Financial Performance Challenges of Microfinance Institutions in Oromia Regional State: Bale Zone

Abstract

Microfinance service intervention in Ethiopia is considered as one of the policy instrument of the government and non government organizations (NGOs) to enable rural and urban poor increase output and productivity. It also induces technology adoption, improve input and productivity, improve input supply, increase both individual and national income, reduce poverty and attain food security. Even though MFIs have shown a remarkable growth in outreach and performance in the last 20 years, they are expected to expand significantly to meet the growing demand for loan, saving, and insurance service. The major objective of this study was to assess the financial performance challenges of microfinance institutions in Bale zone, Goba and Robe/Sinanna woreda three branches. The assessment included in the study was analyzing the financial performance challenges of MFIs encountered during their operation. The study covered trend analysis of three fiscal periods, 2005 E.C. to 2007 E.C. Questionnaires, interviews and focused group discussions were used to collect data from respondents of the MFIs in the study area. Purposive and stratified random sampling technique was used to select the required sample size of both officials and clients, respectively. The study found that there was improvement on the current financial performance of the financial institutions. Growth indicator such as growth in outstanding portfolio, personnel productivity showed increasing pattern for each of the three MFI involved in the study. With regarding to the challenges of MFIs, the responses obtained from the MF officials showed that shortage of loan able funds for MFIs and shortage of skilled work force in the field were some of the major challenges facing the current operations of MFIs. Above all, the National Bank of Ethiopia should device ways to solve the shortage of loan able funds by allowing MFIs to borrow sufficient amount from mainstream banks and lend loans to the poor.

Keywords: Microfinance, Performance challenges, Trend analysis, Bale zone

DOI: 10.7176/RJFA/13-23-03

Publication date: December 31^st 2022