DIRE DAWA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANACE

POST GRADUATE REGULAR PROGRAM

DETERMINANTS OF FINANCIAL SUSTAINABILITY OF MICROFINANCE:

AN EMPICAL EVIDENCE FROM ETHIOPIAN MICRO FINANCE
INSTITUTIONS

A THESIS PROPOSAL SUBMITTED TO PARTIAL FULFILLMENT OF THE

REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE IN
ACCOUNTING AND FINAN

February, 2022

DIRE DAWA, ETHIOPIA

1
Abstract
Microfinance is a source of financial service for entrepreneurs and small businesses lacking
access to banking and related services. It is striving to serve the poor as a primary motive of
their existence. In doing so they need to stay long and serve the poor continuously. Ultimately,
the goal of microfinance is to give low income peoples an opportunity to become self-sufficient
for their entrepreneurship development. However, to reach their objectives, microfinance
institutions need to be financially sustainable and sustainability largely depends on their
profitability. The study will be conducted to find out the factors which affect the financial
sustainability of micro finance institutions in Ethiopia. such as, Age of a microfinance, yield on
gross loan portfolio, liquidity ratio, Capital to asset, debt to equity, Cost per borrower, Deposit
mobilization, operating expense and inflation using the explanatory research methods and
multiple linear regression method on the given panel data. The researcher will use quantitative
research approach based on a 10 years secondary data collected from 10 micro finance
institutions which had above 50,000 active borrowers covering from 2012-2021. The secondary
data will be collected from the annual report of the Association of Ethiopian Micro Finance
Institutions and audited annual financial statement of the MFIs submitted to the national Bank of
Ethiopia. So, the ways of serving the borrowers at the lowest possible cost, be able to utilize their
short term assets to generate more cash and financial revenues and finally it will be recommend
that they should increase the value of their total assets.

Determinants, financial sustainability, Micro finance

Table of Contents
Abstract.......................................................................................................................................................i
Lists of tables.............................................................................................................................................iv
2
List of Acronyms........................................................................................................................................v
CHAPTER ONE: - INTRODUCTION....................................................................................................1
1.1. Background of the Study....................................................................................................1
1.2. Statement of the Problem...................................................................................................3
1.3. Objectives of the Study.......................................................................................................5
1.3.1. General Objective....................................................................................................................5
1.3.2. Specific Objectives...................................................................................................................5
1.4. Research Hypotheses..........................................................................................................5
1.5. Significance of the Study....................................................................................................6
1.6. Scope of the Study...............................................................................................................7
1.7. Limitations of the Study.....................................................................................................8
1.8. Organization of the study...................................................................................................8
CHAPTER 2:-LITERATURE REVIEW................................................................................................9
2.1. Introductions.......................................................................................................................9
2.2. Theoretical Review..............................................................................................................9
2.2.1. Definition of Micro finance.....................................................................................................9
2.2.2. History of Microfinance........................................................................................................10
2.2.3. The Need for Microfinance...................................................................................................11
2.2.4. Microfinance Institutions and their development in Ethiopia............................................12
2.2.5. Perspectives of performance measure..................................................................................13
2.3. Sustainability of micro finance........................................................................................15
2.4. Determinants of financial sustainability.........................................................................16
2.4.1 Internal factors.......................................................................................................................16
2.4.2 External factors (macro-economic factors)...........................................................................21
2.5. Empirical Review..............................................................................................................21
2.6. Research Gap.....................................................................................................................23
2.7. Conceptual Framework of MFIs sustainability.............................................................24
CHAPTER THREE:-RESEARCH DESIGN AND METHODOLOGY.............................................26
3.1. Area Description of the Study..........................................................................................26
3.2. Research approach............................................................................................................26
3.3. Research Design................................................................................................................26
3.4. Population /universe/, sample and sampling technique.................................................27
3.4.1. Target Population/ universe..................................................................................................27

3
 3.4.2. Sampling Frame.....................................................................................................................27
3.4.3. Sample Size and sampling techniques..................................................................................28
3.5. Source of Data...................................................................................................................29
3.6. Data Analysis...................................................................................................................29
3.7. Model Specification...........................................................................................................30
3.8. Operational Definition......................................................................................................31
3.8.1. Dependent Variables..............................................................................................................31
3.8.2. Independent Variables..........................................................................................................32
3.9. TIME AND BUDGET SCHEDULES.............................................................................36
3.9.1. Work Plan..............................................................................................................................36
3.9.2. Cost budgets/ logistics.................................................................................................37
REFERENCES........................................................................................................................................38

Lists of tables
Table 3.1 the list of selected micro finance institutions

4
 Table 3.2: Variable Description (Dependent Variables)
Table 3.3: Variable Description (Independent variable)
Table 3.4: time schedule of the thesis
Table 3.5: budget division of the thesis

List of Acronyms
ACCION………………..…….Americans for Community Cooperation in Other Nations

AEMFI……………………….Association of Ethiopian Microfinance Institutions

5
ACSI………………..……….. Amhara Saving and Credit Institution

BG…………………..…….… Busa Gonofa

CGAP………………...…..... Consultative Group to Assist the Poor

CPB………………..…....…. Cost per Borrower

DECSI …………………..…. Dedebit Credit and Saving Institution

FSS…………………….…...Financial Self-Sufficiency

LR…………………………Liquidity Ratio

MFIs………………………..Microfinance Institutions

NBE…………………………National bank of Ethiopia

NGO………………………..Non-Governmental Organization

OCSSC…………………….. Oromia Credit and Saving Share Company

OER…………………………Operating expense Ratio

OMFI………………………….Omo Microfinance Institutions

PEACE………………………. Poverty Eradication and Community Empowerment

ROA ………………………….Return on Asset

ROE ………………………….Return on Equity

SFPI……………………………Specialized Financial and Promotional Institution

SMFI………………………......Sidama micro finance institution

USAID……………………….United States Agency for International Development

CHAPTER ONE: - INTRODUCTION

1.1. Background of the Study
Microfinance institutions are striving to serve the poor as a primary motive of their existence. In
doing so they need to stay long and serve the poor continuously. Though most of the MFIs in
Ethiopia are found to be not even operationally self-sufficient. Therefore the study is conducted
6
to determine the financial sustainability (FSS) of sample Microfinance Institutions (MFIs) found
in Ethiopia (Melkamu 2012). Micro finance is the provision that provides access to various
financial services such as credit, savings, micro insurance, remittances, leasing to low income
clients including consumers and the self-employed, who traditionally lack access to banking and
related services. Micro finance allows people to take on reasonable small business loans safely,
and in a manner that is consistent with ethical lending practices. Microfinance is the provision of
financial service to the poor people with very small business or business projects (Marzys, 2006).

Microfinance institutions play a significant role in alleviating poverty in a country where the
society has no or limited access to financial service provisions. Because of these and other
important missions, they have attracted the attentions of different institutions especially donors
which have missions to end poverty in the world. Donors and institutions want to evaluate the
performance of an MFI weather they reach the poor society and are working towards achieving
the mission for which they are established for. These institutions, to continue serving the poor
societies, their profitability and sustainability should be measured, because they need to be
operationally and financially sustainable. Among the available measures, operational self-
sufficiency and financial self-sufficiency are the major profitability and sustainability
measurement variables (Melkamu 2012).

Globally, microfinance started in Bangladesh and parts of Latin America in the mid-1970s to
provide credit to the poor, who were generally excluded from financial services (CGAP, 2006).
The first organization to receive attention was the Green Bank, which was started in 1976 by
Mohammad Yunus in Bangladesh. The modern Microfinance revolution began in the 70s when
Dr. Yunus, a Nobel Prize winner economist, created this innovative concept of lending. He
studied poor individuals in a village named Jobra in Bangladesh. He discovered that the poor
could not change their economic situation because they lacked access to capital due to exclusion
from the financial system. In response to their need for capital, Grameen Bank was established
with the vision to alleviate poverty and reach those regarded as “Nonbankable” (Jalal & Sahar.,
2020; Mia, 2016).

In Africa, the Nigerian government reminded this popular thinking in 2005 when it initiated the
Microfinance banking scheme. This was founded to provide finance to the economically poor
and excluded from financing by conventional banks, provide employment, stimulate rural

7
development and reduce poverty. In Ethiopia, Microfinance was started after issuing the
proclamation of licensing and supervision of Microfinance institutions (Proclamation number
40/1996) E.C or 40/ 2004 G.C. After the issuance of this proclamation, 41 Microfinance
institutions (MFIs) have been licensed by the National Bank of Ethiopia.

The problem is particularly severe in developing countries, such as Ethiopia, mainly for two
reasons. First, most of the conventional banks in the country are concentrated in urban areas,
while more than 80% of the population is rural. Second, whenever available, the formal banking
sector systematically excludes the rural poor due to the higher screening, monitoring, and
enforcement costs of providing a small loan. Moreover, most poor have few or no assets that can
be secured by a bank as collateral (Shu and Oney 2014).

The term microfinance could be defined as not simply banking; rather it involves making
financial resources available to the productive poor. It must be pointed out that for microfinance
to perform a creditable function as a poverty reduction and development tool, governance is of
critical importance. The main distinctive characteristics of MFIs in the financial market include,
but are not limited to, the following: (1) they provide financial services to the poor, who are
usually not considered to be creditworthy by banks; and (2) they solve the problem of
information asymmetry and ease collateral requirements by establishing strong personal
relationships, which generates social collateral (Assefa et al. 2013; Postelnicu and Hermes 2018).

