Assessment of Financial Performance of Micro Finance Institutions in Ethiopia
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Date
2019-11
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A.A.U.
Abstract
The Ethiopian MFIs are growing fast in terms of financial sustainability and outreach. But there are millions of people that are in need of financial services. The objective of this study was to assess the financial performance of MFIs in Ethiopia. Therefore, twenty seven audited MFIs operating in Ethiopia had been selected for performance assessment. To analyze outreach, loan repayment (portfolio quality), financial sustainability, financial profitability and efficiency indicators were used. Based on Peer category of national bank of Ethiopia, the MFIs were classified into three and this was considered as an important factor to compare each category based on maturity, size, breadth of outreach, and operation scale. This study is based on quantitative research approach using panel data as the main data analysis technique. The study was based on a 9 years’ secondary data of 27 audited MFIs of Ethiopia obtained from the national bank of Ethiopia. This study specifies how the Ethiopian MFIs stand in terms of outreach, financial profitability, financial sustainability and efficiency. A financial ratio such as return on asset (ROA), return on equity (ROE), financial self-sufficiency (FSS), and operational self-sufficiency (OSS) was used. Moreover, descriptive statistics was used for the study to know how they are performing their operation. The result of the study shows that performances of MFIs are poor in terms of FSS which is below breakeven point implies that MFIs are subsidy dependent. Depth of outreach deviates from their mission as they are not reaching many poor people living under the poverty line. Regarding to ROA, the average value is less than standard which implied that the profitability is not encouraging. Therefore, their performance needs to be improved as they were not covering their financial breakeven to mean that some of the MFIs in Ethiopia cannot cover their operating expense, but are good in terms of breadth of outreach, efficiency, portfolio quality and ROE.
Description
A Thesis submitted to school of graduate studies of Addis Ababa University in partial fulfillment of the requirements for the degree of masters of Science (MSc) in Accounting and Finance
Keywords
Efficiency, Microfinance, Performance, Sustainability