Statistical Analysis of the Performance of Micro Finance Institutions: The Case of Ethiopia
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Date
2008-06
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Addis Ababa University
Abstract
Nowadays, governments and many development agents pay great attention to the
development and enhancement of Microfinance Institutions (MFIs) anticipating that they
are the shortest way to end poverty. Many scholars and stakeholders also acknowledge that
MFIs are the possible panacea to under development but they stress on the proper
supervision and regulation of these MFIs as they are mobilizing susceptible resources.
However, evaluating the performance of MFIs is found to be among the most controversial
issues throughout the world leave alone in countries like Ethiopia where the micro financing
business is at its infant age. Different researchers and practitioners found in different corners
of the world employ various kinds of approaches to scrutinize the performance of MFIs.
It is crucial for countries to measure the performance of their MFIs and identify the major
determinants of their performance, at any cost, in order to see their relevance and prospects
prior to new policy developments, strategic planning and so on. Tlus paper, therefore, tried
to give statistical insight in measuring the performance of MFIs in the country and the
determinants of their performance. A cross-sectional data from the 2006 fiscal calendar
balance sheet of 26 MFIs is utilized to make the study. An effort is also made to observe the
trend of the industry with respect to some indicators by collecting time series data.
Consequently, the factor analysis part of the study identified that Deposit mobilized from
clients, Number of Active Borrowers, and Gross Loan Portfolio load lugh on one
component fortlling tl,e outreach performance dimension of tl,e MFIs in tl,e country. On
the other hand, Profit Margin, OSS, Return on Asset and Gross Loan Portfolio to Total
Asset Ratio load lugh on the other component fortlung tl,e financial viability dimension of
tl,e MFIs.
The factor scores also identified tllat ACSI and Ocssco are among tl,e best performing
MPIs, whereas, Aggar and Metemamen are among the least performants in the country in
every dimension.
In order to identify the determinants of tl,e performance of tl,e MFIs, on the two
dimensions, a SUR model was fitted on the scores synthesized by tl,e factor analysis
anticipating tl,e performances of outreach and sustainability of the MFIs are interrelated.
However, tl,e Breusch Pagan test exposed tl,at tl,ere is no evidence to reject tl,e hypotllesis that the errors are not correlated across equations (0"12 = 0). Besides, the significant positive
correlation between outreach and sustainability performance dimensions approves that there
is no trade-off between the two dimensions in the case of our particular country MFIs.
The number/ types of financial services rendered, the number of staffs per branch and their
capital are found to determine the outreach performance of the MFIs in the country. It was
also noted that capital has an adverse impact on the outreach efforts of the MFIs. The
unregulated growth of capital has a negative impact on bodl outreach and sustainability of
d,e MFIs dlough it is not significant on the case of sustainability. MFIs in the country tend
to focus on d,eir capital for weir loan-able funds rad,er dun on deposit mobilization.
Moreover, d,e fmancial viability of We MFIs is found to be highly determined by the average
amount of loans disbursed to individuals, the fll1ancial revenue ratio and d,e cost per
borrower ratio. The signs of these determinants agree to the expect,~tions set on the study.
To the surprise of d,e author, d,e number of branches that MFIs have is found not to affect
the performance of the MFIs contrary to d,e expectation set. Intrinsically, one expects Wat
We number of branches that d,e MFIs have affects d,e outreach and sustain ability
performance of the MFIs significandy, but Wat is not We case in this particular study.
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Keywords
Statistical Analysis