Financial Sustainability of Microfinance Institutions (MFIs) in Ethiopia

Abstract

The microfinance paradigms focus on reduction of poverty through improving access to finance and financial services. However, the positive impacts of microfinance institutions on the welfare of the poor can only be sustained if the institutions can achieve a good financial performance. The purpose of this study, therefore, aimed at identifying factors affecting financial sustainability of MFIs in Ethiopia. The study followed a quantitative research approach using a balanced panel data set of 126 observations from 14 MFIs over the period 2002-2010. The study found that microfinance breadth of outreach, depth of outreach, dependency ratio and cost per borrower affect the financial sustainability of microfinance institutions in Ethiopia. However, the microfinance capital structure and staff productivity have insignificant impact on financial sustainability of MFIs in Ethiopia for the study periods.

Key words: Ethiopian microfinance institutions, financial sustainability, outreach