Financial sustainability measures how well a MFI can cover its costs taking into account
adjustments to operating revenues and expenses (Bruett et al., 2005). The importance of the
financial sustainability of MFIs originated an imperative debate between the financial systems
approach and the poverty lending approach. The latter emphasizes lending to the poorest of the
poor, while the financial systems approach focuses on lending to the creditworthy among the
economically active poor people with the ability to use small loans and the willingness to repay
them and on voluntary savings mobilization. However, most of the MFIs are facing a major
problem of attaining sustainability. Sustainability is the ability of microfinance institutions to
cover their operating and other costs from generated revenue, provide for profit and operate
without external help or donation (Odowa and Ali 2019).

Therefore, analyzing determinants of financial sustainability of MFIs is necessary to address

maintaining the sustainability of MFIs, so that they would be able to reach more disadvantaged
8
society in a financially sustainable way. This study aims to examine and provide an in-depth
analysis of the determinants of financial sustainability of MFIs in Ethiopia.

1.2. Statement of the Problem

Micro finance institutions play a great role in supporting the economic activities of the rural and
urban poor in developing countries. Studies show that African MFIs are important actors in the
financial sector, and they are well positioned to grow and reach the millions of potential clients
who currently do not have access to mainstream financial services (Lafourcade et al., 2005).

This study focuses on determining the factors affecting the financial sustainability of micro
finance institutions in Ethiopia. Several studies have been conducted to determine the factors
affecting financial sustainability of MFIs in different countries, but the studies are few in number
and couldn’t give an emphasis to investigate factors that determine their financial sustainability
in Ethiopia. However the determinants are found to be significant in one country or economy or
MFI, they may not be significant for others. Even though, the topics, scopes, comprehensiveness
and depth vary, of Empirical studies have been conducted in Ethiopia in relation to the
microfinance industry.

A major problem facing MFIs is how to attain sustainability. Today many key players in the
industry use sustainability as one core criteria to evaluate the financial and operational
performance of MFIs besides the outreach and impact measures. Most large and medium MFI in
Ethiopia are attached and supported by the regional government as well as national and
international NGOs. The question is what is the future of these MFIs when the donations and
supports are over? Along this line Randhawa and Gallardo (2003) posit that it does not seem
likely that most MFIs will be able to sustain their operations without continued donor support for
funding and technical assistance. This leaves the future of the microfinance institutions in
uncertainty. Thus an important question here is what should be done to make these MFIs
sustainable and hence ensure sustainable provision of microfinance services and sustainable
poverty reduction through outreach. The first step in doing this is to understand the factors
affecting financial sustainability.

From different researchers that have been used the same variable on the same tittle but different
results on different location. For example Molyneux (2012) in canada and Wafula (2016) in
Kenya financial sustainability of micro finance institutions recommended that the liquidity ratio
9
had a negative influence on financial sustainability of microfinance institution but Bourke (2011)
in Colombia showed that Liquidity ratio and debt to equity ratio had a positive influence on
sustainability of microfinance institution. The researcher tests the liquidity ratio has positive
effect and debt to equity ratio has negative effect on financial sustainability to reduce the gap
between location variable. Teninet (2020) study operational and financial sustainability of micro
finance and Abiyu (2016) investegated financial sustainability of micro finance institutions
showed that the Yield on Gross Loan portfolio had a positive effect on the financial
sustainability of the microfinance institutions however on the same variable but different title
Abebaw (2014) did determinants of financial performance said that Yield on Gross Loan
portfolio had a negative effect on the financial sustainability of the microfinance institutions. The
same variables and the same titles but different on time shows different results. For Example
Teninet (2020) had a positive significant relationship between debt to equity ratio and financial
sustainability but melkamu (2012) and Abdi et al (2021) results indicate that debt to equity ratio
had a negative significant on financial sustainability. So the researcher wants to find out uniform
and consistent explanation of the same dependent and independent variable.

Therefore, determining factors of financial sustainability of Microfinance Institutions in Ethiopia

has roots in the existing literature but it needs further research and exploration especially in
Ethiopian case. Because, the empirical literature shows the problem is done with limited
explanatory determinant factors and focused on the performance of the MFIs with descriptive
statistics. The researcher has tried his best to find comprehensive results which helped to address
the objectives of the study. However, the above resistant factors make this study difficult; the
researcher hopes that readers will get some valuable ideas from the outcome of this study. To fill
this gap, this study will be tried to identify the major variables namely Age of a microfinance,
yield on gross loan portfolio, liquidity ratio, Capital to asset, debt to equity, Cost per borrower,
Deposit mobilization, operating expense and inflation as put a comprehensive and detail analysis
on the determinants of financial sustainability of MFIs in Ethiopia.

1.3. Objectives of the Study

1.3.1. General Objective
The main objective of this study will be to identify factors affecting financial sustainability of
microfinance institutions in Ethiopia.

10
1.3.2. Specific Objectives
In trying to determining the factors affecting the financial sustainability of microfinance
institutions, this study has specifically tried to address the following specific objectives:

 To identify the factors affecting the financial sustainability of microfinance institutions.

 To examine as which variables significantly affects financial sustainability of micro
finance institutions.
 To identify whether internal or external variables are significantly affecting the financial
sustainability of micro finance institutions.

1.4. Research Hypotheses

In order to achieve the objectives of the study, a number of hypotheses will be tested
regarding the determinants of financial sustainability of Ethiopia MFIs relying on different
empirical research and theoretical review. Accordingly, there are nine hypotheses which are
included:

H1: Age of a microfinance institution is significantly and positively related to financial self-
sufficiency.

H2: There is the positive relationship between yield on gross loan portfolio and financial self-
sufficiency of microfinance institutions.

H3: There is a significant positive relationship between liquidity ratio and financial self-
sufficiency.

H4: Capital to asset ratio of a microfinance institution is significantly and positively related to
financial self-sufficiency of MFIs in Ethiopia

H5: There is a negative significant relationship between debt to equity ratio of microfinance
institutions and Financial Self-Sufficiency of Ethiopian MFIs

H6: Cost per borrower is negatively related to financial self-sufficiency.

H7: There is a positive significant relationship between deposit to loan ratio of microfinance
institutions and financial self-sufficiency of MFIs in Ethiopia

H8: There is a negative significant relationship between operating expense ratio and financial
self-sufficiency.
11
H9: There is a negative significant relationship between inflation rate and financial self-
sufficiency of MFIs in Ethiopia.

1.5. Significance of the Study

Previous studies on the determinants of financial sustainability on micro finance institutions in
Ethiopia have been insufficient and they are limited in numbers. This research will be conducted
to determine the determinant factors that affect the financial sustainability of microfinance
institutions in Ethiopia. Therefore, one of the most important things that MFIs obtain from the
result of this particular study is that they will clearly know and understand the factors affecting
their financial sustainability. If there is a clearer understanding by MFI in the factors that affects
their financial sustainability, they will give greater attentions to these factors and strive to
manage them properly in order to make themselves financially self-sufficient.

This research is also aimed to assist microfinance practitioners in measuring the financial and
operational performances of MFIs and consequently to give some insights into how MFIs
financial performances could be improved by showing gap. The other significance of this study
is, indicated in the other section, to support further investigation on the area. Since, there are no
sufficient studies conducted on this area, this research will also help other researchers in two
ways. For one thing, it will provide a good literature for the study which may be conducted on
the same area. And for the other thing, to show directions in which other researchers should
follow to make further investigation on the sustainability of MFI.

Micro finance institutions play a significant role in meeting the financial needs of poor peoples,
farmers, household and micro entrepreneurial. The flows of financial resource from the micro
finance institutions help to improve living standard, educational level, health and financial
position of the poor segment of the society and reduce poverty. Hence micro finance helps in
contributing a lot towards the overall development of the economy. To achieve this stated
mission continually MFIs themselves have to be financially sustainable. Therefore, this study
would help the decision makers of MFIs to identify the determining factors for their financial
sustainability in general and in specific and give due attention for the factors.

Majority of Ethiopian population is poor and hence depend on MFIs as source of capital and
general finance. Since the study seeks to establish factors of sustainability of MFIs, it would

12
provide invaluable information to them indirectly, so that it would eventually help the MFIs to
manage the factors that significantly influence their sustainability.

The financial sustainability of micro finance in line with the objectives that is to improve the
living standard of the poor and promote the mass mobilization in the nation’s wealth creation as
well as initiate other capable Ethiopians to participate in playing their role in the different sectors
of the economy. On the other hand, the micro-financing effort is currently backed by foreign
donor countries and international agencies. So the effective coverage rate and service provision
is expected to generate more assistance in the short-run while sustainable financial resource must
be secured internally in the long-run. Besides, the government and pertinent offices have their
own responsibilities.

1.6. Scope of the Study

The scope of the study will be blocked based on the aims of the study, which are stated in the
above and focus on analyzing, identifying and investigating the determinants of financial
sustainability of micro finance in Ethiopia. Any discussion about the performance of
microfinance in alleviating global poverty should measure both financial success of the
organization along with the success in reaching the poorest of the poor and improving the lives
of the borrowers, and hopefully, through a multiplier affect the lives of many others in the
community. However, due to certain limitations like constraints of time and higher cost of
gathering primary data from the users, this study only focuses on determining the factors
affecting the financial sustainability of Ethiopian MFI. The study includes 10 micro finance
institutions which had more than 50,000 active borrowers. The researchers will be used
secondary annual data from those micro finance institutions for 10 years (from 2012-2021) in the
study.

