Factors determining bank selection by micro- and small-sized enterprises: evidence from Ethiopia

Abstract

PurposeThis study aimed to explore the importance of various factors considered in the bank selection decisions of micro- and small-sized enterprises (MSEs) in Ethiopia.Design/methodology/approachThe study used a structured questionnaire to collect data from 300 MSEs selected through a convenience sampling technique. Descriptive statistics, exploratory factor analysis and linear regression analysis methods are used to identify the most important factors determining bank selection by MSEs.FindingsThe results of exploratory factor analysis revealed that the availability of credit at a reasonable interest rate, lower service charges and the availability of better automated teller machine (ATM) services are the priorities of MSEs in their bank selection decisions. In addition, the results of regression analysis indicated that price competitiveness is the most important factor determining bank selection decisions of MSEs.Research limitations/implicationsThis study has two major limitations: first, due to resource constraints, the samples included in this study were taken only from the capital city of the country, Addis Ababa. As customer preferences are likely to vary from region to region, future studies could be carried out by including samples from other cities and rural areas of the country. Second, the study relied on a single data collection instrument. The use of additional data collection instruments, such as interviews and focus group discussions, could provide additional insights into the topic.Practical implicationsCommercial banks need to devise a flexible lending policy and set affordable interest rates and collateral requirements to meet the credit needs of MSEs. MSEs, on the other hand, need to improve their bankability by improving their operating and financial reporting practices. Further research can be conducted by covering other cities and the rural parts of the country.Originality/valueThe topic of bank selection has not been explored with a specific reference to MSEs in Ethiopia. The present study addressed this gap by investigating the factors influencing bank selection decisions of MSEs.