This study inspected the determining factors of Micro finance profitability based on a panel data set of 12
MFIs operating in the country over the period of 2007-2016. To meet the objective, a quantitative
approach was used. Firm-specific as well as macroeconomic variables were involved in the study.
Portfolio quality, capital adequacy, breadth of outreach, micro finance size, age and efficiency have been
included as company-specific factors. While, Inflation and GDP Growth rate were considered as external
or Macroeconomic factors. ROA was used as a surrogate for profitability. Based on the regression result,
breadth of outreach and age were found to be significant with a positive coefficient against ROA.
Inversely, MFIs’ efficiency and portfolio quality were having significant negative correlation with ROA.
The other firm-specific factors, size of microfinance and capital adequacy were found statistically
insignificant. Moreover, the macroeconomic variables GDP and inflation were found statistically
insignificant. Finally, the study suggested that Ethiopian MFIs should take measures to improve their
breadth of outreach, portfolio quality, and operational efficiency.

Published: 2022-07-22