Factors Affecting the Financial Performance: A Case of Microfinance Institutions in Ethiopia

Mulugeta Abuye Ertiro; Leyla Jemal Mohammed

doi:doi:10.11648/j.jfa.20221001.17

| Peer-Reviewed

Factors Affecting the Financial Performance: A Case of Microfinance Institutions in Ethiopia

Mulugeta Abuye Ertiro, Leyla Jemal Mohammed

Published in Journal of Finance and Accounting (Volume 10, Issue 1)

Received: 8 January 2022 Accepted: 26 January 2022 Published: 16 February 2022

Views: Downloads:

Download PDF

Share This Article

Twitter
Linked In
Facebook

Abstract

Micro finance institutions in Ethiopia have shown a remarkable qualitative and quantitative growth since the early 1990s. It is increasingly understood that adequate financial services such as loans, saving products, insurance and payment services for the broad population, poor farmers and MSEs, promote quality and productivity. Thus, this study examined and presented the most prominent factors of financial performance of microfinance institutions in Ethiopia by using panel data. From a total population of 38 MFIs operating in Ethiopia; the study selected 17 microfinance institutions which are operating in the period 2011 to 2018. The fixed effect model was used after running a Hausman test. ROA was used as a proxy for the financial performance measurement and the study used the internal and external factors. Based on the regression analysis, the internal variable like age of microfinance institutions was showed to be significant variables with positive relationship to ROA and other internal variables such as capital to asset ratio and debt to equity ratio were found to be statistically negatively significant. But operational efficiency, portfolio quality and size of microfinance institutions were found to have insignificant effect on ROA. On the other hand, the only external variable market concentration was insignificant factors of microfinance institution in the study period. Based on the regression outcome, the study concluded that the management of the microfinance institutions may develop sound mobilizing savings campaign strategy in order to collect adequate savings from depositors and mostly operate on membership contribution to enhance MFI’s capital for ensuring unexpected losses and also MFI managers should develop the efficiency of operations from year to year.

Published in	Journal of Finance and Accounting (Volume 10, Issue 1)
DOI	10.11648/j.jfa.20221001.17
Page(s)	64-77
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Microfinance Institutions, Financial Performance, ROA

