Financial Sustainability of Microfinance Institutions in Ethiopia

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The perssting problem facing microfinance institutions is how to attain financial sustainability. Several studies have been conducted to determine and identify the factors affecting financial sustainability of microfinance institutions using large and well developed MFls in various countries. However, there is no enough research done in Ethiopian MF industry where majority of MFls are small. Consequently, the factors affecting their financial sustainability are not clearly known. This study, therefore, was set to bridge this knowledge gap. This study used [applied] a quantitative research approach using panel data regression as the main data analysis technique. The study was based on six years secondary data for 12 sampled MFls obtained from: AEMFI; NBE; and Mixmarket. We found that microfinance interest rates charged, average loan size, cost per borrower, MFI age, MFI size, number of borrowers, yield on gross loan portfolio, level of portfolio at risk, write-off ratio, liquidity level , staff productivity, and the operating efficiency affect the financial sustainability of microfinance institutions in Ethiopia. The study makes the following key contributions to knowledge in addition to identifying factors affecting fi nancial sustainability of microfinance in stitutions in Ethiopia: First, the study reveals that the non-existence of trade-off between financial sustain abi lity and breadth of outreach. Second, consistent with the instiutionists ' view, the study provides empirical evidence that financial sustainability of microfinance institutions improves their breadth of outreach.



Financial Sustainability, Institutions in Ethiopia