Determinants of Financial and Operational Sustainability of Microfinance Institutions in Ethiopia
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Date
2015-11
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Addis Ababa University
Abstract
Researches reveal that an enduring problem facing MFI is how to attain financial and operational
sustainability. Several studies have been conducted to determine the factors affecting the financial
and operational sustainability of MFIs. However, there are insufficient studies conducted on this
area in Ethiopia. Therefore, this study was conducted to fill the gap. This study is based on
quantitative research approach using panel data fixed regression as the main data analysis
technique. The study was based on a 10 years secondary data obtained from the annual bulletin
of AEMFI and mix-market database for 13 selected MFIs in Ethiopia. The study found that grant
to asset ratio, cost per borrower, GDP growth rate, deposit to loan ratio and gross loan portfolio,
affects the financial self-sufficiency and sustainability of Ethiopian MFIs significantly. Similarly,
return on asset, experience of MFIs, cost per borrower, portfolio at risk and operating expense
ratio affect their operational sustainability. The Study also found that MFIs in Ethiopia are
operationally self-sufficient while they are not financially self-sufficient. This study recommends
microfinance institutions to reduce grant to finance their loan, to increase their loan portfolio,
find ways of serving the borrowers at the lowest possible cost, increase profitability to raise the
return on asset, by making assets operational and minimizing operating expenses.
Key words: MFIs, sustainability, FSS, OSS, self-sufficiency
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Keywords
MFIS, Sustainability, FSS, OSS, Self-sufficiency