Efficiency of Microfinance Institutions in Ethiopia

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Date

2007-07

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Addis Ababa University

Abstract

The main objective of this study was measuring the level of efficiency of Micro finance institutions in Ethiopia. This thesis analyzes the efficiency of Ethiopian Microfinance institutions using Data Envelopment Analysis. Operational and financial models are employed in order to examine the efficiency level of the institutions. It has been identified that the mean operational efficiency of the Microfinance institutions are found to be more than the mean financial efficiency. The results also indicated that only one Micro finance institution, out of twenty, is found to be both financially and operationally efficient as compared to its reference sets. Moreover, it has been identified that the efficiency scores of Ethiopian MFls highly depends on the age and total assets of the institution and it is negatively related to the return on assets invested. The model used shows that most of the MFls in Ethiopia are at an increasing return to scale efficiency and this implies that they have a room to further increase their efficiency level. To sustain the micro finance industry in Ethiopia, the management of each MFI shall give emphasis on both operational and financial efficiency in particular and the overall efficiency of the industry in general.

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Keywords

Microfinance Institutions

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