ASSESSMENT OF FACTORS AFFECTING THE PERFORMANCE OF MICRO AND SMALL ENTERPRISES /MSEs/: THE CASE OF MEKELLE CITY ADMINISTRATION, TIGRAY

Abstract

This study assesses the key factors influencing the performance of Micro and Small Enterprises (MSEs) in Mekelle City Administration, Tigray, Ethiopia, recognizing their critical role in economic growth, job creation, and poverty reduction, particularly in developing economies. The primary objective was to identify and analyze the impact of financial factors, infrastructural challenges, and institutional coordination problems on MSE performance. Employing a quantitative research design, the study collected primary data through structured questionnaires distributed to 394 MSE owners selected via stratified and simple random sampling techniques from a population of 25,559, achieving a 90.1% response rate. Data were analyzed using descriptive and inferential statistics, including correlation and multiple regression analyses via SPSS version 22.The study revealed that financial factors, such as high collateral requirements (mean=4.52) and complicated loan procedures (mean=4.55), were the most significant barriers to MSE performance, followed by severe infrastructural deficits such as inadequate water supply (mean=1.22) and unaffordable electricity (mean=1.30). Institutional coordination issues, including weak inter-organizational relationships (mean=1.65) and ineffective communication (mean=1.75), further constrained performance.Regression analysis indicated that these factors collectively explain 66% of the variance in MSE performance, with financial (β=0.325) and infrastructural factors (β=0.314) being the most influential. The study concludes that limited access to finance, poor infrastructure, and weak institutional coordination significantly hinder MSE growth. It is recommended that financial institutions and government bodies simplify loan processes, reduce collateral demands, increase funding, improve utility services and infrastructure, and enhance inter-institutional coordination and governance to foster a more supportive environment for MSE development and economic contribution.