
Micro and small enterprises (MSE) are recognized as important vehicles of economic growth,
employment creation, income generation, and poverty reduction. As a result, MSE occupy a
prominent position in the development agenda of Ethiopia. The main objective of this study is to
examine determinants of MSE growth in terms of profitability of MSE business in Adama city.
The total population of the study will be 7928 MSEs operating in two sectors (construction and
manufacturing) which will be used as a stratum. This two sectors mobilize large number of
operators. This study will use both descriptive and explanatory research design and also the
study will use both research methods, such as quantitative and qualitative methods. In this study,
the researcher will use both primary and secondary data sources in order to obtain reliable data.
The study will use techniques of structured questionnaire and interview which will be distributed
to respondents who going to be selected from construction and manufacturing sector.
Government Micro and small enterprises offices has significant role in their growth and failerity.
Therefore, Adama City MSEs office officials will be interviewed in order to gather additional
data. For this study open and closed ended questionnaire will be developed to collect primary
data from Adama city. The Statistical Package for Social Science (SPSS) version 24 and excel
data analysis tools will be used analyses the data obtained from primary sources. Specifically,
descriptive statistics (mean, standard deviation and charts) and inferential statistics (correlation
and regression) will be taken from this tool.

Keywords: Micro and small enterprise, Growth, Profitability, Determinant factor, Adama

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 CHAPTER ONE

INRODUCTION

1.1. Background of the Study

The contribution of Micro and Small establishments (MSEs) to employment, increase, and
sustainable development is now widely recounted for the duration of the sector. Micro and small
companies (MSEs) are described because the natural home of entrepreneurship. Maximum huge
establishments in Ethiopia and during the arena began as MSEs and grew to adulthood through
the years as capital and enterprise management enjoy collected (EEA, 2015; Ethiopia’s MSED
policy & method, 2016). MSEs are taken into consideration essential to society's normal
development. They're at the coronary heart of economic and social empowerment for residents,
as governments cannot sincerely generate jobs for all of us. MSEs are one of the right locations
for young human beings to be entrepreneurial, develop new generation, and expand alternative
products to replace imported goods (Gebremariam, 2017).

The significance of micro and small establishments (MSEs) in a country's long-term increase
has drawn the eye of numerous international locations at some point of the sector. They promote
monetary development through lowering poverty, growing activity possibilities, growing self-
sufficiency, increasing commercial manufacturing and exports, and making a primary
contribution to GDP boom (Baleseng, 2015; Rahel, 2018). MSEs have turn out to be key city
financial activities in maximum industrialized international locations, considerably in phrases of
creating city jobs. MSEs and the casual quarter are the number one earnings-generating sports in
growing countries in general and in Ethiopia in particular, and in order that they contribute
extensively to local economic improvement and are used as a simple means of survival (Gebre-
egiziabher and Demeke 2004 as cited in Rahel, 2018). One of the primary drivers of economic
growth and employment creation is the MSE zone. That is mainly actual in numerous low-
earnings African international locations, in which MSEs and the casual quarter account for over
ninety% of organisations, generate over 50% of GDP, and hire over 63 percentage of the
populace (Ahmed, 2012 as mentioned in Rahel, 2018). Micro and Small and organisations are

1
the economic activities that separate the advanced and growing worlds (El-Khasawneh, 2012 as
cited in Baleseng, 2015). Many teachers apprehend the significance of micro and small groups
in monetary development (Baleseng, 2015; EEA, 2015; Ethiopia's MSED approach, 2011;
Ethiopia’s MSED policy & approach, 2016; Rahel, 2018).

Because of variations in financial development across the world, the definition given to Micro
and Small firms isn't similar. To outline MSEs', extraordinary countries make use of distinctive
criteria including the quantity of personnel, every year turnover, general assets, and startup
capital. A micro-organization in Ethiopia's business region (manufacturing, constructing, and
mining) is described as a commercial enterprise that employs up to 5 humans, which includes
the proprietor, and/or has overall assets of much less than Birr 100,000. In addition, a micro
employer within the provider area (retail, transportation, lodge, tourism, ICT, and preservation)
is one which employs as much as 5 humans, including the owner, and has general assets of
much less than Birr 50,000. Inside the industrial region, a small commercial enterprise is
defined as one that employs 6 to 30 people and/or has a paid-up capital or overall property of
less than Birr 1.5 million. In step with Ethiopia's MSED method (2011), a small provider region
business has among 6 and 30 personnel and/or overall assets or paid-up capital of Birr 500,000.

Similarly, there is no unmarried universally widespread definition for sustainability. MSEs

Sustainability is defined in a variety of approaches by exceptional pupils. For instance, Hubbard
(2009) defines a sustainable business as one that serves the demands of its stakeholders without
jeopardizing its ability to supply the ones wishes within the destiny. A sustainable firm, in line
with Savitz and Weber (2006), is one that generates profit for its shareholders even as also
safeguarding the surroundings and enhancing the lives of these with whom it interacts. As a end
result, sustainability stresses combining stakeholders' wishes and profitability with
environmental protection. Enterprises' sustainability may be interpreted in a spread of methods,
with the ability to deliver price to the environment, groups, customers, and the lowest line for
corporations of all sizes. In Ethiopia, and on this have a look at, sustainability is defined as an
agency's capacity to preserve working in a given business weather, as defined by using
proclamation No. 686/2010 (Amare, 2020).

MSEs are considered the first-class mechanisms for capital accumulation and financial
empowerment in Ethiopia due to the fact they play a crucial position in growing employment

2
possibilities, especially for urban youth and ladies. In addition, they function an engine to
transform economies from agricultural to industrial (Gebremariam, 2017). Ethiopia's industrial
improvement policy prioritizes the development of micro and small agencies. MSEs are the
primary engines of employment introduction in urban regions, and task introduction is at the
coronary heart of the us of a's development method. The significance of MSEs as process
creators is driven no longer handiest in low-income countries like Ethiopia, but also in
excessive-income international locations just like the USA. As a end result, due to the fact
MSEs play such an important role in task creation, one in every of Ethiopia's top improvement
priorities is to stimulate and make stronger MSE development (Ethiopia’s MSED coverage &
approach, 2016).

