FINANCIAL PERFORMANCEANALYSIS OF ETHIOPIAN MICRO FINANCING INSTITUTIONS

Abstract

The Ethiopian Micro Finance sector is characterized by its rapid growth, an aggressive drive to achieve scale, a broad geographic coverage, a dominance of government backed MFIs, an emphasis on rural households, strong focus on outreach and reaching the poorest of poor especially of women. The main objective of this study is to analyze the financial performanceof Ethiopian MFIs based on different measuring criteria by comparing against the bench mark. Although the actual number of Ethiopian MFIs is around 35 as per NBE data base, it was accessed the data for 24 MFIs and was selected 14 MFIs eligible to the current study sampling system. For data analysis it was used one sample t- test and one-way ANOVA with Scheffe post hoc comparison tests. The result of the study shows that Ethiopian MFIs are good performers in breadth of outreach that is serving large number of borrowers, however, MFIs financial performanceon gross loan portfolio (GLP) is very low compared to the bench mark. Regarding portfolio risk management Large and Small MFIs are poor performers as they have higher value than the industry average whereas Medium sized have lower value which is a good performer. On the other hand, large and small MFIs allocate low loan loss provision although they have higher PAR. Ethiopian MFIs are good performers on financial sustainability and profitability, efficiency and productivity. Ethiopian MFIs are not properly levered compared to the industry average. All MFIs are good performers on GLP to asset ratio, they allocated their portion of asset to loan portfolio, and thus MFIs are performing better in their capital structure and asset allocation.The implication of the finding showed that large and small MFIs have higher PAR value than the industry average,in addition large and small MFIs served lower number of female borrowers andEthiopian MFIs are not properly levered and base on the study it suggested that large and small MFIs to adjust their loan loss reserve as per their PAR value and to serve better number of female borrowers and all MFIs better to be levered on their capital structure.