Micro and small enterprises are generally regarded as the driving force of economic growth, jobrncreation, and poverty reduction in developing countries. They are the means through which acceleratedrneconomic growth and rapid industrialization have been achieved in developed countries.rnThe purpose of this study was to assess the factors that affect the development of micro and smallrnenterprises in the city of Bahir Dar; the case is manufacturing enterprise sub-sector. To address specificrnobjectives both qualitative and quantitative approaches are employed in the process of analyzing andrninterpreting the collected data. Descriptive survey method and simple random sampling technique isrnused. Quantitative data are generated using questionnaire containing close-ended and few open-endedrnquestions from 138 sample respondents, who are selected randomly from the three zones of the city.rninterview from the MSE development agency experts, branch Bank manager and field observation arernalso used to strengthen the data collected using questionnaire.rnrnAlthough there have been attempts by the government and other stakeholders to improve the workingrnenvironment of micro and small enterprises in Bahir Dar city, the sector has been suffering from arnnumber of factors that affect its development. The results of the study indicates that lack of initial/workingrnrncapital, lack of working place, unfavorable policy frameworks mainly of high tax and arbitrary taxrnadministrative systems, lack of market, lack of business skill and information are the major problems thatrnaffect the development of the sub-sector. 1n order to alleviate such factors, a micro and small enterpriserndevelopment agency has been designed to support the existing business community and to facilitate therncreation of new business environment focusing on the unemployed individuals. However, the finding from. the survey data shows that there is divergence between directives issued and their actual implementationrnin the ground.rnAbove all let alone the implementation gaps and the infancy stage of the supportive agencies, therndevelopment of the Regional micro and small enterprises policy and strategy with supportivernorganizational structures starting from the Regional to the local level are structured.rnFinally, the result of the survey calls for concrete and coordinated regulatory and institutional support inrnbusiness places, financial and extension services, promotion of marketing facilities, provision of businessrntraining and other supportive facilities like road, water, electricity services from Micro and SmallrnEnterprises Development Agency of the city of Bahir Dar and other concerned bodies