Microfinance Commercialization and Food Security in Ethiopia

Abstract

The microfinance paradigms focus on reduction of poverty through improving access to finance and financial services. However, commercialization of microfinance leads to competition and this may result in less attention to social goals and participation as they give due consideration to financial sustainability. In a competitive environment, MFIs may not be able to afford maintaining the extra non-financial services that support social goals like food security or empowerment. The purpose of this study, therefore, aims at addressing the research question: Are microfinance institutions in Ethiopia really serving the poor? The study followed quantitative research approach using a balanced panel data set from 16 MFIs over the period 2002-2010. The findings indicate that age of institution and microfinance breadth of outreach had positive and statistically significant contribution on average loan size (measure of serving the poorest) whereas sustainability and competition had negative and statistically significant impact on average loan size. Thus, this indicates that it seems there is less worry for mission drift rather there is mission enhancement.

Keywords: Microfinance Commercialization, Serving the Poor, Food Security, Ethiopia