Analyzing Determinants of Financial Performance of Micro Finance Companies in Ethiopia from 2010-2018. Emperical evidence from Ethiopian Micro finance companies

Authors

  • Abdi Dereje AMANU Wollega University
  • M. Moses Antony RAJENDRAN Loyola College
  • Alexandru Mircea Nedelea Stefan cel Mare University of Suceava

Keywords:

Microfinance institutions, profitability, financial self-sufficiency, Ethiopia

Abstract

Microfinance institutions are proved to be a powerful tool for financial inclusion through financing entrepreneurial activities in rural and urban areas. However, to reach at their objectives, microfinance institutions need to be financially sustainable and sustainability largely depends on profitability. Given the above rationality, the purpose of this study is investigating determinants of microfinance institutions profitability in Ethiopia over a period of nine years (2010-2018) in the twelve purposively selected institutions. The study investigated eight microfinance institutions profitability indicators including debt equity ratio, liquidity ratio, operational self-sufficiency ratio, financial self-sufficiency ratio, portfolio at risk, loan loss reserve ratio, operating expense ratio and total assets (size). Profitability of microfinance institutions is measured by return on asset. Quantitative research approach was employed and secondary data were collected from the audited financial statements which were analyzed using multiple regression model. The results of the study show that operational self-sufficiency ratio, financial self-sufficiency ratio and total assets have positive significant relationship with return on assets of microfinance institutions whereas operating expense ratio, debt-to-equity ratio and liquidity ratio have negative significant effects on return on assets of microfinance institutions. However, portfolio at risk ratio and loan loss ratio has no significant effect on the profitability of microfinance institutions. The study recommends that microfinance institutions management shall focuses on ensuring the operational self-sufficiency, financial self-sufficiency and total assets (size) in order to increase their profitability. Moreover, due attention shall be given to well managing their operating expense ratio, debt equity ratio and liquidity ratio.

Author Biography

Alexandru Mircea Nedelea, Stefan cel Mare University of Suceava

Alexandru NEDELEA, Ph.D., is an Associate Professor of Marketing at the University Stefan cel Mare of Suceava, Romania. He has written extensively for a wide range of academic and professional audience: Small and Medium Enterprises in Contemporary Society (KMV, Germany), International Tourism: World Geography and Developmental Perspectives (Abhijeet Publications, New Delhi, India), Tourism Marketing (Derc Publishing House, Tewksbury, USA), Knowledge Management Practices, Comparative Tourism Marketing Case Studies (Abhijeet Publications, New Delhi, India). He is editor-in-chief of the journals Ecoforum and Revista de turism 9Journal of Tourism: Studies and Research in Tourism) and member of the editorial board of the journals Amfiteatru Economic (indexed in Thomson Reuters - ISI Web of Knowledge), International Journal of Leisure and Tourism Marketing, Journal of Tourism: An International Research Journal, Tourism Today, World Journal of Ecotourism, Tourism Issues, European Journal of Tourism Research, Environmental Economics. He has been accorded membership in scientific associations like International Association of Scientific Experts in Tourism, International Association on Public and Non Profit Marketing, Romanian Marketing Association, International Network for Research in Consumer Behaviour Studies, Regional Science Association International, World Research Club (WRC), American Society for Public Administration, European Association of Research on Services (RESER), Marketing and Tourism Research Interest Committees - EuroMed Research Business Institute (EMRBI), Centre International de Recherche et d`Etudes Touristiques (CIRET). He is coordinator of Asian Studies Club Romania-China (www.romania-china.ro), Voyage Club (www.clubvoiaj.ro), Bucovina Tourism Marketing Center (www.tourisminbucovina.ro), Volunteer Order (www.ordinulvoluntarilor.ro) and Marketing Club (www.marketingclub.ro)Contact:E-mail: alnedelea(at)yahoo.com Stefan cel Mare University of Suceava, Romania Faculty of Economic Sciences and Public Administration Economy, Business Administration and Tourism Department 720229, Suceava, 13, Universitatii Street Phone: + 40 230 522978 int.297

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Published

31.01.2021

Issue

Vol. 10 No. 1 (2021)

Section

Accounting, Finance, Statistics and Economic informatics

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