Factors Affecting Financial Performance of Microfinance Institutions in Ethiopia
No Thumbnail Available
Date
2021-06
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
A.A.U
Abstract
This study examined the effect of internal and external factors on financial performance of Ethiopian microfinance institutions over a period of ten years (2010 to 2019). The study used panel data of nineteen microfinance institutions. The study employed an explanatory research design following a quantitative research approach. Secondary financial data were analyzed by using multiple linear regressions model. Random effect regression model was applied to investigate the impact of capital asset ratio, portfolio quality, and management efficiency, employee productivity, gearing ratio, microfinance size, microfinance age, inflation rate and real GDP on the financial performance of Ethiopian microfinance institutions measured by return on asset. The finding of the study shows that capital asset ratio, employee productivity and age of microfinance have statistically significant and positive relationship with financial performance. On the other hand, variables such as management efficiency, portfolio quality, and size of microfinance have a negative and significant relationship with MFI’s financial performance. However, the relationship of gearing ratio, real GDP, and inflation rate with financial performance were found to be statistically insignificant. Based on the above findings, the study suggests that the management of Ethiopian microfinance institutions have to give due attention in managing their CAR, PAR, MGE, EMP, SIZE and AGE of microfinance institution
Description
Keywords
Financial performance, Micro finance institutions