Financial Sustainability of Microfinance Institutions in Ethiopia
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Date
2012-06
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A.A.U
Abstract
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.
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Keywords
Financial Sustainability, Institutions in Ethiopia