Abstract:
Microfinance promises to reduce poverty. To achieve this amazing objective
Microfinance institutions have to become strong enough in financial performance
because donor constancy is not a given. Thus the question is: In what extent the MFIspecific, industry-specific and macroeconomic factors determinants the Ethiopian micro
finance industry financial performance from the period 2003-2011.By using OLS
estimation method to measure the effect of internal and external determinants on
financial performance in terms of return on asset. The study was based on a nine years
secondary data obtained from AEMFI performance analysis report and MOFAD for
thirteen (13) selected MFIs in Ethiopia. Beside this the study used primary data analysis
to solicit mangers perception towards the determinants of financial performance of MFIs
in Ethiopia. Regarding the explanatory variables, operational efficiency, GDP and size
of MFIs affect MFIs financial performance significantly. The outcome of the study shows
that Age of microfinance institutions has a positive but statistically insignificant effect on
their financial performance. The other explanatory variables which is Portfolio at
risk>30, Gearing ratio, capital to asset ratio and Market concentration affect negatively
and not significant.The Ethiopian MFIs policy makers and managers should give high
concern to the credit risk management, expense management and large MFIs size
management and also the government and policy makers should work combining both
poverty reduction and financial self- sufficiency of MFIs. And also MFIs have to emulate
profit-making banking practices by implementing a sound financial management and
good managerial governance to assure their financial performance and in the long run
financial sustainability.
