Determinants of Financial Performance of Microfinance Institution in Ethiopia

Abstract

The purpose of this study was to investigate the determinants of financial performance of MFIsin Ethiopia over a period of nine years (2010-2018) using data from eighteen micro financeinstitutions selected using judgmental sampling technique. The study employed both internaland external microfinance indicators. A quantitative research approach and a panel dataanalysis were applied. The study used explanatory research design which was analyzed usingmultiple regression. The finding of the study showed that capital asset ratio and size of microfinance institutions have significant and positive effect on financial performance of MFIs. Inaddition, earning ability had also significant effect but with a negative coefficient. Whereasgearing ratio and liquidity have insignificant effect with negative coefficient. Marketconcentration is significant with negative impact whereas GDP has statistically positivesignificant effect. The external factor inflation was found to have insignificant effect on ROA.The researchers recommend that focusing and reengineering the institutions in line withindicators above can enhance the performance of the micro finance institutions in Ethiopia.