SME reaction towards Financial restraint: evidence from the Ethiopian manufacturing sector

Small and medium enterprises play a pivotal role in economic development in advanced, emerging, and developing economies. However, their survival and growth is plagued by financing constraints driven by market imperfections and under-development. Financial reform is believed to provide a lasting solution but its success in enhancing credit access hinges on the reform policy pursued by governments. This induces an intriguing question as to whether the banking reform program in Ethiopia has given rise to expansion of credit to SMEs. Even more interesting is how SMEs aligned their financing with changes in the credit market. The book reports the effects of banking reform on SME access to credit and various alternative financing schemes they use. The book reveals that while there are structural changes in the Ethiopian banking industry, they are not accompanied with competition in the credit market. Consequently, small firms still have very limited access to the formal credit market. The most interesting finding is SMEs react towards credit restraint by designing alternative financing schemes.