Most governments have seen a boom in focus and acknowledgment of the role played by using
Micro and Small businesses (MSEs) and their contribution to the economic system because of
the cutting-edge exceptionally aggressive surroundings (Hlatshwako, 2012), which is not
specific to Ethiopia. The relevance of the micro and small agency zone in Ethiopia, particularly
for low-income, terrible, and girl populations, can be proven in their widespread presence,
percent of employment, and minimum capital necessities. Governments and other improvement
companions are interested in micro and small companies for these motives by myself. MSEs are
taken into consideration as a burgeoning personal sector in lots of growing international
locations, specifically nations in transition, such as Ethiopia, where they invent the muse for
private-region-led growth (Ethiopia’s MSED policy & method, 2016).

Those roles of MSEs had been diagnosed in Ethiopia at the strategic and coverage levels.
They're taken into consideration as a way to create jobs, alleviate poverty, make sure meals
protection, and sell non-public area development (Gebrehiwot and Wolday, 2006). Ethiopia is
one of the countries running to meet the Sustainable development goals (SDGs). Policy and
method for the growth of micro and small corporations can make a sizeable contribution to
reaching sustainable development goals. The Sustainable development goals, in addition to the
national and ministerial growth and Transformation Plans (GTP) II files, pay good sized interest
to the problem of activity advent and employment, and it's far carefully related to the Micro and
Small employer improvement coverage and approach (Ethiopia’s MSED coverage &
approach, 2016). Numerous development plans in Ethiopia have emphasized wide-based totally

3
boom and transformation through the advertising of MSEs', however each the degree of
unemployment and the quality of jobs continue to be a worry. As a end result, one of the
fundamental issues going through Ethiopia's government is to growth employment opportunities
to relieve good sized poverty and establish an across the world aggressive industrial gadget. For
this reason, growing employment opportunities to relieve the vast poverty and create the world
over aggressive industrial shape are a number of the coverage challenges the Ethiopian
authorities is currently confronting (Meressa, 2020). Consequently, to be able to make the MSEs
zone the engine of economic growth and reduce the trouble of unemployment, it is critical to
apprehend elements influencing the sustainability and boom of MSEs in the context of Ethiopia.
Accordingly, the objective of this observes is to identify the fundamental factors that generally
affect the sustainability and boom of MSEs in Ethiopia thru systematic literature evaluation.

Adama city is a commercial town where different opportunities are to be arranged through
expansion of small and micro enterprises. Despite this factor the rate of growth this found to
short of expectation (Oromia Micro and small Enterprises, manual 2003-2006). Micro and small
enterprises with a pond up capital not exceeding 20,000 excluding high technological
consultancy firms, while 1998 under the regulation “small enterprise” are business enterprises
with paid up capital not less than 20,000 and not exceeding 50,000 and excluding high
technological consultancy firms (ibid. 2003-2006). In light of the above justification in this study,
the researchers will attempt to identify factors affecting the growth of micro and small enterprise
in Adama town. This study will significantly play as its key to examine the factors that affect the
micro and small enterprises (MSES) in Adama city.

1.2. Statement of the Problem

The significance of Micro and Small enterprises (MSEs) as a tool of poverty relief Via
employment introduction and deliver of less expensive merchandise has been implicitly and
explicitly usual by many countries and global development agencies. The Federal Micro and
Small establishments development coverage and strategy (2016) of Ethiopia stated that Extra
than 40 million people had been hired in MSE sector inside the Japan. Furthermore, revel in from
India indicates that Micro, Small and Medium organizations created Employment opportunities
for extra than eighty million people and the proportion of output from this Quarter to GDP is

4
ready thirty-seven percentage in 2017. Further, over one hundred ten million Indians were
employed in micro, small and medium corporations throughout India inside the financial Year of
2019 (keelery, 2020).
Ethiopia is one of the countries which can be operating toward achievement of Sustainable
Development and economic growth. To this stop, in November 1997, the Ethiopian authorities
issued the countrywide Micro and Small corporations improvement strategy and installed the
Federal Micro and Small companies’ development organization under the supervision of the
Ministry of city development and production to gain the advantage of such strategy. Therefore,
the authorities formulated exceptional policies and established many institutional
Implementation techniques to sell the easy functioning of MSEs (FeMSEDA, 2016). Arega et al.
(2016) noted that MSE operation and growth have been persistently confronted by various
internal and external factors, even a significant number of MSEs have collapsed and went out of
operation in different parts of Ethiopia. Hailai and Vermaack et al. (2019) argued that the major
obstacles of MSEs in Ethiopia are the question of sustainability, lack of credit, weak market
linkage, insufficient training, weak human resources development schemes, dependency on
government, oscillations in government policies, price variations and product development
strategies.
Thus, this study intends to assess the growth potential and identify the constraints of MSE
growth by employment in Adama city. The researcher is motivated to assess the growth potential
and to identify the constraints of MSEs growth in Sunday market and government projects work
linkage with MSEs in Adama city. Many researchers made in relation with clarifying the
determinants of micro and small enterprises growth in regular market bases. What makes my
research different from other research, mainly focusing in the MSEs engaged in manufacturing
and construction as the national and regional government attention is given for manufacturing.
Hence to clearly identify the problem related directly to the growth and expansion/development
MSEs in this sub-sector.
With current situation in relation to technological development how the MSEs are being
supported with marketing their products, market linkages with medium and large industries.
Identify gaps related to current inflation and current price fluctuation on inputs prices and
marketability of their products.

5
1.3. Basic Research Questions
This research emphasized on the determinants of growth potential and constraints of MSEs in
Adama and the study attempts to answer the following questions.

1) What are the determinants of MSEs growth in Adama city?

2) Is there relationship among of determinants of MSEs in Adama city?

3) Are demographic factors influence growths of MSEs in Adama city?

4) To what extent determinants affect growth of MSEs in Adama city?

1.4. Objectives of the Study

1.4.1. General Objective

The general objective of the study is to examine the factors affecting the growth of micro and
small enterprise in Adama city.