1.7. Limitations of the Study

The major problem that the researcher will face during the process was actually lack of complete
information. As indicated in the other sections, this research will be purely dependent on the
secondary data which is obtained from the national bank of Ethiopia. There is no manner the
study could be done without any constraints. In this study primary data will not include such as
interviewing employees, and managers knowledge, experience, and opinions regard with
sustainability of micro finance. The study will be much better if it appropriate Furthermore this

13
limitation the study includes only ten years data and 10 micro finance institutions, Because of
lack of funds and time, it does not include all of the variables listed in each individual firm's
specific factors.

1.8. Organization of the study

This paper will be organized in to five chapters. The first chapter represents the back ground of
the study, statement of the research problem, objectives, hypothesis, significance, scope,
limitation and organization of the study. The second chapter deals with the details of theoretical
and empirical evidence of the scholars are identified. The third chapter includes the methodology
in general. It presents the research design, sampling techniques, data collection mechanism, data
analysis tool, operational definition for the variables used in this study and the expected effects
of the explanatory variables on the sustainability. And Chapter 4 will be holds the results and
discussion of the research analysis and chapter 5 will be includes the conclusion and
recommendation part of the study.

CHAPTER 2:-LITERATURE REVIEW

2.1. Introductions
It deals with theoretical and empirical literature reviews. The first section covers the definition,
history, needs, and performance of micro finance, sustainability of micro finance and
determinants of sustainability. The second section empirical literature reviews and third section
includes knowledge gap and the conceptual frame work of microfinance institutions.

2.2. Theoretical Review

2.2.1. Definition of Micro finance
The definitions of microfinance institutions given by various authors and organizations seem to
be different from one another, in essence they are similar. The term microfinance refers to the
provision of financial services primarily savings and credit to the low-income households that
don’t have access to commercial banks (Arsyad, 2005). Schreiner and Colombet (2001) define
14
microfinance institutions as “the attempt to improve access to small deposits and small loans for
poor households neglected by banks.” Therefore, microfinance institutions are understood in this
study as an entity engaged in the provision of financial services such as savings, loans and
insurance to low income people living in both urban and rural areas who are unable to obtain
such services from the formal financial sectors (Abdi D. et al. 2021).

Microcredit and microfinance are always used interchangeably, the difference arise from the fact
that microcredit only provides loans whereas microfinance has a broader meaning as it
comprehends also other financial services in addition to the provision of credit such as saving,
insurance, pension and payment services. The taskforce on supportive policy and Regulatory
Framework for Microfinance has defined microfinance as “Provision of thrift, credit and other
financial services and products of very small amounts to the poor in rural, semi urban or urban
areas for enabling them to raise their income levels and improve living standards”. The term
“Micro” literally means “small”. But the task force has not defined any amount. At the
meantime, the narrower definitions try to equate microfinance with microcredit, following early
practice of NGO credit schemes. Microcredit is the provision of small loans to poor households
and small business operators with or without guarantee (Sileshi 2015).

These services include loans, savings, insurance, and remittances. Micro-loans are given for a
variety of purposes, frequently for micro-enterprise development. The diversity of products and
services offered reflects the fact that the financial needs of individuals, households, and
enterprises can change significantly over time, especially for those who live in poverty. Because
of these varied needs, and because of the industry's focus on the poor, microfinance institutions
often use non-traditional methodologies, such as group lending or other forms of collateral not
employed by the formal financial sector (Melkamu T. 2012). Microfinance has been globally
accepted as one of the credible tools to alleviate poverty and financial inclusion in developing
nations (Chmelíková & Redlichová, 2020; Sun et al., 2020). The most important finding in the
world of finance did not come from the world of the rich or the relatively well-off. More
important than the hedge fund or the liquid-yield option note was the finding that the poor can
save, can borrow (can indeed decide on loans to fellow poor), and will certainly repay loans.
This is the world of microfinance (R. Srinivasan and M. S. Sriram, 2013).

15
Microfinance is a source of financial service for entrepreneurs and small businesses lacking
access to banking and related services. There are two main mechanisms for the delivery of
financial services to the clients. Such are: (1) relationship-based banking for individual
entrepreneurs and small businesses; and (2) group-based models, where several entrepreneurs
come together to apply for loans and other services as a group (Seifu A. and Desalegn K. 2018).
Lack of access to credit is generally seen as one of the main reasons why many people in
developing economies remain poor. Usually, the poor have no access to loans from the banking
system, because they cannot put up acceptable collateral and/or because the costs for banks of
screening and monitoring the activities of the poor, and of enforcing their contracts, are too high
to make lending to this group profitably (Teninet E. 2020).

2.2.2. History of Microfinance

The ideas and aspirations towards microfinance are not new. Small, informal savings and credit
groups have worked for centuries across the world, from Ghana to Mexico to India and beyond
(Helms, 2006). The Irish Loan Fund system, started in the early 1700s, is an early (and long-
lived) example. By the 1840s, this system had about 300 funds throughout Ireland (Helms,
2006). On the other hand in the early 1800s a financial organization that was credit association to
serve predominantly farmers in rural areas based on cooperative principles was founded by
Friedrich Wilhelm Raiffeisen in Germany and expanded rapidly within Germany and later since
it was successful also to the rest of Europe, North America and developing countries beyond
(Abebaw 2014).

In Bangladesh Professor Muhammad Yunus who was the Nobel Prize winner in 2006, disbursed
first loans from his own pocket to a group of rural women in Jobra in 1976 and successfully
developed the concept of microfinance with his Grameen Bank throughout the country and later
the whole world. The Grameen bank, which is now serves more than 2.4 million clients (94 % of
them women) and is a model for many countries (Ledgerwood, 1999). Other examples of early
pioneers besides Grameen Bank are ACCION International in Latin America, Self-employed
Women‟s Association Bank in India and many more (Helms, 2006).

Beginning in the mid-1980s, the subsidized, targeted credit model supported by many donors
was the object of steady criticism, because most programs accumulated large loan losses and
required frequent recapitalization to continue operating. It became more and more evident that

16
market-based solutions were required. This led to a new approach that considered microfinance
as an integral part of the overall financial system. Emphasis shifted from the rapid disbursement
of subsidized loans to target populations toward the building up of local, sustainable institutions
to serve the poor. In the early 1990s the term “microcredit” was replaced by “microfinance”
which included not only credits but also other financial services for poor people (Elia, M. 2006).

In Ethiopia, micro-credit started as a government and non-government organizations motivated

plan. Following the 1984/85 severe drought and famine, many NGOs started to offer micro credit
along with their relief activities although this was on a limited scale and not in a sustained
manner. Although the development of deposit-taking MFIs started only in 1996, the industry has
shown outstanding growth. Since 1996, NBE has registered 41 MFIs to deliver financial services
to the poor (Alemayehu, 2008).

2.2.3. The Need for Microfinance

Microfinance institutions play many roles in the development process. The need for
microfinance is also increasing in many countries. According to (Parker et al., 2000), in the right
environments, microfinance can accomplish many roles such as financer people’s economic
choices, diversifying household income, making household less vulnerable to downturn in the
economy or personal, smoothening income flows of the household, improve quality of life
throughout the year and strengthen the economic position of women so that they can take greater
control of decisions and events in their lives. In addition to this MF contributes in the process of
household asset building. It also provides savings service, allowing poor households to
accumulate safe, but flexible cash accounts to draw on when needed. Microfinance services lead
to women empowerment by positively influencing women’s decision making power at
household level and their overall socioeconomic status. By the end of 2000, microfinance
services had reached over 79 million of the poorest of the world. As such microfinance has the
potential to make a significant contribution to gender equality and promote sustainable livelihood
and better working condition for women (Noreen, 2011).

According to United Nations Millennium Development Goal (MDGs) microfinance is a strategy

to change the life of the poor people in terms of generating revenue to cover the necessary cost
and institutions meet the demand. Micro finances support the process of development by
changing the situation of the poor through facilitating different services which are necessary for

17
poor (United Nation, 2011). Likewise, Mutambanadzo, Bhiri, & Makunike (2013) described
microfinance as the supply of financial services to an impoverished population who traditionally
lack permission to financial services from conventional MFIs. The World Bank report of 2012
states that more than 75% of the poor populations globally who earn less than $2 per day are
unbanked or do not use a formal financial institution due to their lack of stable income and
absence of collateral (Kasenge, 2011). Despite the fact that MFIs are very helpful to the less
privileged population, many of these institutions face challenges that affect their operational and
productivity (Ousoombangi, 2018).

