The Relationship Between Bad Debt and Micro Finance Institution Performance: (The Case of Addis Credit and Saving Institution’s)
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Date
2021-06
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A.A.U
Abstract
This study was undertaken with the objective of identifying the relationship between bad debt and micro finance institution. The study was based on Addis credit and saving institutions, within the period of 2013/14-2019/20, which are practicing micro-financing business at present. Bad debts are identified as one of the foremost factors affecting the profitability and survival of Addis credit and saving institution. Most financial institutions are unable to stay competitive within the unsettled financial sector/industry because of high default rate. Against this backdrop the study examined the relationship between bad debts and micro finance institution performance within the case of Addis credit and saving institution. Secondary data spanning the period of seven years (2013-2019) was sourced from the financial statements of Addis credit and saving institution. Descriptive statistics and Correlation Analysis was conducted to examine trends and relationships. The result is that Addis credit and saving institution are witnessing steady rise in their bad debt ratio (BD), which raises concern about their effectiveness in managing credit risk. The study also concludes that bad debts have negatively related with Addis credit and saving institutions performance. The study recommended that Addis credit and saving institution must take steps to reduce their bad debts since it affects their lending abilities and financial performance. Also, effort must be made by these institutions to empower their credit staff with the necessary skills and tools to enhance credit administration within the institution.
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Keywords
Bad Debt, Micro Finance institutions, Return on its Assets, Return on its Equity, Lending potential