Determinants of Financial Sustainability of Microfinance Institutions in Ethiopia

Abstract

AbstractMicrofinance promises to reduce poverty through the supply of loans, savings, money transfers,insurance and other financial services to those low-income and poor self-serving people. Toachieve this objective sustainably, microfinance institutions are obliged to be financially sound,sustainable and capable from long term perspective. The purpose of this study was toempirically investigate the determinants of financial sustainability of MFIs in Ethiopia, wherepoverty is a serious problem. The study employed quantitative research approach withexplanatory research design using a balanced panel data set of 120 observations from 15 MFIsover the period 2011-2018. The study found that there are negative and significant relationshipbetween Operating expense and financial sustainability of Ethiopian MFIs, whereas Portfolioyield, Net profit margin, capital adequacy and GDP growth have positive significant effect onfinancial sustainability of Ethiopian MFIs. Since MFIs in Ethiopia are at early stage, thegovernment and stakeholders should encourage the program by mobilizing funds to promotemicrofinance in remote areas to insure their social impact.