2.2.4. Microfinance Institutions and their development in Ethiopia

Financial Viability Indicators: Financial viability refers to the ability of the MFI to cover its
costs with earned revenue. A financially viable MFI will not rely on donor funding to subsidize
its operation. Common indicators here include financial spread, Operational Self Sustainability
(OSS), Financial Self Sustainability (FSS) and Subsidy dependence index (Ledgerwood, 1999).
In addition, many authors mentioned that the common financial viability indicators used in past
studies are Financial Self-Sufficiency (FSS), Operational Self-Sufficiency (OSS), and even the
profitability ratios such as Return on Asset (ROA), Return on Equity (ROE).
Profitability Indicators: These indicators measure the MFI net income in relation to the
structure of its balance sheet. Common measures include Return on Equity, Return on Assets,
and Return on Business. Most widely used indicators of Sustainability and Profitability includes:
Operational self-sufficiency, financial self-sufficiency, Adjusted return on equity and Adjusted
return on assets.
Portfolio quality indicator: Portfolio quality for MFIs are often measured by Portfolio at Risk
(PaR), which measures the portion of the loan portfolio “contaminated” by arrears as a
percentage of the total portfolio. A loan is considered to be at risk if the payment on it is more
than 30 days late. In 14 addition to Portfolio at Risk, we can also use Write-Offs, Provision
Expenses and Risk Coverage as portfolio quality indicators (Micro Rate & Inter-American
Development Bank, 2003).
Efficiency and Productivity ratio: To measure efficiency and productivity we can use
Operating Expenses, Cost per Borrower, Personnel Productivity and Loan Officer Productivity
as indicators (Micro Rate & Inter-American Development Bank, 2003). The performance of an
MFI can also be measured by the number of borrowers per staff. This is a ratio of borrowers to

18
staff indicating staff productivity. All things being equal the larger the number of borrowers a
staff serves the higher will be his or her productivity (CGAP, 2003). The efficiency refers to the
ability to produce maximum output at a given level of input, and it is the most effective way of
delivering small loans to the very poor in microfinance context (Woller, 2000).
2.2.5. Perspectives of performance measure
The different perspective on which the MF performance is to be measured has created two
opposing but having the same goals school of thought about the MF industry: the Welfarists and
the Institutionists approach. The movement has come to be divided by two broad approaches, or
opposing camps, regarding the best way to help the poor through access to financial services.
Jonathan Morduch (1999): as sited by Sileshi, (2015) refers to this division as the microfinance
rupture. The irony is that while the worldviews of each camp are not inherently incompatible,
and in fact there are numerous microfinance institutions that appear to embrace them both, there
nonetheless, exists a large rift between the two camps that makes communication between them
difficult. Here under the ideologies of the two schools of thought are discussed.

The Welfarist School: Self-employment of the poorer of the economically active poor,
especially women is their main objective. Their interest depends in the “family” and they give
more emphasis on the depth of outreach (the levels of poverty reached). They are more
concerned with the use of financial services to minimize the effects of acute poverty among
individual participants as well as communities. The focus of this school of thought is on the
unexpected improvement in the well-being of participants. Though there are significant lines of
differences between the two schools of thought, they have some similarities as well. In as much
as the two approaches seek to solve the problem of financial needs of the poor, microfinance
activities should aim at achieving the objectives of the two approaches (Nelson, 2011).

The welfarist approach focuses on depth (number of clients reached) rather than breadth of
outreach (poverty level of clients) and accept subsidies on an ongoing basis. Welfarists accept
subsidies as they believe and focus that if sustainability is considered as a necessary requirement,
the accomplishment of the social mission of microfinance is at risk. The center of attention is
now the clients that are served rather than the institution or developing self-sustained industry
and also the welfarist accept the subsidies or required subsidies on ongoing basis and this school
not just focuses on financial self-sufficiency as a necessary tool (Elia, M. 2006).

19
Institutionist: According to the Institutionist school thought financial deepening is the main aim
of microfinance. That is, the setting up of a separate system of “sustainable” financial
intermediation for the poor who are either neglected or are underserved by the formal financial
system. The institutionists focus and believe that in order to effectively fight the problem of
poverty, it is necessary to build a microfinance industry as a system in which able to reach a
large number of people. The activists of this school of thought give emphasis to more on the
achievement of financial self-sufficiency, breadth of outreach (numbers of clients), depth of
outreach (levels of poverty reached) and positive client impact. The interest of the approach is
that the institutions abstain from all kinds of subsidies as they insist on financial self-sufficiency
(Nelson, 2011).

The debate between the two schools of thought is endless and today many players in the MF
industry use both the Welfarists and Institutionist perspective to assess the performance of MFIs.
For many years the MFI industry was operating with subsidy from donors and governments but
there is now a pressure on these organizations to be financial sustainable. However, it seems that
serving the poor and being financially self-sufficient seems contradictory. Various arguments are
forwarded: the poor can't pay high interest rate, if the poor consume it has no collateral, there is
big transaction cost in serving the poor. But these assumptions are falsified in the last 20 years
and the poor is seen as capable of paying high interest as ROI of small projects are larger than
large projects, the poor don’t consume the money rather use it for financing his/her business,
transaction cost barriers are mitigated by the creation of group lending, absence of physical
collateral is mitigated by social capital.

2.3. Sustainability of micro finance

Sustainability is loosely defined as the ability of a MFI to cover its operating and other costs
from generated revenue and provide for profit. It is an indicator which shows how the MFI can
run free of subsidies (Sileshi, 2015).

In micro-finance, sustainability can be considered at several levels of institutional, group, and

individual and can relate to organizational, managerial, and financial aspects. However, the issue
of financial sustainability of microfinance institutions has attracted more attention in mainstream
analysis for its contribution to poverty reduction. This change in emphasis has created a different
perspective on the analysis of performance of the MFIs. Today many key plays in the industry

20
use sustainability as one core criteria to evaluate the performance of MFI besides the outreach
and impact measures described earlier (Kimando, et al., 2012).

Sustainability is the ability to cover annual budgets including grants, donations, and other
fundraising. Sustainability is the way that a rural financial institution is sustainable if it is willing
and able to provide self-reliantly and permanently financial services to the rural poor without
external assistance or after assistance by donors or government has ended (Pollinger, et al.,
2007). Financial sustainability is when MFIs can also cover the costs of funds and other forms
of subsidies received when they are valued at market prices. It is measure by dividing business
revenue excluding grants for operating expenses. One of the greatest challenges facing non-profit
organizations in developing countries is that of obtaining critical funds to carry out the necessary
activities to fulfil their mission. These challenges exist at the local or national, and the
international level (Sileshi 2015).

Thus, as mentioned by AEMFI, (2014),financial sustainability is MFIs’ ability to cover all costs
on adjusted bases and indicate its capability to operate without ongoing subsidies including soft
and grants. The adjustment goes to inflation, loan loss provisioning and cost of capital. Meyer
(2012) believed that financial self-sufficiency is a high standard measure of sustainability and
brings long term perspectives for MFI operations than operational self-sufficiency. According to
him the poor needed to have access to financial service on long-term basis rather than just a
onetime financial support. Microfinance is said to be an effective instrument discovered in 21 st
century to mitigate rural poverty in the world (Ramanaiah and Mangala, 2011).

2.4. Determinants of financial sustainability

The determinants of financial sustainability determines the variables of the sustainability of
microfinance institutions which are conducted by different researchers all around the world.
Different studies by different authors, specifically on the determinants of financial sustainability,
found different results developing empirical evidence for the independent variable that the
researcher think may affect the financial sustainability of microfinance institutions in Ethiopia.
Internal and external factors can have an impact on micro finance institutions.

21
2.4.1 Internal factors
Internal factors are factors within an organization that can be controlled by the management of
the micro finance. It emphasize the micro finance character. The following are internal factors
that affect micro finance institutions.

a. Age of MFI

The Age of microfinance institutions refers to the period that an MFI has been in operation since
its initial inception. Sustainability could also relate to the age of MFI. The age refers to the
period that an MFI has been in operation since its initial inception.

The finding by Nyamsogoro (2010) indicates that there is no significant relationship between
MFIs‟ age and financial sustainability. And therefore, it concludes that, MFIs‟ age does not
improve its financial sustainability. With regard to the relationship between age of MFI and
Operational sustainability, findings by Nadiya (2011) shows that it is not significant in
explaining the changes in OSS. This study will look at whether there is a relationship between
the age of a microfinance and financial sustainability in Ethiopia. The findings by melkamu
(2012) explains that age of a microfinance institution is significantly and positively related to
operational self-sufficiency and financial self-sufficiency in Ethiopia.

b. Yield (Yield on Gross Loan portfolio)

Portfolio yield is a percentage that shows the average gross returns as a proportion of the
portfolio outstanding. Generally speaking, Portfolio Yield is the indicator of an institution's
ability to generate revenue with which to cover its financial and operating expenses. It measures
how much the Microfinance Institution (MFI) actually received in interest payments from its
clients during the period. It also provides an insight into portfolio quality. If the MFIs use cash
accounting here, the Portfolio Yield will not include the accrued (interest and fee) income that
delinquent loans should have generated, but did not. For Portfolio Yield to be meaningful, it
must be understood in the context of the prevailing interest rate environment the MFI operates in.

The yield on gross loan portfolio (yield) indicates the efficiency of microfinance institutions in
generating cash revenue from their outstanding portfolio. It measures all interest and fees
charged on loans outstanding over a period (the measure of average interest rates on loans to
customers). In order to remain sustainable, Nadiya (2011) suggested MFI managers shall set the

22
interest rates of the MFIs, such that it covers its total cost; comprising of cost of funds,
transaction cost and default costs. Therefore, the sustainability of microfinance depends on how
much interest income they earn from their operation.

The finding by Ganka (2010) indicates that there is a significant positive relationship between
the yield on gross loan portfolio and financial sustainability. This provides evidence that the
efficiency of microfinance institutions in generating cash revenue will positively affect their
financial sustainability. A study by Rombrugghe, et al., (2007) as sited for the purpose of this
study indicates; the yield affects the financial self-sufficiency (FSS) of a microfinance
institution. It has indicated that the relation between yield and FSS is immediate and positive
through interest and fee revenues. On their research of determinants of financial self-sufficiency,
Woller and Schreiner, have indicated that the real portfolio yield were robustly statistically
significant in affecting the financial self-sufficiency of microfinance institutions.

