Dynamics of Financing Structure & Financial Performance of Ethiopian Micro Banks (MFIs)

Abstract

Studies indicates that the financing structure of Microfinance Institutions (MFIs) have significant impact on the performance of these organizations. Hence, studying the factors that drive the financial structure of these organizations is imperative. Although the financial structure of financial firms have been studied by some scholars, such types of studies are rare in the MFI sector. Thus the purpose of this study is to investigate the factors of financial structure in the Ethiopia industry and relate to the performance MFI. To accomplish the objective of the study a qualitative research design is employed. The researcher used data of 15 sample MFIs that fulfill the criteria of data availability from the NBE database covering the period of 2003–2009 and additional data is also obtained by interviewing key informants MFI industry. This includes finance managers of sample MFIs, financial analysts of AEMFI and supervisory authority of Ethiopian MFIs division in the NBE. The results show there exists positive and significant correlations between profitability and leverage, size of MFI, growth of MFI, the size of MFI and their growth rate. There could also be policies intended to encourage and creating conducive environment for MFIs to utilize debt as a viable source of finance in the era of increased commercialization of microfinance to meet their financial objective. Finally, focus should be placed on the relationship between ownership and governance structure and their effects on the capital structure on MFIs industry left for further studies to be conducted in the future.

Keywords: Factors, Financing Structure, MFI, Ethiopia