Abstract:
Micro finance institutions (MFIs) make important contributions to economic, political
and social development of any country. The aim of this study was to find out the coverage
of financial management practices employed by the MFIs and their effect on financial
performance of MFIs. The specific objectives of this study were to evaluate effects of
independent variables of cash management practices, Account Receivables practices,
Budget management practices, Internal control, source of finance, Accounting
information systems and financial reporting and analysis practices on financial
performance of MFIs in Jimma Zone. The study used both primary and secondary data.
Primary data were collected through questionnaires administered from MFIs employees
and interview of branch managers. Secondary data were collected from yearly or
quarterly published reports, journal of articles, AEMFI reports and other relevant
official reports. A total of 66 samples were selected using judgmental sampling
techniques. Descriptive and inferential statistics of chi-square test of independence
(significance) were applied in the study. The findings indicated that the above
independent variables have significant (positive) relation with financial performance of
MFIs which is measured by ROA. Finally, the researcher recommended: as means to
discharge responsibility and accountability and to show service giving efforts,
operational efficiency and effectiveness to contribution to the development endeavor of
the country, they should establish a well organized financial management practices,
Board should monitor regularly the financial management system, and donors should
give capacity building training and transfer funds as per the original plan for MFIs
employees.