1.4.2. Specific Objective

The specific objectives of the study are:

In light of the general objective, the specific objectives are the following:

1. To identify determinant of MSEs growth in Adama city

2. To explore the relationship between the determinants of MSEs growth in Adama city.

3. To examine demographic factors influencing the growth of MSEs in Adama city

4. To examine what extent determinants factors affect growth of MSEs in Adama city.

1.5. Significance of the Study

The findings of this study will be useful to various bodies. First, the findings will provide MSEs
operating in Adama city with important insights into identifying potential factors adversely
affecting their performance and designing strategies to overcome those factors. Second, the

6
findings will also be of paramount importance to the concerned local government bodies in
Adama city in order to make informed decisions on ways to help MSEs identify and address
factors that impede their performance. The findings in this regard can be an important input in
order to revise legal frameworks and procedures that have been designed and operational
pertaining to MSEs.. Finally, the findings will provide implications for practice and directions
for future research.

1.6. Scope of the Study

The study concerned on the determinants of MSEs growth in east Showa zone Adama city. It
might have come up with good result if it had covered and conducted in all MSEs sectors in east
Showa zone. However, to make the study more manageable & to complete within the available
time, it will be limited only on manufacturing and construction sectors of MSEs in Adama city.
The study will use both descriptive and explanatory research design. Therefore, the result will be
generalized to the cases and condition existing in the Adama city.

1.7. Organization of the Study

The thesis divided into five major parts. The first introductory part of the study contains
background of the study, statement of the problem, objectives of the study, significance of the
study, scope of the study, definition of terms & concepts and organization of the study. The
second chapter will devote to the presentation of literature reviews of related researchers and
conceptual framework. The third chapter deals with research methodology of the study which
presents the research design, data sources, instruments and procedures of data collection,
sampling strategy, data analysis and presentation, validity and reliability. The fourth chapter will
be the analysis and discussion of data collected. The final chapter summarizes, concludes the
results obtained from the findings and suggests the necessary recommendations; and finally
attached bibliography and annexes relevant for the study.

7
 CHAPTER TWO

REVIEW OF LITRATURE
2.1. Concepts of MES’S
Micro and small enterprises (MSEs) are businesses with revenues, assets, or employee counts
that fall below a certain threshold.

While there is no universally accepted threshold for what constitutes a MSE, countries consider,
in varying proportions, the number of employees, turnover, and asset value. In Ethiopia, a micro-
enterprise is defined as an enterprise with no more than 5 employees, including the owner, and
total assets of less than or equal to $5,000 US for the industrial sector and less than $2,500 US
for the service sector. A company with 6-30 employees and total assets of $5,001-$75,000 US in
the industrial sector and $2,500-25,000 US in the service sector is classified as a small enterprise.

MSEs were once thought to be marginal and unproductive, contributing little to a country’s
economic growth. However, in recent decades their importance in terms of job creation and
income generation has been widely recognized and has become the primary playing field for
policymakers.

According to the World Bank, MSEs represent about 90 percent of businesses and provide 50
percent of worldwide employment. Additionally, MSEs contribute up to 40 percent of the gross
domestic product in emerging economies.

The economic and social benefits of MSEs include:

Creating jobs with low capital cost

Contributing to a country’s GDP (the value of goods and services generated within the
country)

Providing an opportunity to expand the entrepreneurial base

Providing flexibility to adapt to market changes

Boosting economic growth by introducing innovative technologies, products and services

Moving into market niches that are not profitable or interesting for larger enterprises.

8
2.1.1. Determinants of MSE’s Growth
In Ethiopia, the current definition of MSEs was revised in 2016. According to the revised
definition, a firm is (i) micro enterprise if it has ≤ 5 employees (including owners and family
members) and has a total asset of ≤ US$4,630 if it is an industrial sector, and ≤ US$2,310 if it is
a service sector; and (ii) small enterprise if it has between 6 and 30 employees (including owners
and family members) and has total asset of between US$4,630 and 69,500 if it is an industrial
sector, and US$2,310 and 23,150 if it is a service sector (MUDH 2016).

There are two (classical and modern) theories on the development of MSEs (Tambunan 2006).
The classical theory states that there is a positive correlation between poverty and the
contribution of MSEs. That is, during rapid economic development, the economic share of MSEs
declines and that of large and medium enterprises increases (Tambunan 2006). Since this theory
focused only on the relationship between levels of income and growth of MSEs, the modern
theory that has three characteristics (flexible specialization, high level of competitive innovation,
and high level of cooperation) was developed in the 1980s. The flexible specialization
characteristics mean that MSEs grow faster than large enterprises with the process and are
important source of efficiency and innovation. Hence, during economic development, the
economic share of MSEs increases and contributes to poverty alleviation.

Several studies have been conducted on the determinants of growth of MSEs in Ethiopia. For
example, Endiris and Fentahun (2020) studied the determinants of total asset growth in MSEs in
Gondar city, and found that education, interest, and working premises were the significant
factors that affect total asset growth of MSEs. Ferede and Kebede (2015) studied economic
growth and employment patterns in Ethiopia.

They reported that the Ethiopian manufacturing sector (that consists of large and medium scale
industries, and small and cottage industries) is lagging in comparison to selected peer economies,
both in the value-added share in GDP and value-added per capital. They also reported that
employment in the large and medium manufacturing enterprises grew at an annual average rate
of 6.3% and the number of manufacturing establishments also grew on average by 10.5%.
However, manufacturing employment per establishment fell as the number of establishments
grew, indicating that large and medium manufacturing enterprises have become less labour

9
intensive. Moreover, Woldeyohanes (2014) reported that gender, start-up capital, location and
the sector in which the MSEs operate matter a lot for their growth in Mekelle city, Ethiopia.

