Microfinance Institutions in Ethiopia: Poverty Outreach and Financial Sustainability

Abstract

This study examined the relationship between poverty outreach and financial sustainability of the Microfinance Institutions (MFIs) taking MFIs operating in Ethiopia as a case in point. In addition to understanding the relationship, it also examined the trend of the institutions’ performance along the outreach and sustainability dimensions. The study was based on the data obtained from Association of Ethiopian Microfinance Institutions (AEMFI). The analysis of findings revealed that while industry has made major improvements along outreach and sustainability performance variables (number of women borrowers, total number of clients served, outstanding loan portfolio, and saving mobilizations), the savings element has not grown large enough in relation to loan portfolio to make the industry meet its demand for loan from this source. Though, there is improvement in terms of financial sustainability, the industry’s average operational self-sufficiency and financial self-sustainability ratios are not far from the breakeven point. The findings of this study revealed the possibility of tradeoff between the social and financial goals of the MFIs. Viewed from stand point of microfinance’s social mission sympathizers, this is not good news as an increasing focus on financial bottom line could make the MFIs to move their eyes away from serving the poor.