References

[1]	Basu, A. Blavey, R. and Yulk, M. (2004). Micrifinance in Ethiopia; Experience and Lessons from sellected African countries. International monetary Fund IMF Woking Paper No 04/174.
[2]	Muriu, P. (2011). Microfinance Profitability: Does Financing Choice Matter? Birmingham, United Kingdom, 2-24.
[3]	AEMFI. (2018). Request for Expression of Interest for the implementation of a Shared Core Banking Software (CBS). Addis Ababa: AEMFI.
[4]	Basu, J. C., & Woller, G. (2004). Microfinance a comprehensive review of Existing of Literature:. Journal of Entrepreneurial, Finance and Business ventures., Vol. 9 (No. 1), pp. 1-26.
[5]	Melkamu, T. (2012). Derteminants of Operation and Financial Self- Sufficiency: An Emprical Evidence of Ethiopian Microfinance Institutions.. MSc Thesis.
[6]	Wellage, Nirosha, H. & Stuart, Z.. (2012). Ownership structure and Firm Financial Performance: Evidence From Panel Data in SriLanka. Journal of Business Systems, Governence and ethics Vol 7, No 1.
[7]	Abebaw, Y. (2014). determinants of Financial Performance: MSc thesis on Selected Microfinance Institutions in Ethiopia. Jimama University, Ethiopia.
[8]	Alemayehu, Y. (2008). The Performance of Microfinance Institutions in Ethiopia: Acase of Six Micrifinance Institutions MSc Thesis. Addis Ababa University, Ethiopia.
[9]	Yonas, N. (2012). Determinants of Financial Sustainability of ethiopian Institutions. Addis Ababa University, Ethiopia.
[10]	Sima, G. (2013). Determinants of Profitability: An Empirical Study on Ethiopian Microfinance institution, MSc thesis, Addis Ababa University, Addis Ababa Ethiopia.
[11]	Sileshi, M. (2015). Determinants of Financial and Operational SustainabilitybofMFIs in Ethiopia. Addis Ababa, Ethiopia.
[12]	Ramanaiah, M. venrata, & Mangala, C. Gowri. (2011). Areview of Ethiopian Micrifinance Institutions and their Role in Poverty Reduction. A case Study on Amahara credit and Sving Institution.
[13]	Meyer, J. (2002). Track Record of Financial Institutions in Assessing the Poor in Asia”. ADB Research Institute Paper No. 49; Website Available: http:// www. Esocialscience. Com/ articles.
[14]	AEMFI. (2016). Association of Ethiopian Microfinance Institutions Performance Analysis report. Addis Ababa, Ethiopia.
[15]	Moses, A. O. & Zaguue, N. J. (2017). Financial Performance of Microfinance Institutions In cameroon. Case of CamccUL, Ltd; International Journal of Economics and Finance; Vol. 9, No. 4; 2017, 208-220.
[16]	Cull, R. Demirguc- Kunt, A. & Mourduch, J.. (2007). Financial Performance and Outreach: aglobal Analysis of leading Microbank. Economics Journal, Vol. 117, PP 107-133.
[17]	Dechasa, S. C. (2018). Factors Affecting Profitability of Microfinance Institutions. Astudy on SNNPR States. alaita Sodo University, Ethiopia.
[18]	Abummar, A. (2019). Factors affecting financial performace of oromia credit and saving share company. The case of eastern hararghe branch. Catalog of Economics and Finance.
[19]	Ashebir, A. (2017). Determinants of Profitabilty: A study on Selected Microfinance Institution in Ethiopia.
[20]	Wooldridge, J. (2006). Introductory Econometrics: amodern approach, 3rd Edition. South-western cengage learning.
[21]	Brooks, C. (2008). Introductory ecnometrics forfinance, 2nd edition. New york: United states of America Cambridge University.
[22]	Jorgensen, A. (2012). " The Pofitability of Microfinance Institution and the Connection of Yield on Gross Portfolio". Emprical Ananlysisi, Copenhagen Business School, Copenhagen.
[23]	Zergaw, F. (2015) Determinants of micro finance profitability: the case of selected micro finance institutions. Jimma University 90. Jimma: Jimma UNiversity.
[24]	Dissanayake, D. (2012). The determinants of Return on Assets: Evidence From microfinance Institutions. Kelaniya University, SriLanaka.
[25]	Algridas, K. (2016). On The Concept of Market Concentration, the Minimum Herfindahl-Herchman index, and its practical Aplication. Vol. 63, pp 525-540.
[26]	Brihanu, T. (2012). Determinants of Commercial Banks Profitability: An Emprical evidence from the commercial banks of Ethiopia.. addis Ababa University, Ethiopia.

Cite This Article

Plain Text BibTeX RIS

APA Style

Mulugeta Abuye Ertiro, Leyla Jemal Mohammed. (2022). Factors Affecting the Financial Performance: A Case of Microfinance Institutions in Ethiopia. Journal of Finance and Accounting, 10(1), 64-77. https://doi.org/10.11648/j.jfa.20221001.17

Copy | Download

ACS Style

Mulugeta Abuye Ertiro; Leyla Jemal Mohammed. Factors Affecting the Financial Performance: A Case of Microfinance Institutions in Ethiopia. J. Finance Account. 2022, 10(1), 64-77. doi: 10.11648/j.jfa.20221001.17

Copy | Download

AMA Style

Mulugeta Abuye Ertiro, Leyla Jemal Mohammed. Factors Affecting the Financial Performance: A Case of Microfinance Institutions in Ethiopia. J Finance Account. 2022;10(1):64-77. doi: 10.11648/j.jfa.20221001.17