Different factors affect economic growth in different ways in different parts of the world. For
example, Akinboade (2015) reported that the likelihood of negative growth or zero growth
decreases with the age of the enterprise, and higher levels of education result in improved
turnover growth in Ghana. Akoten, Sawada, and Otsuka (2006) found that education, number of
relatives (proxy for social capital) and marital status are significantly related to both access to
credit and firm performance in Kenya. Shibia and Barako (2017) found that positive entrepreneur
perception of the fairness and affordability of the courts, access to formal credit, connections to
utilities, lower incidence of crime, entrepreneur education, and experience positively affects
MSE growth in Kenya. In Jordan, the top five factors influencing MSEs growth are formality,
education level of the firm owner, sector, use of technology, and age of the firm (Awartani and
Millis 2018). Mateev and Anastasov (2011) reported that firm size and age can explain the
growth of MSEs in Central and Eastern Europe. In addition, high-growth firms rely more on
external sources of capital to support their growth in sales as compared to low-growth firms.
Yazdanfar (2013) indicates that while firm age, lagged profitability, growth and productivity
positively influence profitability, firm age and industry affiliation influence the profitability of
micro firms in Sweden negatively. This compilation of variables influencing the growth of MSEs
and other sources were considered during the selection of the 33 independent variables (potential
growth constraints) considered in this study.

2.1.2. Growth Definition and its Measurement

A current study investigated by Gupta et aI, (2013) cooperatively revised aspects of growth
definition. Growth can be defined in provisions of income generation, value addition, and
expansion in terms of volume of the business. As well this, it can also be evaluated with
qualitative features like market share, product quality, and customer satisfaction.

Gupta et al. '(2013), on his academic study of rising firms, he has done that business move
through five distinguishable stages of growth. All stage contains a comparatively quiet period of
expansion that ends with a management crisis (Masurel and Montfort 2006). These five phases
and crises of expansion are creativity, direction, delegation, coordination, and collaboration.

10
Churchill and Lewis (1983) have developed five stages of an enterprise growth. There are
existence, survival, success, and take-off and resource maturity.

2.1.3. Factors Affecting Growth of MSEs

The growth function in small and micro was affected by a number of factors. Most MSEs face
critical constraints both at the operation and start up level. Some of these constraints include lack
of access to finance, lack of access to premise, lack of sufficient resource, size and age of the
firm, lack of training and management skills, lack of information on business opportunities,
social and cultural facts, in particular deficient entrepreneurial character and business
environment.

Financial Factors: lack of get right of entry to finance, poor book keeping and accounting
system, scarcity of adequate initial investment, shortage of working capital, negative repayment
way of life and their beside the point use of credit are the foremost monetary factors that decide
the sustainability and increase of MSEs in Ethiopia (Addis, 2019; Alene, 2020; Amare, 2020;
Batisa, 2019; Ethiopia’s MSED coverage & method, 2016; Fikadu, 2015; Gebremariam, 2017;
Gemechu& Teklemariam, 2016; Gebrehiwot&Wolday, 2006; Hagos et al., 2014; Kass, 2021;
Meressa's, 2020; MSED strategy, 2011; Rahel, 2018; Solomon, et al., 2016; Samuel, 2019;
Vedanthadesikan&Malarvizhi, 2018). Due to the fact small agencies are "too massive" for
microfinance groups however "too tiny" for banks in phrases of loan size, get right of entry to
credit appears to be a first-rate binding issue for their enlargement. This displays the "missing
middle financial intermediaries" that aid small corporations. Small businesses face a more
problem in acquiring finance than micro agencies, which usually have got right of entry to
microfinance establishments (MFIs’) due to the fact their lending wishes are inside the ability of
MFIs’. Due to the burdensome paperwork and high collateral requirements, a massive percent of
micro and small groups have not applied for a mortgage or credit score from formal economic
institutions. Loss of collateral is one of the main challenges stopping boom orientated MSEs
from accomplishing their fast increase capacity and turning into competitive within the
marketplace. Most enterprises are unable to reap finance at the right time and of the desired
quantity. Loss of continuity and lack of economic offerings that meet the specific nature of a
particular enterprise complicate the trouble (MSED method, 2011; Tarfasa et al., 2016). Lack of

11
access to medium or long-term loans is a key stumbling block for organizations seeking to grow
their operations. The reasons for this are widely recognized, mainly the fact that MSEs pose a
excessive threat to lenders because a lot of them lack ok assets and are undercapitalized.
Moreover, banks locate it hard to analyze the creditworthiness of capability MSE debtors due to
susceptible accounting facts and a loss of other monetary records. Moreover, because of the
particularly excessive value of processing small loans, banks are often hesitant to lend to MSEs'.
Commercial banks and formal cash lending agencies are hesitant to lend money to MSEs or
request strict requirements such as collateral security due to management inefficiency, negative
repayment culture, beside the point use of credit score, lack of revel in in the usage of credit
score to improve competitiveness, and lack of particular information had to verify the danger of
presenting cash to MSEs. As a end result, most MSEs choose to use personal savings and
contributions from household as a first-rate supply of credit (MSED method, 2011; Kassa, 2021;
William, 2017) that is steady with the u.S.’s Micro and Small organization development policy
& method (Ethiopia’s MSED policy & approach, 2016).

Marketing Factors: Adequacy of marketplace, issue of searching new marketplace, lack of call
for forecasting, poor customer managing system, loss of available marketplace facts, lack of
merchandising, lack of connection with successful and other agencies or marketplace linkage,
and shortage of adaptability are the most important advertising elements that decide the
sustainability of MSEs in Ethiopia. Empirical effects indicated a fine courting among MSEs
growth and market get right of entry to (Addis, 2019; Batisa, 2019; Amare, 2020; Ethiopia’s
MSED policy & method, 2016; Gebremariam, 2017; Gemechu& Teklemariam, 2016;
Gebrehiwot and Wolday, 2006; Hagos et al., 2014; Kassa, 2021; MSED approach, 2011; Rahel,
2018; Solomon, et al. 2016; Samuel, 2019; Tadesse, 2020; Vedanthadesikan&Malarvizhi, 2018).
As an instance, the percentages ratio end result of a have a look at conducted through Negash
and Sileshi (2019) suggests that the growth of MSEs which have get right of entry to to
marketplace is 29.19 instances more than the ones that have no longer accurate advertising and
marketing get admission to. When it comes to marketplace linkage, groups that have a more
potent connection to a ramification of businesses amplify faster than their competition; that is
consistent with the marketplace get admission to theory of alternate (Meressa, 2020; USAID,
2019). Meressa also proven that groups with more connections to diverse groups through
alternate suggests and bazaars grow faster than their competitors. In wellknown; MSEs which

