Ethiopian Microfinance Institutions and Their Financial Self-Sufficiency

Microfinance institutions are striving to serve the poor as a primary motive of their existence. In doing so, they need to stay long and serve the poor continuously. Though most of the MFIs in Ethiopia are found to be not even operationally self-sufficient. Therefore, the study is conducted to assess the financial self-sufficiency (FSS) of a sample of Microfinance Institutions (MFIs) found in Ethiopia. To achieve the objectives of the study, that is, to assess the financial self-sufficiency and its indicators, a descriptive research design and a quantitative research approach were employed. Secondary data was used as the main source to achieve the stated objectives. 10 years of secondary data were collected from 25 microfinance institutions, covering from 2009 to 1018. The secondary data was collected from the annual report of the Association of Ethiopian Micro Finance Institutions and the audited annual financial statement of the MFIs submitted to the National Bank of Ethiopia. To analyze the data, figures, tables, and graph was used to depict the findings of the study. The findings of the study depicted that the debt-to-equity ratio (DER) of the MFIs has improved through time. Even though the number of MFIs has been increased from time to time majority of the clients are served by the large MFIs. The average loan balance per borrower of some of the MFIs shows a concentration of the amount disbursed per borrower (especially when they are small in size and new to the market). The proportion of women borrowers in the MFIs understudy is on average 50% which needs attention by all stakeholders. Large and mature MFIs have been found to have the lowest cost per borrower, while small and new MFIs have been found to have the highest. While analyzing the borrowers per loan officers, there is a great difference among the MFIs. Generally, the MFIs under study are, on average, not financially self-sufficient. Based on the findings of the study, it is recommended that the MFIs to make sure the increament in the DER is not beyond the required level, enhance the number of active borrowers by introducing different services required and the level of the women borrowers; follow strictly the level of FSS of the MFI and provide a platform to share experience for the small and new MFIs from their elder institutionsas well as introduce an integrated system that can enhance the efficiency as well as the productivity of the employees.