Copy | Download

@article{10.11648/j.jfa.20221001.17,
  author = {Mulugeta Abuye Ertiro and Leyla Jemal Mohammed},
  title = {Factors Affecting the Financial Performance: A Case of Microfinance Institutions in Ethiopia},
  journal = {Journal of Finance and Accounting},
  volume = {10},
  number = {1},
  pages = {64-77},
  doi = {10.11648/j.jfa.20221001.17},
  url = {https://doi.org/10.11648/j.jfa.20221001.17},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20221001.17},
  abstract = {Micro finance institutions in Ethiopia have shown a remarkable qualitative and quantitative growth since the early 1990s. It is increasingly understood that adequate financial services such as loans, saving products, insurance and payment services for the broad population, poor farmers and MSEs, promote quality and productivity. Thus, this study examined and presented the most prominent factors of financial performance of microfinance institutions in Ethiopia by using panel data. From a total population of 38 MFIs operating in Ethiopia; the study selected 17 microfinance institutions which are operating in the period 2011 to 2018. The fixed effect model was used after running a Hausman test. ROA was used as a proxy for the financial performance measurement and the study used the internal and external factors. Based on the regression analysis, the internal variable like age of microfinance institutions was showed to be significant variables with positive relationship to ROA and other internal variables such as capital to asset ratio and debt to equity ratio were found to be statistically negatively significant. But operational efficiency, portfolio quality and size of microfinance institutions were found to have insignificant effect on ROA. On the other hand, the only external variable market concentration was insignificant factors of microfinance institution in the study period. Based on the regression outcome, the study concluded that the management of the microfinance institutions may develop sound mobilizing savings campaign strategy in order to collect adequate savings from depositors and mostly operate on membership contribution to enhance MFI’s capital for ensuring unexpected losses and also MFI managers should develop the efficiency of operations from year to year.},
 year = {2022}
}

Copy | Download

TY  - JOUR
T1  - Factors Affecting the Financial Performance: A Case of Microfinance Institutions in Ethiopia
AU  - Mulugeta Abuye Ertiro
AU  - Leyla Jemal Mohammed
Y1  - 2022/02/16
PY  - 2022
N1  - https://doi.org/10.11648/j.jfa.20221001.17
DO  - 10.11648/j.jfa.20221001.17
T2  - Journal of Finance and Accounting
JF  - Journal of Finance and Accounting
JO  - Journal of Finance and Accounting
SP  - 64
EP  - 77
PB  - Science Publishing Group
SN  - 2330-7323
UR  - https://doi.org/10.11648/j.jfa.20221001.17
AB  - Micro finance institutions in Ethiopia have shown a remarkable qualitative and quantitative growth since the early 1990s. It is increasingly understood that adequate financial services such as loans, saving products, insurance and payment services for the broad population, poor farmers and MSEs, promote quality and productivity. Thus, this study examined and presented the most prominent factors of financial performance of microfinance institutions in Ethiopia by using panel data. From a total population of 38 MFIs operating in Ethiopia; the study selected 17 microfinance institutions which are operating in the period 2011 to 2018. The fixed effect model was used after running a Hausman test. ROA was used as a proxy for the financial performance measurement and the study used the internal and external factors. Based on the regression analysis, the internal variable like age of microfinance institutions was showed to be significant variables with positive relationship to ROA and other internal variables such as capital to asset ratio and debt to equity ratio were found to be statistically negatively significant. But operational efficiency, portfolio quality and size of microfinance institutions were found to have insignificant effect on ROA. On the other hand, the only external variable market concentration was insignificant factors of microfinance institution in the study period. Based on the regression outcome, the study concluded that the management of the microfinance institutions may develop sound mobilizing savings campaign strategy in order to collect adequate savings from depositors and mostly operate on membership contribution to enhance MFI’s capital for ensuring unexpected losses and also MFI managers should develop the efficiency of operations from year to year.
VL  - 10
IS  - 1
ER  -

Copy | Download

Author Information

Mulugeta Abuye Ertiro

Department of Accounting and Finance, Wachemo University, Hossana, Ethiopia
Leyla Jemal Mohammed

Department of Accounting and Finance, Wachemo University, Hossana, Ethiopia

Download PDF

Sections

Plain Text BibTeX RIS

APA Style

Mulugeta Abuye Ertiro, Leyla Jemal Mohammed. (2022). Factors Affecting the Financial Performance: A Case of Microfinance Institutions in Ethiopia. Journal of Finance and Accounting, 10(1), 64-77. https://doi.org/10.11648/j.jfa.20221001.17

Copy | Download

ACS Style

Mulugeta Abuye Ertiro; Leyla Jemal Mohammed. Factors Affecting the Financial Performance: A Case of Microfinance Institutions in Ethiopia. J. Finance Account. 2022, 10(1), 64-77. doi: 10.11648/j.jfa.20221001.17

