Social Capital as a Differential of Long-term Survival in Small and Medium-sized Enterprises in Ethiopia

Abstract

This study is based on a longitudinal study of small and medium-sized enterprises operating in five major cities of Ethiopia. The study shows that small and medium-sized enterprises in Ethiopia often suffer from lack of access to finance. Such enterprises raise finance from indigenous informal financial schemes called “iqqubâ€. The schemes lend money to members free of interest, and operate based on mutual trust. The study shows how valuable “iqqub†schemes are to the long term survival of small and medium-sized enterprises in Ethiopia. Predictors of long term survival are estimated by using hazard ratios estimated from the Cox Proportional Hazards Model. The study shows that the long term survival of small and medium-sized enterprises is significantly influenced by access to social capital. The study found that 21% of small and medium-sized enterprises failed in the 9-year long period of study. The study also showed that 61% of businesses that survived the 9-year long study period had borrowed finance from “iqqub†schemes, and that only 18% of non-survivors did the same during the same period of study