Assessment of Factors Affecting the Performance of Microfinance Institutions: The Case of Hawassa City

Abstract

The role of MFIs in the development process is noteworthy. The major objective of this study is to assess the factors which affect the performance of microfinance institutions in Hawassa city. The research is descriptive in type and both probability and non probability sampling techniques were employed for this study. Employees and clients of MFIs were the major target groups of the study. From the total of 116 targeted employees, 74 employees were included in the sample. On the other hand, from the total of 8590 targeted clients, 199 were taken as a sample. Primary and secondary data were collected through well organized questionnaire for this study. In addition to this, the researchers conducted interview with managers of the institutions. Accordingly the researchers assessed different factors which affect the performance of microfinance institutions. The identified factors related to clients includes: problems related to the repayment, diversion of loan into non income generating activities, business condition of the borrowers and so on. On the other hand, institutional factors such as shortage of human resource, lack of cost effective technologies, shortage of loan capital and some others are identified. Political factors which are related to MFIs performance are also recognized in this study. Based on the analysis and the finding of the study, the researchers suggested some recommendations to improve the performance MFIs in Hawassa city. Implementation of different methods to improve women's participation in micro credit and saving services, usage of cost effective technologies to minimize operational cost, hiring an adequate number of employees in the institution are some of therecommendations suggested by theresearchers to improve the performance of the institutions.