INTERNAL DETREMNENTS OF OPERATIONAL AND FINANCIAL SUSTAINABILITY OF THE MICRO FINANCE INSTITUTIONS (MFIs) in Ethiopia

Abstract

The main objective of microfinance institutions (MFIs) is to provide financial services to the poor and that population that are not served with traditional bank.The MF industry as a whole is challenged by the need to reach the poorest customers and at the same time being operationally and financially self- sufficient. The study found that microfinance yield on gross portfolio, cost per borrower, portfolio at risk, breadth of outreac and operating expense ratio affect the financial sustainability of microfinance institution in Ethiopia. While, yield on gross portfolio, size of an MFI, personnel productivity ratio, dept to equity ratio, cost per borrower , depth of outreach and age of an MFI affects the operational sustainability of Ethiopian MFIs significantly. However, the age of an MFI has insignificant impact on the financial sustainability of microfinance institution in Ethiopia.The Study also found that MFIs in Ethiopia are operationally self-sufficient while they are not financially self sufficient. This study recommends microfinance institutions to consider more numbers of borrowers, find ways of serving the borrowers at the lowest possible cost, be able to utilize their short term assets to generate more cash and financial revenues, and finally it has been recommended that they should increase the value of their total assets