Rombrugghe et al., (2007) concluded that interest rates charged to borrowers affect the financial
performance of microfinance institutions‟ overall sustainability (Financial self-sufficiency or
Operational self-sufficiency) this is also supported by the study of Conning (1999) that the
financial sustainability is associated with higher interest rate.

¿
Yield on Gross loan Portfolio = Adj . financial revenue ¿ Loan Portfolio Adj . average GLP

c. Liquidity Ratio (Current ratio)

Liquidity ratios are a set of ratios or figures that measure a company’s ability to pay off its short-
term debt obligations. This is done by measuring a company’s liquid assets (including those that
might easily be converted into cash) against its short term liabilities. There are a number of
different liquidity ratios, which each measure slightly different types of assets when calculating
the ratio. More conservative measures will exclude assets that need to be converted into cash.
The greater the coverage of liquid assets to short-term liabilities, the more likely it is that a
business will be able to pay debts as they become due while still funding ongoing operations.

On the other hand, a company with a low liquidity ratio might have difficulty meeting
obligations while funding vital ongoing business operations. There are three fundamental
liquidity ratios that can provide insight into short-term liquidity: current, quick, and cash ratios.

23
This work considers the current ratio which is measured as the proportion of assets available to
cover current liabilities, (Current assets divided by Current liabilities).

As per the finding by Nyamsogoro (2010) the coefficient for liquidity ratio variable is positive
and statistically significant at 5 percent significance level. This indicates that, the microfinance
liquidity level affects their financial sustainability, and that holding all factors constant, the
higher the liquidity, the more financial sustainable MFI will be.

current asset
Liquidity Ratio =
current liabilities

d. Capital to Asset Ratio

The capital to assets ratio is a simple measure of the solvency for the financial institution. It is
used to assets an MFI’s ability to meet its obligations and absorb unexpected losses. For the
regulated MFIs, there is a minimum solvency requirement stipulated by the regulator. The
requirement of minimum capital to assets ratio depends on MFI’s assessment of its expected
losses and its financial strength to absorb such losses. Expected losses should be covered through
provisioning under the MFI’s accounting policies. The capital to asset ratio measures the amount
of capital required to cover additional unexpected losses and ensure that the MFI is well
capitalized for potential shocks. Some lenders or investors may stipulate minimum capital to
assets ratio for which they invest MFIs. According to the Consultative Group to Assist the Poor
(CGAP), MFI should be subject to even higher capital maintains a ratio than banks in the light of
risks and vulnerability of MFI loan portfolio.

e. Debt to Equity ratio (Leverage ratio).

Debt to equity ratio is calculated by dividing total liabilities by total equity. Total liabilities
include all the MFI owes to others, including deposits, borrowings, accounts payable and other
liabilities. Whereas total equity is total asset less total liability. It is the simplest and best known
measure of capital adequacy because it measures the overall leverages of the institutions
(AEMFI, 2014).

Total debt
Leverage ratio =
Shareholder ’ s equity .

f. Cost per Borrowers

24
The cost per borrower is defined as the operating expenses divided by an MFI’s average number
of borrowers. The finding by Ganka (2010) indicates that there is a negative coefficient but
statistically insignificant relationship between cost per borrowers and financial sustainability of
microfinance institutions in Tanzania. The insignificant effect of the staff cost per borrower on
the financial sustainability of microfinance institutions. On his finding concluded that the higher
staff pay, all things remain constant, could lead them to more leisure than in doing more work for
the MFIs‟ main business especial where facilitation for field visit is very low. This can also help
to explain why possibly the administrative expenses are positively related with financial
sustainability. The result of the study made by Yoshi et al (2011), the lower cost per borrower
implies that an MFI is more efficient to reduce the borrowing cost. Therefore, MFIs with a lower
ratio have a higher OSS, and negatively related to the FSS and OSS of a given MFI, leading to a
negative sign for the coefficient. However, Kipesha & Zhang (2013) noted that reduction of cost
per borrower enabled cooperatives MFIs in East Africa to attain the financial sustainability.

Adj .Operating Expense

Cost Per Borrower =
Adj . Ave . No. active borrowers

g. Average Disbursed Loan Size (Depth of outreach)

The average loan size (defined as the average gross loan portfolio divided by the number of
active borrowers) is a proxy for depth of outreach. Smaller loans are generally taken to indicate
greater depth of outreach. This variable measures the efficiency of microfinance institutions in
selling loans. The study by Nadiya (2011) on the relationship of the average loan size and
Operational selfsufficiency indicates a negative relationship between the two but statistically
significant. This variable is considered to see if Indian MFIs are improving their sustainability
levels by increasing their loan size, however, the negative relationship shows that poorer the
clientele better the sustainability. The finding by Rombrugghe et al (2007) shows the size of
loans or average loan per borrower affects financial self-sufficiency (FSS) of microfinance
institutions. Woller and Schreiner found that depth of outreach is inversely associated with
financial self-sufficiency.

Adj .GLP
Average Loan Balance per Borrowers =
Adj .number of Active borrowers

h. Deposit mobilization (Deposit to loan ratio)

25
Sustainability of MFIs depends on their saving mobilizing capacity. Deposit to loan ratio is an
important indicator for MFIs that mobilize deposits. Deposit to loan ratio measures that portion
of the MFIs’ portfolio funded by deposits. The higher the ratio the greater is the MFIs’ capability
to fund it loan portfolio from its deposits and enhances commercialization of microfinance
operation. Thus higher ratio brings down the cost of funds and helps MFIs to rely on internal
funding. Deposit mobilization has now becoming more important in Ethiopia as commercial
banks seem to be reluctant to fund MFIs’ portfolio through their debt. Some commercial banks
lent to MFIs, with strong third party guarantee (AEMFI, 2014).

i. Operating Expense Ratio

The operating expense ratio is the ratio of total operating cost to outstanding loan portfolio. The
lower the ratio, all things being equal, will imply efficiency. According to the finding of (Teninet
2020) the Operating expense ratio of a microfinance institution is significantly and negatively
related to financial self-sufficiency. It measures how an MFI’s management has been efficient in
reducing operating costs at a given level of operation. The lower the operating expense ratio will
indicate efficiency in microfinance institutions cost reduction strategy. (Ganka 2010) the
operating expenses ratio strongly affects the financial sustainability of microfinance institutions.

The more MFIs are efficient in reducing operating costs at a given level of outstanding loan
portfolio, the more profitable they become and, therefore, financially sustainable. The study of
Sri Lanka, Dissanayake (2012) determinants of operational self-sufficiency of microfinance
institutions, stated that there is strong significant negative correlation in Operating Expense Ratio
to Operational Self Sufficiency Ratio. This indicates that, change in Operating Expense Ratio, is
negatively contributing towards changes in Operational Self Sufficiency Ratio significantly.

operating expense
Operating Expense Ratio =
gross loan portfolio

2.4.2 External factors (macro-economic factors)

The external determinants are variables that are not associated to micro finance management but
mirror the economic and legal environment that affects the operation and performance of
financial institutions. External factors concern with macroeconomics that affect the financial
sustainability of micro finance.

26
 a. Inflation rates

Inflation is a sustained increase in the general price level of goods and services in an economy
over a period of time. When the price level rises, each unit of currency buys fewer goods and
services. So there are a negative significant relationship between inflation rate and financial self-
sufficiency of MFIs in Ethiopia. In their empirical study Gwas & Ngambi (2014) also tested a
negative impact of inflation and a positive impact of GDP growth on the sustainability of MFIs.
According to them a positive result of GDP indicated that improving macroeconomic
performance raises overall income level and business performance which ultimately improves
clients repayment ability and hence sustainability of MFIs. They noted that the negative impact
of inflation on sustainability indicated that repayment levels are usually weak and low in the
presence of higher inflation rates.

2.5. Empirical Review

This section reviews studies previously done on determinants of financial sustainability of
microfinance institutions. Therefore, most large and medium MFI in Ethiopia are attached and
supported by the regional government as well as national and international NGOs. In our country
Ethiopia, there are very few researches conducted on the area of financial sustainability of
microfinance institutions. Even, as described in the other sections of this paper, these researches,
which are very few in number are not sufficiently measured the performance of MFI in the
country, because they are very weak in terms of statistical measures. However, the results of
some of them are indicated here under for the purpose of this particular study.

Regarding this concept and issue, Randhawa and Gallardo (2003) posit that it does not seem
likely that most MFIs will be able to sustain their operations without continued donor support for
funding and technical assistance. This leaves the future of the microfinance institutions in
uncertainty. Thus an important question here is what should be done to make these MFIs
sustainable and hence ensure sustainable provision of microfinance services and sustainable
poverty reduction through outreach. The first step in doing this is to understand the factors
affecting their operational and financial sustainability (Sileshi, 2015).

According to Gibson, (2012) has also conducted a research titled “determinants of operational
sustainability of micro finance institutions” in Kenya. Accordingly, the research revealed that the
factors that affect the operations and financial sustainability are capital/ asset ratio and operating
27
expenses/loan portfolio. The study also suggested the inclusion of these indictors along with
operational self -sufficiency to create sustainability index. On other hand, few studies have been
conducted in Ethiopia related to the financial performance of microfinance institutions.

