CHALLENGES AND PROSPECTS OF MICROFINANCE INSTITUTIONS: THE CASE OF TWO MFIS IN ADDIS ABABA AND OROMIA SPECIAL ZONE

Abstract

The Ethiopian microfinance sector is characterized by its rapid growth, an aggressive drive to achieve scale. This is due to its significant contribution towards poverty alleviation and overall economic growth through availing financial service to rural and urban poor. The operational and performance aspects of the MFIs in the country are impeded by various economic, social and internal challenges emanating from the microfinance institutes themselves. The main objective of the study is to assess the challenges and prospects of micro finance institutions. The study is conducted through both quantitative and qualitative methods of research approaches, describing the challenges on ground which affects the operations of micro-finance institutions. Both primary and secondary sources of data which are appropriate for the study were collected from two big Microfinance Institutions currently operating in the country using questionnaire. The study units of the research are two micro-finance institutes operating in Ethiopia. But, the staff and customer proxies were used to identify major challenges in these financial institutes. Accordingly, the set of managers, clerical and non-clerical and customer of these two MFIs was taken as a population of the study. Appropriate sampling designs and techniques were used to draw the population under study. Descriptive method is used to analyze the primary and secondary data collected for this purpose. The major findings in the study are related with challenges which affect the operations of micro-finances from internal, external and economic prospective. In general terms, the limited source of funds, ineffective and inefficient resource mobilization aggravated by weak human resource management practices are the major challenges hindering the institutions. In the same token, it is recommended that MFIs require financial inclusion products enabled with technology and fairly managed human resources for successful journey ahead. The regional state governments and many local NGOs are shareholders in these MFIs.