Determinants of Financial Sustainability of Microfinance Institutions in Ethiopia

Abstract

Abstract
Microfinance promises to reduce poverty through the supply of loans, savings, money transfers,
insurance and other financial services to those low-income and poor self-serving people. To
achieve this objective sustainably, microfinance institutions are obliged to be financially sound,
sustainable and capable from long term perspective. The purpose of this study was to
empirically investigate the determinants of financial sustainability of MFIs in Ethiopia, where
poverty is a serious problem. The study employed quantitative research approach with
explanatory research design using a balanced panel data set of 120 observations from 15 MFIs
over the period 2011-2018. The study found that there are negative and significant relationship
between Operating expense and financial sustainability of Ethiopian MFIs, whereas Portfolio
yield, Net profit margin, capital adequacy and GDP growth have positive significant effect on
financial sustainability of Ethiopian MFIs. Since MFIs in Ethiopia are at early stage, the
government and stakeholders should encourage the program by mobilizing funds to promote
microfinance in remote areas to insure their social impact.