Tilahun (2013) has done his research on the determinants of Financial Sustainability of
Microfinance Institutions in East Africa, by including the Ethiopia, and he included Loan
portfolio, size and management efficiency as significant determining factors for financial
sustainability of East African MFIs including Ethiopia. This study clearly fails to include more
determining factors for financial sustainability of MFIs in Ethiopia.

Yenesew (2014) studied determinants of financial performance on selected micro finance

institutions in Ethiopia and tried to incorporate different variables from different perspective
which is wider analysis of the MFIs performance. But, the research mainly focused on
profitability rather than sustainability by taking ROA as a dependent variable

Sileshi (2015) has excellent analysis of MFIs by using proxy of financial and operational
sustainability, however he entirely focused on internal factors such as loan size and number of
active borrowers leaving crucial variables in the case of Ethiopia such the influence as of some
components of MFIs’ funding sources (subsidies) and the number of borrowers and the impact of
macroeconomic variables such as GDP and inflation.

Abiyu (2016) studied Determinants of Financial Sustainability of MFIs in Ethiopia and tried to
incorporate different variables from different perspective which is wider determinants of the
sustainability of MFIs and investigate the independent variables like inflation rate, Operational
expense ratio, Cost per borrower is significantly and negatively relationship with financial
sustainability and Gross loan portfolio has a significant positive relationship with the financial
sustainability.

Teninet (2020) investigated determinants of operational and financial sustainability of MFIs in

Ethiopia. The Study considers FSS and OSS as a proxy by taking more explanatory financial
variables, Outreach and macroeconomic variables. The analysis also indicates that number of
borrowers and average loan size per borrower positively and significantly affect the operational
sustainability of MFIs in Ethiopia and debt to equity ratio and cost per borrower are found to be
strongly and negatively affect the operational self-sufficiency of MFIs. As the researcher try to

28
show on the above empirical studies different scholars reached different conclusion on the
determinants of sustainability of micro finance in our country Ethiopia.

2.6. Research Gap

Several studies have been conducted to determine the factors affecting financial sustainability of
MFIs in different countries, but the studies are few in number and couldn’t give an emphasis to
investigate factors that determine their financial sustainability in Ethiopia. However the
determinants are found to be significant in one country or economy or MFI, they may not be
significant for others. Even though, the topics, scopes, comprehensiveness and depth vary, of
Empirical studies have been conducted in Ethiopia in relation to the microfinance industry. To
mention few of the researches conducted on the area of MFIs.

From different researchers that have been used the same variable on the same tittle but different
results on different location. For example Molyneux (2012) in canada and Wafula (2016) in
Kenya financial sustainability of micro finance institutions recommended that the liquidity ratio
had a negative influence on financial sustainability of microfinance institution but Bourke (2011)
in Colombia showed that Liquidity ratio and debt to equity ratio had a positive influence on
sustainability of microfinance institution. The researcher tests the liquidity ratio has positive
effect and debt to equity ratio has negative effect on financial sustainability to reduce the gap
between location variable. Teninet (2020) study operational and financial sustainability of micro
finance and Abiyu (2016) investegated financial sustainability of micro finance institutions
showed that the Yield on Gross Loan portfolio had a positive effect on the financial
sustainability of the microfinance institutions however on the same variable but different title
Abebaw (2014) did determinants of financial performance said that Yield on Gross Loan
portfolio had a negative effect on the financial sustainability of the microfinance institutions.

The same variables and the same titles but different on time shows different results. For Example
Teninet (2020) had a positive significant relationship between debt to equity ratio and financial
sustainability but melkamu (2012) and Abdi et al (2021) results indicate that debt to equity ratio
had a negative significant on financial sustainability. So the researcher wants to find out uniform
and consistent explanation of the same dependent and independent variable.

Therefore, determining factors of financial sustainability of Microfinance Institutions in Ethiopia

has roots in the existing literature but it needs further research and exploration especially in
29
Ethiopian case. Because, the empirical literature shows the problem is done with limited
explanatory determinant factors and focused on the performance of the MFIs with descriptive
statistics. The researcher has tried his best to find comprehensive results which helped to address
the objectives of the study. However, the above resistant factors make this study difficult; the
researcher hopes that readers will get some valuable ideas from the outcome of this study. To fill
this gap, this study will be tried to identify the major variables namely Age of a microfinance,
yield on gross loan portfolio, liquidity ratio, Capital to asset, debt to equity, Cost per borrower,
Deposit mobilization, operating expense and inflation as put a comprehensive and detail analysis
on the determinants of financial sustainability of MFIs in Ethiopia. However, this study is aimed
to narrow the knowledge gap about the significant financial determinant factors of sustainability
of Ethiopian microfinance institutions by considering FSS as a proxy and by taking more
explanatory financial variables and macroeconomic variables.

2.7. Conceptual Framework of MFIs sustainability

All the MFIs are good at breath of outreach, cost management, efficiency and productivity. They
also charge low interest rates. The Ethiopian microfinance sector is characterized by its rapid
growth, an aggressive drive to achieve scale, a broad geographic coverage, a dominance of
government backed Microfinance Institutions (MFIs), an emphasis on rural households, the
promotion of both credit and savings products, a strong focus on sustainability and by the fact
that the sector is Ethiopian owned and driven (Ebisa, 2013). There has been a recent paradigm
shift in the micro-credit industry, from subsidized credit delivery programs to financially self-
sufficient institutions providing commercial microfinance (Sileshi 2015). Therefore, given the
broad role and objectives of MFIs, the MFIs themselves should exist sustainably. As a result, in
order to eradicate poverty, microfinance institutions should be sustainable. On the other hand, to
achieve sustainability, they should identify those factors contributing to their sustainability.
Therefore, the following conceptual framework will help the MFIs to understand on the financial
determining areas for their sustainability.

The researcher will be considered six explanatory variables such as, Age of a microfinance, yield
on gross loan portfolio, liquidity ratio, Capital to asset, debt to equity, Cost per borrower,
Deposit mobilization, operating expense and inflation rate was the explanatory factors that affect
microfinance institutions operating in Ethiopia. The study will be determine how the variables
listed above influence the financial sustainability of micro finance institutions in Ethiopia.
30
 Internal factors
AGE OF MFI, YGLP, OER,
CPB, LR, CAR, DLR, DER
Sustainability
Financial of MFIS
Sustainability

Financial Self-
Sufficiency

External factors
(macroeconomic)
Inflation rate

CHAPTER THREE:-RESEARCH DESIGN AND METHODOLOGY

This chapter will be deals with the type of research, descriptions of the study, research design,
target population, sampling frame, the sample size and sampling techniques, data source and
methods of collection. It starts with a description the research design used and followed by
research methodologies. Then lastly variables definition, model specification and presents the
econometric analysis approaches used for the regression.

3.1. Area Description of the Study

The study will be carried out to see the determinants of financial sustainability an empirical
evidence from Ethiopian microfinance. There are 41 micro finance institution exists in Ethiopia.
From the total of 41 MFIs in the country, it is only 10 of them will be selected with a data for the
years under consideration (2012-2021).

31
3.2. Research approach
The approach of this research will be focused on quantitative research methodology. Quantitative
research is based on the measurement of quantity or amount. It is applicable to phenomena that
can be expressed in terms of quantity (Kothari, 2004). Quantitative research is a means for
testing objective theories by examining the relationship among variables (Creswell, 2003).
Quantitative research is often regarded as being purely scientific, justifiable, and precise and
based on facts often reflected in exact figures. This approach often appears when the audience
consists of individuals or readers with a quantitative orientation.

3.3. Research Design

Research design is a master plan that specifies the methods & procedures for collecting and
analyzing of the needed information (Zikmund, Carr, & Griffin 2013). On the other hand
research design is the arrangement of conditions for collection and analysis of data in a manner
that aims to combine relevance to the research purpose with economy in procedure (kotare,
2014). There are three types of designing research study those are descriptive, exploratory &
explanatory research design. Therefore, this study's research design will be explanatory research
methods. The main objective of explanatory research design is used to identify any causal link
between the factors or variables that concern to the research problem. Hence, it examines the
cause and effect relationship between the determinants of financial sustainability (Age of a
microfinance, yield on gross loan portfolio, liquidity ratio, capital to asset ratio, debt to equity
ratio, Cost per borrower, deposit mobilization, operating expense and inflation rate) and financial
self sufficiency of microfinance, explanatory research will be employed for this study.

3.4. Population /universe/, sample and sampling technique

3.4.1. Target Population/ universe
A population refers to an entire group of individuals, events or objects having a common
observable characteristic. In other words, population is the aggregate of all that conforms to a
given specification (Mugenda & Mugenda, 2003). Population is defined as the complete set of
units of analysis that are under investigation, while element is the unit from which the necessary
data will be collected. The target population for this particular study are all the microfinance
institutions currently operating in the country. According to the statistics from the NBE, there are

32
41 microfinance institutions which are providing a microfinance service to the poor society in
Ethiopia on the current period.

3.4.2. Sampling Frame

Sampling frame is a (physical) representation of all the elements in the population from which
the sample is drawn (Sekaran & Bougie, 2011). Cooper (2011) also refers a sampling frame as a
source list containing all names of the universe. The sampling frame of this study will be the
Association of which regulates all MFIs in Ethiopia. A list of all the 41 Microfinance Institutions
obtained from the Association of Microfinance Institution formed the sampling frame for the
research as shown as the below.

