The Relationship between Outreach and Financial Sustainability: An Empirical Study on Ethiopian Microfinance Institutions

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Addis Ababa University


The overall objective of the study was to scrutinize the relationship between microfinance outreach and financial sustainability in Ethiopia. The study specifically aimed at establishing the relationship between loan outreach and microfinance institutions’ financial sustainability in Ethiopia. MFIs in Ethiopia enable to increase industrial outreach to 3.9 million clients. Yet, the loan service outreaches to the poor in Ethiopia fall short of the escalating demand. Quantitative design was employed and it was found suitable for the study since it aimed at establishing the relationship between microfinance outreach variables and financial sustainability. The population for the study was composed of 35 microfinance institutions in Ethiopia. Secondary data was collected from 14 purposively selected microfinance institutions reporting their financial and operational data to either of AEMFI or NBE over the period 2003-2014. Multiple regression analysis was then carried out on a panel data collected in order to examine relationships between variables. Significant positive relationship between breadth of outreach measured as number of active borrowers and gross loan to asset ratio and financial sustainability was evident among microfinance institutions in Ethiopia. However, there is a trade of between microfinance institutions depth of outreach measured by average loan size and financial sustainability as this variable shown statistically significant association with financial sustainability. Operating expense per loan portfolio relate inversely with financial sustainability while yield relates directly. Thus, it was concluded that the relationship between outreach and financial sustainability of MFIs in Ethiopia is depends on the variables used. Therefore, this study recommends that microfinance institutions in Ethiopia should increase the numbers of borrowing clients they are serving to be benefited from economics of scale. Key words: Microfinance, loan outreach, financial sustainability, economies of scale



Microfinance; loan outreach; financial sustainability; economies of scale.