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

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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

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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), 2022. Published by Science Publishing Group

Keywords

Microfinance Institutions, Financial Performance, ROA

References

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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

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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

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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

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@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}
}

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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  -

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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

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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

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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

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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

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@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}
}

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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  -

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