DETERMINANTS OF FINANCIAL PERFORMANCE IN ETHIOPIAN MICROFINANCIAL INSTITUTIONS

Abstract

The study investigated the Determinant factors on financial performance of micro financial institution in Ethiopia. Basically, micro financial institution financial performance can be determined by both internal and external factors. The study measure the determinant factors in what extent affect the financial performance from the period of have been studied. The study used secondary panel data for the year 2009-2019 from audited annual financial statements of MFIs included in the sample, annual report of National Bank of Ethiopia to assess the effect of determinant factors on MFIs performance. Purposive sampling was used to select ten MFIs out of more than 35 MFIs on the basis of having full set of data on the range of year from 2009-2019. Besides sampling method, the data analysis tools that have been used in this research work were descriptive statistics as well as econometric model. Fixed effect Model have been applied for the model with dependent variables ROA and Six internal and external to MFIs Variables has used as independent variables such as Capital adequacy ratio (CAR),Gearing Rate(GR),Operational efficiency (OE), Size or Total asset (SIZE),Saving mobilization(SM) and Real gross domestic product(RGDP).The major finding of the study shows that gearing ratio and saving mobilization have significant effect on ROA with positive relationship. Operational efficiency has negative significant relationship with ROA. However both size or total asset and real gross domestic product have positive insignificant relationship with ROA. Finally capital adequacy ratio has negative insignificant effect on ROA.