12
had access to market linkage registered better boom price than the ones which had no get
admission to to marketplace linkage (Alemayehu and Gecho, 2016). Limited market linkage, on
the other hand, makes MSEs', mainly small agencies, now not benefited from generation
transfers, advertising their products and different useful business relationships (Tarfasa et al.,
2016). As a end result, they're becoming despondent to continue their commercial enterprise
(Feyisa and Tamene, 2019).
Political Factors: Political-criminal variables such as lack of government aid, tax and shortage of
handy statistics on authorities’ policies are the major political and criminal factors that decide the
sustainability and increase of MSEs in Ethiopia (Addis, 2019; Amare, 2020; Batisa, 2019;
Gemechu& Teklemariam, 2016; Hagos et al., 2014; Rahel, 2018; Vedanthadesikan&Malarvizhi,
2018; Vedanthadesikan&Malarvizhi, 2018; WilliIam, 2017). The suitability and sufficiency of
the work premise furnished by using the authorities threaten to make use of the potential of
MSEs. Furthermore, a loss of an permitting commercial enterprise project environment from the
help institution has an effect on MSEs long-term viability and growth. Even though the
Ethiopian government has attempted to liberalize and enhance the policy, regulatory, and
institutional support environment for MSEs', resulting in extended investment and competition as
well as upgrades in licensing tactics, Gebrehiwot and Wolday (2006) located that there is still
divergence among stated policies and directives. Lack of ok commercial enterprise support
services and unfair tax request by means of the revenue office stay important roadblocks to
MSEs sustainability and boom. But; collaboration with enterprise guide institutions and different
groups can serve to acquire the understanding and offerings that presently are lacking in the
industry (Wodajo, et al. 2020). Furthermore, weak commercial enterprise environment, and
policy and regulatory obstacles are some of the not unusual challenges’ MSEs are facing in
Ethiopia (Solomon, et al., 2016).
Infrastructure Factors: Lack of infrastructure inclusive of electricity, lack of get entry to to land
or paintings region/shade and beside the point commercial enterprise place are the primary
challenges that have an effect on the sustainability and increase of MSEs in Ethiopia. The
empirical findings of maximum preceding studies revealed that get entry to to infrastructure is a
crucial determinant in MSEs success, on the grounds that people with sufficient infrastructure
amplify quicker than the ones that do not (Addis, 2019; Amare, 2020; Batisa, 2019; EEA, 2015;
Gemechu& Teklemariam, 2016; Gebremariam, 2017; WilliIam, 2017; Samuel, 2019;

13
Vedanthadesikan&Malarvizhi, 2018). Establishments that very own adequate land as a running
premise have a better threat of creating a profit and grow faster than their competitors (Alene,
2020; Meressa 2020). MSEs that were working at personal operating premise grow faster than
those that operates at rented and at own family running premise.
Manager or Owner personal characteristics: Owners/managers' age, education stage, lack of
previous experience in accounting and commercial enterprise control, circle of relatives size,
MSE's age, lack of enterprise expertise, lack of strongly held self-assurance and underdeveloped
entrepreneurial mindsets/entrepreneurship competency some of the operators of MSEs, loss of
properly communication skill and a lack of technical and managerial enjoy/ability hole all
inspired the sustainability and growth of MSEs in Ethiopia (Alene, 2020; EEA, 2015; Ethiopia’s
MSED policy & approach, 2016; Hagos et al., 2014; Kanbiro& Bekele, 2020; Kassa, 2021;
MSED approach, 2011). MSE increase is adversely correlated with the owner's age and circle of
relative’s size. This indicates that the more youthful proprietor with a smaller own family grows
faster than the older owner with a bigger circle of relatives. This end result assured that the
youngest proprietors’ businesses had been more a hit than the other organization (Kassa, 2021).
The proprietor/manager’s training and prior experience has additionally a good and extensive
impact on MSE increase. This demonstrates that MSEs owned/operated via humans with a more
degree of schooling and previous enjoy extend quicker than their opposite numbers or in other
phrases it implies that corporations owned and managed by using entrepreneurs with a higher
formal schooling do higher financially than their peers (Alene, 2020). As an instance; the odds
ratio end result of an empirical study conducted via Alemayehu and Gecho (2016) indicated that
the chance of MSEs increase for MSEs which had proprietors with training stage 12 completed
and above is eleven.7 times better than the ones MSEs with education degree underneath 12
grade. In general, corporations with more skilled, educated and skilled entrepreneurs grow extra
swiftly than people with entrepreneurs owning smaller stocks of human capital (Wodajo, et al.,
2020).
Different Factors: In addition to the above predominant factors, lack of knowledge of the
capability of MSEs (the attitude that considers engagement in MSEs a signal of poverty and
backwardness after which reductions their capability economic position), preference for paid
employment and dependency are also among the challenges that negatively affect the
sustainability and boom of micro and small organizations in Ethiopia (Ethiopia’s MSED

14
coverage & approach, 2016). Similarly, innovation and imitation have additionally vast fine
impact on boom of MSEs and it's far suggested that the proprietor-managers of small
corporations can acquire higher boom through following special shape of improvements and
imitations inclusive of product, procedure, work practice, marketing and supply relations. This
may be realized via improving human capital through schooling and enjoy (Wodajo, et al., 2020).

2.2. Empirical Review

The purpose of this section is assuming the empirical evidence of microfinance institutions and it
effects to the enlargement of MSEs, there appear to be thin convenient facts accessible and
mainstream of them habitually stress on hindrance of MSEs in right to use finance and on the
role of microfinance institutions in the enterprise. For that reason, slight survey has been
prepared on the impact of microfinance institutions in the progress of MSEs.

