Determinants of Financial Performance of Micro-Finance Institutions in Ethiopia
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Date
2021-07
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Abstract
The study examined determinants of financial performance of 17 Ethiopian MFIs for
period of 10 years (2009-2018). The study adopted a quantitative research approach
and used secondary dataobtained from the annual bulletin of AEMFI and mix-market
database. The data collected was analyzed using descriptive and regression analysis.
The findings of the study established Portfolio at Risk 90, Operating Expense Ratio
and Debt-Equity Ratio insignificantly influence the financial performance of microfinance
institutions in Ethiopia. Whereas, Capital to Asset Ratio has negative significant
influence on financial performance; Loan to Asset Ratio and Cost per Borrower
has positive significant effect on ROA. Based on the finding of the study capital to asset
ratio, asset allocation and cost per borrower are vital factors among others to determine
the institutions’ profitability then sustainability. Thus the study recommends
that MFI’s management should decrease capital-to-asset ratio up to optimum level
and increase loan-to-asset ratio. Since the study found positive relationship between
cost per borrower and profitability, MFIs in Ethiopia are beneficiaries if they lift up
cost per borrower dispensed for the good of their institutions and in order to increase
their financial performance.
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Profitability, Return on Asset‚ Microfinance Institutions