Outreach and Sustainability of Microfinance Institutions of Ethiopia: A Case Study on Specialized Financial and Promotional Institution (SFPI)

Abstract

Ethiopia has an estimated population of more than 90 million. Agriculture is the mainstay of the economy and approximately 83.2% of the country's population live in the rural areas. Ethiopia is one of the least developed countries. The per capita income of the country is only USD 550 during the current period. Poverty and food insecurity are the main challenges and fundamental issues of economic development in Ethiopia. To address the issues of development and food insecurity, several microfinance institutions (MFIs) have established and have been operating towards resolving the credit access problem of the poor.  The establishment of sustainable MFI that reach a large number of rural and urban poor who are not served by the conventional financial institutions, such as the commercial banks, has been a prime component of the new development strategy of Ethiopia. Healthy financial and operating performance of microfinance institutions is very important for their well-functioning and to serve their clients properly. The motivating philosophy of this paper is that unless MFIs become viable and sustainable financial institutions, they can never fully realize their objective of reaching a greater number of poor people.   In light of this, this paper has attempted to look at the Financial and Operating Performance of Specialized Financial and Promotional Institution (SFPI) at firm level and compare against the Industry Average (I.A) from Sustainability, Profitability and Outreach level perspectives. The major theme of this study is to examine the institutional-level financial and operating performance of SFPI. Data for the study were from secondary sources and various ratios and indicators were used to measure the performance of SFPI. Fifteen years data from 2000 to 2014 were used to see the trend in its performance and revealed through tables, figures and ratios. The major finding of the study indicates that, the percent of women borrowers of SFPI is higher than the percent of women borrowers of the Industry Average. The Financial Sustainability and Profitability of SFPI is going down the ladder of Sustainability and Profitability measures during the periods of the study. On average SFPI is operationally self-sufficient at around 111.44% over the sixteen years period.

Keywords: Outreach, Profitability and Financial Sustainability