Moreover, the observed confirmations of this thesis match up to varied investigators assessing
the factors that influence the growth of micro and small enterprises and well success of small
business in the country as well as in Adama city administration. The empirical evidence confirms
to microfinance involvement has certainly the ability to overcome poor economic weakness and
transform public affairs for the improved. An affirmative effect has been noticed at the firms as
well as family stage and it resources are promote to expanding their returns basis, maintaining up
physical, person, and public resources, center on well control, reconstruct the household's stand
of returns and resource later fiscal distress has happened and to flat utilization (Cohen, 1999;
Sebstad and Chen, 1996). Meanwhile, to Brenna (2008) &United Nations,(2005) Microfinance
institution is an institution which make available service and resource proffer pecuniary products
to unearned, indigent societies and these resources includes investment financial credit,
indemnity, well-being concern and individual prosperity Although as to Wanambisi (2013), the
empirical evidence shows that the relationships of MFIs and MSEs from his argument the
resource of MFIs is one of prosperity instrument to small business sector more effectively
employed this resource in target area. Additionally, argue that the good achievement and produce
more assets by utilizing the credits of MFls those who workers of MSEs and impoverished
citizens in the Bangladesh and Zimbabwe correspondingly.

15
According to Gebreyesus(2007) the practical results confirm micro and small enterprises has the
largest work force covering sector which is follow by the overall citizens engaged sector means
agriculture sector contains majority of them in country. Consequently to generalized this
evidence MSEs is one of the nucleus to economic increment those indigent 'people participate
in.cluster.

Mead et al. (1998) suggested that both age of the owner/ manager that the control variables have
a negative link with enterprise growth screening that young firms and MSEs owned by young
person's develop more than its equivalents. But some investigators like Tiruneh (2011) gets there
is no relation among firm expansion and age of both the owner/manager.

2.3. Theoretical Background on Micro and Small Enterprises

A theory represents the coherent set of hypothetical, conceptual, and pragmatic principles
forming the general frame for reference for the field of enquiry. These are some of the theories
that have been, advanced for micro and small Enterprises, which are part of entrepreneurship.
Entrepreneurship considered as an approach to management, defined as a process by which
individuals either on their own or inside organizations pursue opportunities without regard to the
resources they currently control in an innovative, risk-taking and proactive manner (Todorovic,
2006)

From the above definitions, entrepreneurship covers an individual’s motivation and capacity
independently or within an organization to identify an opportunity and to pursue it in order to
produce new value or economic success. Entrepreneurs pursue opportunities to grow a business
by changing, revolutionizing, transforming or introducing new products or services (Hansen,
2011). The three important themes in this definition are (1) the pursuit of opportunities, (2)
innovation, and (3) growth link entrepreneurship to industrialization process. According to
Kruger (2004), the relationship between entrepreneurial process and performance is an important
empirical question and prevents the assumption that first movers or firms that incur the greatest
business and financial, risk spending the most on innovation always rewarded in the market
place. MSEs are managed by their own owners and are family businesses, and therefore their
success depends primarily on the entrepreneurial and managerial capabilities of the owners.

16
Behavioral theory argues that the managerial skills such as ability to search business related
information, identify opportunities, deal with risk, establish relationships and networks, make
decisions under pressure and learn from experience are crucial for the success of an enterprises
(Veciana, 2007). According to trait theory, entrepreneurs have different psychological profile
than the rest of the population, and successful entrepreneurs have a psychological profile distinct
from the less successful ones (Veciana, 2007). According to Kuratko and Hodgetts (2007),
persistence considered as one of the most important attributes of successful entrepreneurs and the
decision to start a business a single time but they must make the decision to persist with the
venture many times. Often individuals make the decision to persist, almost automatically, with
little thought for alternative actions. Persistence is one of the essential characteristics for success
entrepreneurship (e.g., Kuratko and Hodgetts, 2007). As an entrepreneur considers whether to
persist with an existing venture or to pursue a new opportunity, a higher value of persisting will
have a more substantial impact on the decision when expectancy is low than when expectancy is
high. Hence, conditions that prompted a more serious evaluation will likely influence the way
that expectancy and value used in the decision policy (Grilli, 2011). Even more, the persistence
decision is fundamentally different than the start-up decision in that the entrepreneur is choosing
whether to continue with a decision that has been previously made. This simple difference may
introduce potential biases into the decision-making process, such as self-justification or
normative pressure to persist (DeTienne , Shepherd and De Castro , 2008)

Entrepreneurs utilize the contacts in their social networks to found firms, because individuals’
contact networks concentrate in the region in which they work and live, and because established
firms produce many of the resources consumed in new venture creation new firms in an industry
tend to arise in the same locations as existing ones (Sorenson and Audia,2000). The
concentration of a prospective entrepreneur’s network contacts in space, together with the
multifaceted influence of networks on the entrepreneurial process, implies that those individuals
most able to enter an industry reside in the regions that have concentrations of those businesses
already (Sorenson and Audia ,2000).

According to Simpeh (2011), explaining personality traits means making inference from
behavior. Some of the characteristics or behaviors associated with entrepreneurs are that they
tend to be more opportunity driven, demonstrate high level of creativity and innovation, and

17
show high level of management skills and business knowledge. They have also been found to be
optimistic, emotionally resilient and have mental energy, they are hard workers, show intense
commitment and perseverance, thrive on competitive desire to excel and win, tend to be
dissatisfied with the status quo and desire improvement, entrepreneurs are also transformational
in nature, who are lifelong learners and use failure as a tool and springboard. They also believe
that they can personally make a difference, are individuals of integrity and above all visionary.

Similarly, Li (2009) argues that personal factors influence business success in MSEs consists of
personality traits and competencies of the individuals in the process of entrepreneurship. Study
on personality traits often conducted to examine the factors that determine the business successes
at small business are the characteristics of an entrepreneur. In MSEs, the key entrepreneurs or
founders function as the CEOs (Burger-Helmchen, 2008) and play a dominant role in the
development of the firm and their powerful and influential position will affect firm performance
(Wincent&Westerberg, 2005). Entrepreneur trait has been, extensively studied in the literature
with mixed results (Wincent&Westerberg, 2005; Cools and van den Broeck, 2007). Some studies
convincingly asserted that that some traits have positive and significant relationship with firm
performance (Hmieleski&Carr, 2008) while other studies find insignificant relationships.