The samples taken are believed to be representative to all microfinance institutions in Ethiopia
given their size and age. It will be grouped in to three depending on age of micro finance
institutions. Such as; (old, medium and young). Based on this, ASCI, ADSCI, Aggar, African
Village Financial Services (AVFs), Benishangul, Buusaa, DECSI, Digaf, Harbu, Gasha, Meklit,
Metemamen, OCSSC, OMI, PEACE, SFPI, Wasasa, Vision Fund, Shashemene, Eshet, Sidama,
Letta, Harar and Dire represent the largest and oldest microfinance institutions, Lefayeda and
Dynamic medium micro finance institutions and the left Somali, Lideta, Afar, Rays, Nisir,
Adeday and Debo are the young micro finance institution based on the duration of the started
services.

3.4.3. Sample Size and sampling techniques

A sample is a subset of the population; it comprises some members selected from it. Orodho
(2003) define a sample as part of the total population. Kothari (2014) describes a sample as a
collection of units chosen from the universe to represent it. According to Kombo and Tromp
(2009) also define a sample as a finite part of a statistical population whose properties are studied
to gain information about the whole or universe. A sample of a subject will be taken from the
total population to make inference about the population because it is time consuming and
expensive to collect data about every individual institution in the population. However, the
sample can still be used to make inferences about the population, where only the chosen sample
can reliably represent the population (Collis and Hossey, 2013).

The main ways to take a sample are grouped in to two categories: probability and nonprobability
sampling techniques Zekarias (2017). Probability sampling is a procedure that gives each
33
member of the population a non-zero probability of selection, which means that each element in
the population has an equal chance. On the other hand, non-probability sampling selection of the
sample is based on personal judgments or convenience. For the purpose of this study, the
researchers will be used nonprobability sampling techniques to get sufficient data regarding the
research topic, as explained above. According to the national bank of Ethiopia (NBE), there are
41 microfinance institutions in Ethiopia and 10 institutions will be taken as a sample since they
fulfilled their financial statements from the period 2012 to 2021 with more than 50,000 active
borrowers. Amhara credit and saving institution, Addis Credit and Saving Institutions, Oromia
credit and saving institution, Busa gonofa micro finance, Omo micro finance institution, Vision
fund micro finance institutions, Sidama micro finance institutions, Poverty Eradication and
Community Empowerment, and Vision Fund micro finance institutions.

Table 3.1 The list of selected micro finance institutions

Numbe Name of micro finance Establishment year
r
1 Amhara credit and saving institution ACSI 1995
2 Oromia credit and saving institution (OCSSCO) 1997
3 Addis Credit and Saving Institutions (ADCSI) 2000
4 Busa Gonofa micro finance (BG) 2000
5 Omo micro finance institution (OMFI) 1997
6 Vision fund micro finance institutions 2006
7 Sidama micro finance institutions 1998
8 Poverty Eradication and Community Empowerment 1999
(PEACE),
9 Vision Fund micro finance 2003

34
10 Wasasa micro finance 2000

This study will be used a sample of 10 MFIs, from the total population of 41 MFIs in the
country. For this study, a ten year data (2012-2021) will be taken from microfinance institution.
The criteria for choosing among the MFIs will be based on the availability and quality of data for
the time period of ten years (2012-2021).

3.5. Source of Data

The study pays the greater emphasis on assessing the significant determinants of financial
sustainability in Ethiopian microfinance institutions. The study anticipates basing on secondary
data by means of annual reports of the respective MFIs. The data are financial ratios and some
outreach indicators. This research will be purely based on secondary data obtained from the NBE
for ten years.

3.6. Data Analysis

Data analysis is the way in which the collected data will be analyzed to achieve the stated
objectives. Therefore, under this section the methods and tools used to analyze the data will be
discussed in detail. In order to analyze the given data, the researcher will be used STATA 16.
After this the panel data will be collected regressed by data ordinary least square (OLS)
regression method and the data will be interpretably using statistical description including
standard deviation, mean, minimum and maximum by using descriptive statistics. It will be used
to check whether there is any substantial variation between dependent & independent variables.
The researchers also used correlation coefficient analysis to determine the direction and
magnitude of the association between different variables. The model's validity test will be
included. And inferential statistics were also included in the study to check the proposed
hypotheses and make a general conclusion.

3.7. Model Specification

To achieve the researcher objective the operational panel data linear regression model will be
used to identify the relationship between the financial sustainability explanatory variables. Panel
data will be longitudinal data which involves both time and space data Oney (2014). The
advantages of using longitudinal data are threefold; first it reveals individual level changes,

35
second, establishes time order of variables, and third it can show how relationship emerges
between variables. Panel data is favored over pure time series or cross sectional data
Ousoombangi (2018). It can control for individual heterogeneity and there is less degree of multi
–linearity between variable. The researcher also determines whether the random effect or fixed
effect approach is appropriate by running Hausman model specification test. Multiple regression
models will be used to assess the significant determinants of microfinance institutions
sustainability in Ethiopia.

FSSit= 𝛽0 + β1AGEit + β2YGLPit + β3LRit + β4CARit + β5DERit + β6CPBit + β7DLRit +β8OERit

+β9INFit + εit

Where:
FSSit is the financial self-sufficiency ratio of microfinance i at time t (which is the dependent
variable); αi is a constant term;

AGEit is the age of micro finance institutions of I at year t,

YGLPit is Yield on gross portfolio of an MFI i at time t,

LRit is the Liquidity ratio of MFI i at year t,

CARit is the capital to asset ratio an MFI i at time t,

DERit is the debt to equity ratio of an MFI i at time t,

CPBit is the natural logarithm of cost per borrower of an MFI i at time t,

DLRit is the deposits to loan ratio of an MFI i at time t,

OERit is the Operating expense ratio of an MFI i at time t,

INFit is the rate of inflation of Ethiopia assigned to an MFI i at time t,

β measures the partial effect of independent or explanatory variables in period t for the unit i
(MFI);

εit is the error term of an MFI i at time t.

Xit are the explanatory variables; the variables, both dependent and independent, are for cross-
section unit i at time t, where i = MFI (1 to n), and t = 1to 6.
36
3.8. Operational Definition
This section explains the variables used as dependent and independent (explanatory) variables in
this study. The definitions/measurements used for these variables are described and summarized
under the following table.

3.8.1. Dependent Variables

The dependent variables in this section are the sustainability of microfinance institutions which
is measured by financial self-sufficiency. The financial self-sufficiency is measured as the ratio
of adjusted financial revenue to adjusted operating expenses. This is summarized in the
following table for clarity.

Financial Self-sufficiency (FSS) is used as dependent variable in our study. This ratio shows the
ability of MFI to generate enough revenue so that it can cover its cost. FSS is best measure to
examine the financial sustainability of MFI because it uses the adjusted data and it offers detailed
summary of input and output as compared to other financial ratios (Beg, 2016).

Table 3.2: Variable Description (Dependent Variables)

Variables Name Measurement (Formula)
Financial Self-Sufficiency (FSS) Adjusted Financial revenue/(Financial expense+ Loan loss
provision + Operating expenses + Expense adjustment)

3.8.2. Independent Variables

The independent variables used to determine the factors affecting financial sustainability are Age
of a microfinance, yield on gross loan portfolio, liquidity ratio, Cost per borrower, operating
expense and inflation rate of MFIs. The following table presents the description of the
independent variables or explanatory variables used in this study for the FSS dependent
variables. Some of the variables are presented in their log form for regression purpose.

Age: The Age of microfinance institutions refers to the period that an MFI has been in operation
since its initial inception. Sustainability could also relate to the age of MFI. The age refers to the
period that an MFI has been in operation since its initial inception. It is a continuous variable
measured by total number of years (Teninet 2020).

37
H1: Age of a microfinance institution is significantly and positively related to financial self-
sufficiency.

Yield (Yield on Gross Loan portfolio): Portfolio yield is a percentage that shows the average
gross returns as a proportion of the portfolio outstanding. Generally speaking, Portfolio Yield is
the indicator of an institution's ability to generate revenue with which to cover its financial and
operating expenses. It measures how much the Microfinance Institution (MFI) actually received
in interest payments from its clients during the period. It also provides an insight into portfolio
quality. If the MFIs use cash accounting here, the Portfolio Yield will not include the accrued
(interest and fee) income that delinquent loans should have generated, but did not. For Portfolio
Yield to be meaningful, it must be understood in the context of the prevailing interest rate
environment the MFI operates in. Ganka (2010) indicates that there is a significant positive
relationship between the yield on gross loan portfolio and financial sustainability.
¿
Yield on Gross loan Portfolio = Adj . financial revenue ¿ Loan Portfolio Adj . average GLP

H2: There is the positive relationship between yield on gross loan portfolio and financial self-
sufficiency of microfinance institutions.

Liquidity Ratio (Current ratio): Liquidity ratios are a set of ratios or figures that measure a
company’s ability to pay off its short-term debt obligations. This is done by measuring a
company’s liquid against its short term liabilities. There are a number of different liquidity ratios,
which each measure slightly different types of assets when calculating the ratio. The greater the
coverage of liquid assets to short-term liabilities, the more likely it is that a business will be able
to pay debts as they become due while still funding ongoing operations. As per the finding by
Nyamsogoro (2010) the coefficient for liquidity ratio variable is positive and statistically
significant with the financial sustainability of micro finance.
current asset
Liquidity Ratio =
current liabilities

H3: There is a significant positive relationship between liquidity ratio and financial self-
sufficiency.

