The Effect of Capital Structure on Financial Performance of Microfinance Institutions in Ethiopia

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Addis Ababa University


This s tudy w as unde rtaken with the o bjective o f id entifying th e e ffect of c apital s tructure on microfinance institutions f inancial pe rformance i n E thiopia. T he study w as based on thirteen microfinance institutions, within the period of 2010-2015, which are practicing micro-financing business at pr esent. The c ollected s econdary dat a w ere anal yzed t hrough us age of pan el dat a analysis t echnique by t he he lp of e view 8.0 software and the finding s hows t hat m ost of t he microfinance i nstitutions had employed hi gh l everage. T he m ean t otal d ebt r atio was ar ound 63% as well as the average deposit to total asset ratio shows a mean value of 42.2%. All other variables e xcept f irm s ize do hav e a pos itive r elation w ith f inancial pe rformance measured by (profitability) of m icrofinance i nstitutions i n E thiopia. Finally, t he s tudy r ecommended t hat microfinance institutions in Ethiopia should employ more debt, which is up to optimal level in to their capital structure, so as to maximize their financial gain (profitability). Key words: Microfinance, Debt Financing, profitability, return on equity



Microfinance, Debt financing, profitability, Return on equity