As part, one’s personality Entrepreneur trait also shows a stable and inherent character
(Ciavarella et al., 2004) that will affect how the entrepreneurs conduct their businesses.
Entrepreneurs also tend to choose businesses that show a fit between their entrepreneur trait and
the requirements for success. Additionally, they will also tend to manage their firms based on the
strengths of their specific traits (Dvir, Sadeh, &Malach-Pines, 2010). Poon, Ainuddin and Junit
(2006) examined relationships among three self-concept traits, entrepreneurial orientation, and
firm performance using survey data from 96 entrepreneurs by applying path analysis to test the
direct and indirect effects of the trait variables on perceptual measures of firm performance.
Entrepreneurial orientation-operationalized to reflect the dimensions of innovativeness, pro
activeness, and propensity to take risks-was used as the mediating variable for explaining the
relationship between self-concept traits and firm performance.

The results indicated that internal locus of control positively related to firm performance, and
entrepreneurial orientation did not play a mediating role in this relationship. In contrast,

18
generalized self-efficacy had no direct effects on firm performance; however, it influenced firm
performance positively through its effect on entrepreneurial orientation. Finally, self-attributed
achievement motive was not significantly related to entrepreneurial orientation or firm
performance (Poon, Ainuddin and Junit, 2006))

Based on the above, discussions it is clear that the field of entrepreneurship have some
interesting and relevant theories, which supported by empirical research evidence. This
development holds a rather brighter future for the study, research, and practice of
entrepreneurship.

2.4. Conceptual Framework

The conceptual framework shows relationships between independent and dependent variables.
Since business performance is influenced by both internal and external factors, operators need to
understand what influences businesses to reach expected performance. The external factors
include political, legal, finance, marketing, work premise, technology, and infrastructure factors.
The internal factors included personal characteristics of entrepreneurial (10PCEs) such as
opportunity seeking, persistence, commitment to the work, demand for efficiency and quality,
risk taking, goal setting, systematic planning and monitoring, information seeking, persuasion
and networking, and self-confidence.

In line with the study objectives, performance of MSEs, which measured in terims of profit,
capital and number of employees, were dependent variable whereas the external and internal
factors affecting MSEs performance were used as independent variables. Such factors includes:
political, legal, finance, marketing, work premise, technology, infrastructure, opportunity seeking,
persistence, commitment to the work, demand for efficiency and quality, risk taking, goal setting,
systematic planning and monitoring, information seeking, persuasion and networking, self-
confidence.

19
Independent variables

Working places

Legal
Dependent variable
Growth
Access to Finance

Marketing

Demographic

Figure 2.1 Schematic diagram of conceptual frame work

(Source: developed by research based on different review)

20
 CHAPTER THREE

METHODOLOGY OF THE STUDY

3.1. Description of the Study Area

This study will be conducted in Adama city of the East showa Zone of Oromia Regional State.
Being an administrative capital of the East showa Zone, the city has various offices of zonal and
district governmental and non-governmental organizations. It is located 92 km in Southeast of
Addis Ababa on the highway to Djibouti. As per the information gathered from the city Council
Office, the city has 18 kebeles and its population is estimated to be 456,868 (Ethiopian Statistics
Service ,2022) where women constitute 51.1 per cent of the population. Unemployment, low
family income, poor housing conditions, poor access to basic facilities, dis empowerment, etc.,
are some the major challenges of the residents.

Currently 7,928 enterprises actively operating different sectors in MSE includes manufacturing,
construction, service, trade and urban.

3.2. Research Design

This study will use both descriptive and explanatory research design. Research design is the
blueprint for fulfilling research objectives and answering research questions (John A.H. et al.,
2007:20-84). In other words, it is a master plan specifying the methods and procedures for
collecting and analyzing the needed information. There are three types of research design,
namely exploratory (emphasizes discovery of ideas and insights), descriptive (concerned with
determining the frequency with which an event occurs or relationship between variables) and
explanatory (concerned with determining the cause-and-effect relationships). The major purpose
of descriptive research is description of the state of affairs as it exists at present. Then this study
describes and critically assesses the factors affecting the performance of MSEs in Adama city.
Second, the study employs explanatory in that the relationship between variables is correlated
with an aim of estimating the integrated influence of the factors on MSE growth and
performance.

21
Moreover, the study utilized cross-sectional in the sense that all relevant data will be collected at
a single point in time. The reason for preferring a cross-sectional study is due to the vast nature
of the study and the limitation of time. And obtaining information from a cross-section of a
population at a single point in time is a reasonable strategy for pursuing many descriptive
researches (Janet, 2006).

3.3. Research Approach

This section of the study explains the type of research methods employed in this research. This
study will use both research approaches, such as quantitative and qualitative methods.

Quantitative research is a method in which researcher investigated a sample from a larger study
population which will be used to produce information that can be completed to a wider society
and the information will be offered in statistical numbers and tables. In additions: this type of
research methods helps the researcher to receive first hand data that allege for building
knowledge.

Qualitative research method is an approach which the researcher utilized this type of research
method as it requires cooperate with loan user as well as to ensure so as to definite information
will be collected from exactly responsible respondents especially collaborative sector
manager/officials. In this method of research, the researcher will gather accurate facts by using
interviews.

According to Mark et al. (2009:101) mixing qualitative and quantitative approaches gives the
potential to cover each method’s weaknesses with strengths from the other method. In this study,
a combination of qualitative and quantitative approaches of doing research will be employed,
which has been practiced, as recommended by Creswell (2009).

3.4. Sources of Data

In this study, will use both primary and secondary data sources in order to obtain reliable data

22
3.4.1. Primary Data
Primary data will be collected directly from MSE operators who are engaging in manufacturing
and construction sectors and concerned government body. This primary data will be gathered
through self-administered semi-structured and structured questionnaires and also additional data
will be obtained using interview. Interview guide are also designed to aid process of obtaining
the primary field data.

3.4.2. Secondary Data

The secondary data will be obtained from such sources as related literature reviews by different
owners and from the offices of Federal as well as Oromia regional state Micro and Small
Enterprise Development Agency (FeMSEDA), different books which is written on MSE
development, from different journals and articles.

3.5. Data Collection Technique

Data collection methods are techniques and procedures used to gather information for research
purposes. These methods can range from simple self-reported surveys to more complex
experiments and can involve either quantitative or qualitative approaches to data gathering. The
study will use techniques of structured questionnaire and interview which will be distributed to
respondents and will interview microfinance institution manager/officials.

