Performance Analysis of a Sample Microfinance Institutions of Ethiopia

Topics: Poverty, Debt, Ratio Pages: 27 (8617 words) Published: August 6, 2010
International NGO Journal Vol. 4 (5), pp. 287-298, May, 2009 Available online at http:// ISSN 1993–8225 © 2009 Academic Journals


Performance analysis of a sample microfinance institutions of Ethiopia Letenah Ejigu
University Business School, Panjab University, Chandigarh, India. E-mail: Accepted 20 May, 2009

The purpose of this study is to appraise the performance of Ethiopian MFIs in terms of various criteria by comparing with the Micro banking Bulletin (MBB) benchmark and for some relative ratios comparison among themselves. The MF industry as a whole is challenged by the need to reach the poorest customers and at the same time being financially self sufficient. Although the industry as a whole is growing at a faster pace still the two critical questions of reaching the poor and building a financially sustainable MF industry that walk on their own leg freely are empirical questions. This research, although will not solve these crucial questions, will at least contribute to researchers, practitioners and policy makers by showing where the Ethiopian MFIs are lying on the outreach to the poor, sustainability, and a couple of other performance dimensions. Data for the research are taken from the MIX Market website. Although the actual number of Ethiopian MFIs is around 27 as per National Bank of Ethiopia database, I have data access online only for 16 MFIs from the MIX Market website. Hence the sample constitutes these 16 MFIs. For data analysis, I have used one sample t test, one way ANOVA with Scheffe Post Hoc Comparison tests, Kruskal-Wallis test and Pearson correlation coefficients. The result of the study indicates that Ethiopian MFIs in general are poor performers on depth of outreach. They are not reaching the poorest of the poor. They are also poor in terms of the ratio of GLP to assets, allocating a lower proportion of their total assets in to loans. They are also not using their debt capacity properly. The large and smaller MFIs are allocating more loan loss provision expense than the industry average and the related PAR is high for these MFIs. All the MFIs are good at breath of outreach, cost management, efficiency and productivity. They also charge low interest rates. The profitability and sustainability of the MFI depend on their size. From a simple correlation analysis it is found that there is a tradeoff between serving the poor and being operationally self sufficient. MF age correlates positively with efficiency, productivity, the use debt financing (commercialization) and OSS. It is also found that the use of debt financing makes firms more efficient and productive. Key word: Ethiopian MFIs, MF industry, microfinance institutions. INTRODUCTION Microfinance is the provision of financial serves to the poor people with very small business or business projects (Marzys, 2006). Only a small fraction of the world population has access to financial instruments, essentially because commercial banks consider the poor people as unbankable due to their lack of collateral and information asymmetries. There are a number of studies in the MF industry because it has got the attention of academicians and practitioners as an innovative method of fighting poverty. The studies mostly concentrate on three key areas. The first one is impact assessment of the MF programs on the lives of the poor. It is to mean that whether the provision of financial service mostly of credit and saving has improved the lives of the poor in terms of economic, social and political indicators of poverty. Using much type of quasi experimental designs the studies about the impact of the microfinance in changing the lives of the poor have shown mixed results (Hishigsuren, 2004). Sebstand and Chen, 1996 cited in Hishigsuren, 2004 summarized the key findings from thirty two impact studies and revealed varying degree of positive impact on program participants notably increase in household...
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