Copy | Download

AMA Style

Mulugeta Abuye Ertiro, Leyla Jemal Mohammed. Factors Affecting the Financial Performance: A Case of Microfinance Institutions in Ethiopia. J Finance Account. 2022;10(1):64-77. doi: 10.11648/j.jfa.20221001.17

Copy | Download

@article{10.11648/j.jfa.20221001.17,
  author = {Mulugeta Abuye Ertiro and Leyla Jemal Mohammed},
  title = {Factors Affecting the Financial Performance: A Case of Microfinance Institutions in Ethiopia},
  journal = {Journal of Finance and Accounting},
  volume = {10},
  number = {1},
  pages = {64-77},
  doi = {10.11648/j.jfa.20221001.17},
  url = {https://doi.org/10.11648/j.jfa.20221001.17},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20221001.17},
  abstract = {Micro finance institutions in Ethiopia have shown a remarkable qualitative and quantitative growth since the early 1990s. It is increasingly understood that adequate financial services such as loans, saving products, insurance and payment services for the broad population, poor farmers and MSEs, promote quality and productivity. Thus, this study examined and presented the most prominent factors of financial performance of microfinance institutions in Ethiopia by using panel data. From a total population of 38 MFIs operating in Ethiopia; the study selected 17 microfinance institutions which are operating in the period 2011 to 2018. The fixed effect model was used after running a Hausman test. ROA was used as a proxy for the financial performance measurement and the study used the internal and external factors. Based on the regression analysis, the internal variable like age of microfinance institutions was showed to be significant variables with positive relationship to ROA and other internal variables such as capital to asset ratio and debt to equity ratio were found to be statistically negatively significant. But operational efficiency, portfolio quality and size of microfinance institutions were found to have insignificant effect on ROA. On the other hand, the only external variable market concentration was insignificant factors of microfinance institution in the study period. Based on the regression outcome, the study concluded that the management of the microfinance institutions may develop sound mobilizing savings campaign strategy in order to collect adequate savings from depositors and mostly operate on membership contribution to enhance MFI’s capital for ensuring unexpected losses and also MFI managers should develop the efficiency of operations from year to year.},
 year = {2022}
}

Copy | Download

TY  - JOUR
T1  - Factors Affecting the Financial Performance: A Case of Microfinance Institutions in Ethiopia
AU  - Mulugeta Abuye Ertiro
AU  - Leyla Jemal Mohammed
Y1  - 2022/02/16
PY  - 2022
N1  - https://doi.org/10.11648/j.jfa.20221001.17
DO  - 10.11648/j.jfa.20221001.17
T2  - Journal of Finance and Accounting
JF  - Journal of Finance and Accounting
JO  - Journal of Finance and Accounting
SP  - 64
EP  - 77
PB  - Science Publishing Group
SN  - 2330-7323
UR  - https://doi.org/10.11648/j.jfa.20221001.17
AB  - Micro finance institutions in Ethiopia have shown a remarkable qualitative and quantitative growth since the early 1990s. It is increasingly understood that adequate financial services such as loans, saving products, insurance and payment services for the broad population, poor farmers and MSEs, promote quality and productivity. Thus, this study examined and presented the most prominent factors of financial performance of microfinance institutions in Ethiopia by using panel data. From a total population of 38 MFIs operating in Ethiopia; the study selected 17 microfinance institutions which are operating in the period 2011 to 2018. The fixed effect model was used after running a Hausman test. ROA was used as a proxy for the financial performance measurement and the study used the internal and external factors. Based on the regression analysis, the internal variable like age of microfinance institutions was showed to be significant variables with positive relationship to ROA and other internal variables such as capital to asset ratio and debt to equity ratio were found to be statistically negatively significant. But operational efficiency, portfolio quality and size of microfinance institutions were found to have insignificant effect on ROA. On the other hand, the only external variable market concentration was insignificant factors of microfinance institution in the study period. Based on the regression outcome, the study concluded that the management of the microfinance institutions may develop sound mobilizing savings campaign strategy in order to collect adequate savings from depositors and mostly operate on membership contribution to enhance MFI’s capital for ensuring unexpected losses and also MFI managers should develop the efficiency of operations from year to year.
VL  - 10
IS  - 1
ER  -

Copy | Download