Financial Innovation Towards Profitability of Micro Finance Institutions in Ethiopia
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Date
2019-06
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Addis Ababa University
Abstract
The robust financial innovation has unreserved role in boosting profitability of MFIs. Since sufficient researches had not been conducted on the subject this study was carried out to fill the gaps. In effect, inferential design and more quantitative & qualitative methods were used. Accordingly, the explanatory variables have explained the profitability of MFIs by 65% (i.e. R2). The percentage change of credit innovation changes the percentage of profitability. Moreover, major innovative credit products were extended by MFIs in Ethiopia. The percentage change in total deposit changes percentage of profitability and statistically significant. Therefore, the credit and saving product innovations are strongly, positively and significantly affects the profitability of MFIs. The MFIs have mobilized various deposits as deposit product innovations that increased profitability status. Institutional innovation credited to equity capital and the equity capital affect profitability of MFIs. The percentage change in equity capital changes the percentage of profitability of MFIs and statistically significant. Accordingly, the study approved that institutional innovation of MFIs is practically and statistically affects their profitability. Although institutional innovation determines profitability of MFIs, in most of Ethiopian MFIs institutional innovation that secure their profitability was not practiced. The percentage change increased in operational expense decrease the percentage change of profitability of MFIs and statistically significant. To this end, newly created or improved financial process innovation decreases operational expenses of MFIs that in return increases the profitability of MFIs. In abstract, the credit product innovation, saving product innovation, financial process innovation, and institutional innovation are strongly and significantly affect the profitability of MFIs in Ethiopia. Accordingly, the financial innovation practices of MFIs in Ethiopia needs due attentions.
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Keywords
Ethiopia, Financial Innovation, Microfinance Institutions, Profitability