Factors that affect the performances of microfinance institutions; in jimma town

Abstract

The purpose of this study is to examine factors affecting the performance of microfinance institutions in Jimma town namely Oromia Credit and Saving Share Company (OCSSCO), Eshet Microfinance Institution (EMF.S.C) and Harbu Microfinance Institutions (HMF.S.C) were used as a case study. The objectives of the study were: to assess the effect of governance mechanisms on the performance of MfIs, to establish the effect of management information systems on the performance of MFIs and to find out the extent to which finding affects the performance of MFIs. Primary and secondary data were collected through well-organized questionnaire and interview for this study. The study sample was 118 and the findings showed that the selection criteria of the managers was based on related experience but management remuneration was not competitive enough to attract and retain talent. The Management Information System didn’t support real time reporting for decision making and branches were not networked each other with the MIS, the microfinance institution had struggled to access reasonable capital with affordable terms since the donor and government funding stopped. The study drew conclusions that governance mechanisms greatly affected the performance of microfinance as they determine the direction of the MFIs, MIS in its state had a relatively low impact on the performance of MFIs and that funding was not a critical success factor for MFIs performance as compared to other factors. The study recommends that the selection of the Board should be to a large extent based on ones’ professional experience, the MFIs shouldn’t commit all efforts to be regulated as it has not proved a success factor for many other MFIs, the MIS in use should be upgraded to enable linkage across the branches and head office rather than invest in a totally new software, the MFIs should look at increasing the level of operational efficiency especially for the staff in the credit department so that wastage is saved and also enhance in negotiation skills with funding partners so as to get the most affordable credit in the market