Abstract:
Financial sustainability is crucial for the long-term viability and effectiveness of microfinance
institutions in serving their target population and contributing to poverty alleviation efforts. It
involves achieving a balance between generating enough revenue to sustain operations while
also reaching out to a large number of low-income individuals who lack access to traditional
financial services. The objective of this study is to examine the determinants that influence the
financial and operational sustainability of selected MFIs in Ethiopia. In this study, an
explanatory design with a quantitative approach was used, and the source of data was
secondary data. The method of data collection for the internal variable was taken from the
sample selected from ten MFIs official MX website, and for the external variable, it was
collected from the central statistics agency. The method of data and analysis is a descriptive
analysis and econometrics model, specifically applying a balanced data set of 150 observations
from ten MFIs over the period 2009–2023. The major findings from the descriptive analysis of
MFIs financial sustainability in terms of OSS were sustainable, but in terms of FSS, it was not
sustainable. From econometric analysis, a random fixed effect result indicated that OSS and
FSS are considered as proxy dependent variables, and independent variables loan, efficiency,
deposit, clients, competition, and inflation were statistically significant and important
variables that had an impact on OSS and FSS, but loan repayment and employee were not
statistically significant variables. The findings of the study sampled MFIs that were financially
unsustainable in terms of FSS. The result of this study recommended that it is better to focus
on improving the financial sustainability of MFIs by implementing strategies to attract more
deposits from clients by offering competitive interest rates and convenient deposit options.