Questionnaire:

Bryman (2008) defined a questionnaire as a paper and pencil investigation in which information
is obtained by asking participants to respond personally to a series of per-determined questions.
The questioner will be distributed to the MSEs Principal owners of each of enterprise included in
the sample to enhance the response rate and to obtain desired information on the perceived
factors that affect the success of MSEs in Adama city. The primary data will be collected
through open and closed ended questionnaire.

23
Interview:

The interview is qualitative to generate more precise information each of the Micro and Small
Business Enterprise owners are subject to the Interview. it consists of an introduction, main
questions, additional questions and clarifying questions. The main questions seek to explore how
SME owner-managers in Adama city see business success factors in relation to their experiences.
Semi-structured and unstructured interview questions will be developed and distributed for 5
MSEs office officials to obtain reliable data from them.

3.6. Target Population and Sampling Techniques

3.6.1. Target Population

Target population is the entire population that will be considered qualified for data analysis.
Having a clear definition of this group is necessary before determining the sampling frame or
design, as it will be an important factor driving sampling methodology, feasibility, and sample
size. For this study survey questionnaire will be developed to collect primary data from Adama
city. The total population is estimated to be 7,928 MSEs operating under manufacturing,
construction, service, trade and urban sectors in Adama city. The target population for this study
will be determined based on the number of enterprises operating under manufacturing 1,586
MSEs and construction 1,110 MSEs.

3.6.2. Sample Size

According to Fissuh YH (2019) it is usually impossible to take and manage the whole population
as it is due to lack of time, resource, and cost. The selection of sample size depends on the type,
objectives and significance of the study. In this study, all 1,586 manufacturing and 1,110
construction MSEs operators selected as a total population. Among those using Taro Yamane
method of sample size calculation formula;

n= N/(1+N(e)^2)

n= 400/(1+400)(0.05)^2)

24
 n = 400/(1+400(0.0025)

n = 400/(1+1)

n = 400/2

n= 200

This study will select 400 respondents in each sector and using the Taro formula it will become
200 respondents in each construction and manufacturing operators totally 400 respondents
finally will be responded from the total population. All the respondents will be selected
randomly. The enterprises also will be decided randomly. The only MSEs office officially will
be selected purposely.

3.7. Instrument Construction

This study will utilize a self-administered questionnaire to collect data on participants activity
and performances toward MSEs growth and transition. The instrument development process will
involve several stages:

Conceptualization: The variables to be measured in this study are work activity attitudes toward
the MSEs growth.

The reliability and validity of the instrument will be assessed using Cronbach’s alpha and factor
analysis, respectively. The data collected using the instrument will be analyzed using descriptive
statistics.

Item generation: A pool of potential items will be generated based on the work and productivity
performance framework and relevant literature on growth and development toward MSEs. The
items will be developed in English and translated into Afan Oromo using a standard translation-
back translation method. Item selection: The most relevant and appropriate items will be selected
based on relevance, clarity, and reliability. The selected items will be reviewed by experts in the
field of Micro and small enterprises to ensure their validity.

Ethical considerations will be taken into account throughout the instrument construction process.
Participants will be fully informed about the purpose of the study, and their consent will be
obtained prior to their participation. Confidentiality and anonymity of participants will be

25
ensured, and data will be securely stored and used only for research purposes. Overall, the
instrument construction process in this study will be thorough and comprehensive to ensure that
the data collected is reliable, valid, and ethical.

3.8. Validity and Reliability of the Study

3.8.1. Validity of the Instrument

Validity is the degree to which a test measures what it purports to measure (Creswell, 2009:190-
92). Validity defined as the accuracy and meaningfulness of the inferences which are based on
the research results. It is the degree to which results obtained from the analysis of the data
actually represents the phenomena under study.

A pilot study will be conducted to refine the methodology and test instrument such as a
questionnaire before administering the final phase and also will test on potential respondents to
make the data collecting instrument’s objective, and relevant. A relevant data will be collected
on the factors of the MSEs that can better indicate the relationship between factors and the
performance of MSEs.

3.8.2 Reliability of the Instrument

The reliability of instruments measures the consistency of instruments. Creswell (2009:190-92)
considers the reliability of the instruments as the degree of consistency that the instruments or
procedure demonstrates. The reliability of a standardized test is usually expressed as a
correlation coefficient, which measures the strength of association between variables. Such
coefficients vary between -1.00 and +1.00 with the former showing that there is a perfect
negative reliability and the latter shows that there is perfect positive reliability.

3.9. Methods of Data Analysis

The Statistical Package for Social Science (SPSS) version 24 and excel data analysis tools will
be used analyses the data obtained from primary sources. Specifically, descriptive statistics
(mean, standard deviation and charts) and inferential statistics (correlation and regression) will
be taken from this tool.

26
 4. BUDGET AND SCHEDULE

4.1. Time schedule

Duration Remark

No Activity
Sep Oct Nov Dec Ja Fe Mar Apr May Jun
.
n b

1 Detail reading The

materials for work
selecting topic plan
duration
2 Preparation of x
can be
proposal
amende

3 Proposal x d base

defense on the
universit
4 Data collection x y
schedule
5 Data Analysis x
and
6 Result and x other
discussion factors

7 Conclusion x
and
recommendati
on

8 Thesis – x
writing

27
 4.2. Financial Requirement

No Required Items Unit measures Quantity Unit cost Total cost

in birr in birr

1 Perdiem

2 Research assistance No. 2 8000 16000

3 Supplies (materials) including

stationery

4 Duplicating paper (A4) Ream 3-ream 250 750

5 Note book No. 2 25 50

6 Pen Pack 2-pack 60 120

7 Flash Disc/USB Pcs 1 500 500

8 CD row Piece 6 30 180

9 Services

10 Writing Page 120 10 1200

11 Binding No. 4 230 920

12 Printing Page 120 10 1200

13 Transportation

14 Taxi round 8 100 800

15 Researcher meal expense No. 1 300 2400

16 Other expenses

Total cost 24,120

28
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