Capital to asset ratio: is a simple measure of the solvency for the financial institution. It is used
to assets an MFI’s ability to meet its obligations and absorb unexpected losses. For the regulated

38
MFIs, there is a minimum solvency requirement stipulated by the regulator.

total capital
CAR =
total asset

H4: Capital to asset ratio of a microfinance institution is significantly and positively related to
financial self-sufficiency of MFIs in Ethiopia

Debt to equity ratio: is calculated by dividing total liabilities by total equity. Total liabilities
include all the MFI owes to others, including deposits, borrowings, accounts payable and other
liabilities. Whereas total equity is total asset less total liability. It is the simplest and best known
measure of capital adequacy because it measures the overall leverages of the institutions
(AEMFI, 2014).

Total debt
Leverage ratio =
Shareholder ’ s equity .

H5: There is a negative significant relationship between debt to equity ratio of microfinance
institutions and Financial Self-Sufficiency of Ethiopian MFIs

Cost per Borrowers: The cost per borrower is defined as the operating expenses divided by an
MFI’s average number of borrowers. The result of the study made by Yoshi et al (2011), the
lower cost per borrower implies that an MFI is more efficient to reduce the borrowing cost.
Therefore, MFIs with a lower ratio have a higher OSS, and negatively related to the FSS and
OSS of a given MFI, leading to a negative sign for the coefficient. However, Kipesha & Zhang
(2013) noted that reduction of cost per borrower enabled cooperatives MFIs in East Africa to
attain the financial sustainability.
Adj .Operating Expense
Cost Per Borrower =
Adj . Ave . No. active borrowers

H6: Cost per borrower is negatively related to financial self-sufficiency.

Deposit to loan ratio: Sustainability of MFIs depends on their saving mobilizing capacity.
Deposit to loan ratio is an important indicator for MFIs that mobilize deposits. Deposit to loan
ratio measures that portion of the MFIs’ portfolio funded by deposits. The higher the ratio the
greater is the MFIs’ capability to fund it loan portfolio from its deposits and enhances
commercialization of microfinance operation. Thus higher ratio brings down the cost of funds
39
and helps MFIs to rely on internal funding. Deposit mobilization has now becoming more
important in Ethiopia as commercial banks seem to be reluctant to fund MFIs’ portfolio through
their debt. Some commercial banks lent to MFIs, with strong third party guarantee (AEMFI,
2014).

H7: There is a positive significant relationship between deposit to loan ratio of microfinance
institutions and financial self-sufficiency of MFIs in Ethiopia

Operating Expense Ratio: The operating expense ratio is the ratio of total operating cost to
outstanding loan portfolio. The lower the ratio, all things being equal, will imply efficiency.
According to the finding of (Teninet 2020) the Operating expense ratio of a microfinance
institution is significantly and negatively related to financial self-sufficiency. It measures how an
MFI’s management has been efficient in reducing operating costs at a given level of operation.
The lower the operating expense ratio will indicate efficiency in microfinance institutions cost
reduction strategy.
operating expense
Operating Expense Ratio =
gross loan portfolio

H8: There is a negative significant relationship between operating expense ratio and financial
self-sufficiency.

Inflation rates: Inflation is a sustained increase in the general price level of goods and
services in an economy over a period of time. When the price level rises, each unit of currency
buys fewer goods and services. So there are a negative significant relationship between inflation
rate and financial self-sufficiency of MFIs in Ethiopia. According to a study by from developing
countries investigation of average loan size per GNI per capita indicated that macroeconomic
variables are significant contributors of performance. In their empirical study Gwas & Ngambi
(2014) also tested the influence of macroeconomic indicators -GDP growth and inflation on the
sustainability of MFIs. Although statistically not significant, their result showed a negative
impact of inflation and a positive impact of GDP growth on the sustainability of MFIs.
I (t )−I (t−1)
Inflation =
I (T −1)

H9: There is a negative significant relationship between inflation rate and financial self-
sufficiency of MFIs in Ethiopia.
40
 Table 3.3: Variable Description (Independent variable)
S. Variable Standard Description Var. name variable Description as Expec
N Name in regr. used in regression model ted
Model. effect
1 Age of MFIs Age of MFIs since their AGE Number of operation Years +
establishment
2 Yield on Gross Adj. financial revenue from YIELD Financial Revenue as a +
loan Loan Portfolio/ Adj. average percentage of GLP
Portfolio (Nominal) GLP
3 Liquidity Ratio The ratio of current asset to LR Percentage of cash & trade +
current liabilities investments to deposits &
liabilities
4 Capital to asset Capital to asset CAR Capital to asset ratio +
ratio
5 Debt to Equity Adj. Total Liabilities/Adj. DER Debt as a percentage of -
Ratio Total Equity Equity
6 Cost Per Borrower Adj. Operating Expense/Adj. CPB Natural logarithm of the -
Av. No. of Active Borrowers cost per borrower
7 Deposit to loan All deposits divided by DLR The ratio of deposit to +
ratio outstanding loan outstanding loan
8 Operating The ratio of operating expense OER Operating expense ratio -
Expense Ratio to the gross loan portfolio
9 Inflation Rate I(t)-I(t-1)/I (T-1) INF The inflation rate as a _
percentage

Therefore, the Age of MFIs, Yield on Gross loan Portfolio (Nominal), Liquidity Ratio, Capital to
asset ratio, and Deposit to loan ratio are expected to have positive significant impact on
sustainability. Cost per borrower, Debt to Equity Ratio, operating expense ratio and inflation rate
on the other hand, are expected to have negative significant impact on sustainability of
microfinance institutions in Ethiopia.

41
 3.9. TIME AND BUDGET SCHEDULES
3.9.1. Work Plan
Table 3.4: time schedule of the thesis
Time in month (2021)
Activities Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

Research Title XX

Review of Literature XX
Methodology XX

Proposal Defense XX
Data collection XX
Data analysis XX XX

Writing up thesis XX
Draft thesis writing and XX
submission
Final correction and XX
printing
Submission of the XX
thesis
Defense of thesis XX

3.9.2. Cost budgets/ logistics

Budget requirement for the implementation of this thesis work is summarized and presented
below in the form of categorical cost break down.

Table 3.5: budget division of the thesis

Material expense
S/N Items Unit Quantity Unit price Total price
1. Flesh disk (16 GB) Pcs 1 400.00 400.00
2. Paper Rim 1 500.00 500.00
3. Note book Pcs 1 50.00 50.00
4. Pen Pcs 7 12.00 84.00
5. Pencil Pcs 5 10.00 50.00
6. Binding paper Pcs 100 3.00 300.00

42
7. Total 1,384.00
Personal expense
Item No. of days Unit payment Total payment
1. Researcher 120 70 8400
2 Service cost 1000.00 1000.00
3 Transportation cost 3000.00 3000.00
4 Total 12,400.00
Miscellaneous expense
1. Telephone expense and postage 700.00
2. Binding 300.00
3 Clerk service 400.00
4 Printing 600.00
5 Internet 800.00
6 Other expense 1000.00
7 Total miscellaneous expense 3,800.00
8 Grand total 17,584

REFERENCES
A. Rombrugghe, Michel Tenikue and Julie Sureda, (2007). Performance analysis for a sample of
microfinance institutions in India annals of public and cooperative economics.

Abdi D., M. Moses, A. Mircea (2021). Analyzing Determinants Of Financial Performance Of

Micro Finance Companies In Ethiopia. International journal of Ecoforum. Vol. 10, Issue
1(24).

Creswell, J. W. (2003). A framework for design. Research design: Qualitative, quantitative, and
mixed methods approaches, 9-11.

Abebaw Yenesew, (2014). Determinants of Financial Performance: A Study on Selected Micro

Finance Institutions in Ethiopia. MSc Thesis. Addis Ababa University. Addis Ababa
Ethiopia.

Abiyu B. (2016). Determinants of Financial Sustainability of MFIs in Ethiopia. Msc thesis, saint
marry university, Addis Ababa, Ethiopia.
43
AEMFI. (2014). Ethiopian MFIs Performance Analysis Report. Addis Ababa. A. A: AEMFI.

AEMFI. (2021). Ethiopian MFIs Performance Analysis Report. Addis Ababa. A. A: AEMFI.

Alemayehu Y. (2008). The performance of Micro Finance Institutions in Ethiopia. A case of six
microfinance institutions. MSc thesis, Addis Ababa University, Ethiopia.

Arsyad L. (2005). An assessment of performance and sustainability of MFIs. Case study of

Village credit institutions in Gianyar, Bali, Indonesia, Flinder University, Australia

Assefa, Esubalew, Niels Hermes, and Aljar Meesters (2013). Competition and the Performance
of Microfinance Institutions. Applied Financial Economics 23: 767–82.

Bourke, P. (2011). Concentration and other Determinants of Bank profitability in Europe, North
America and Australia, Journal of Banking and Finance, 5 (2), 1822

CGAP (2019). Sub Saharan Africa Microfinance Analysis and Benchmark report. Microfinance
Information Exchange.

CGAP (2021) Interest Rate Ceilings and Microfinance: the Story So far. Occasional Paper No. 9
(Washington: Consultative Group to Assist the Poor).

Chmelíková & Redlichová, (2020); Sun et al., (2020) factors affecting the sustainability of
microfinance institution, Malawi micro finance institutions.

Collis J, Hussey R (2013) Business research: A practical guide for undergraduate and
postgraduate students: Palgrave macmillan.

Cooper, R. D. and Schindler, P.S. (2011). Business Research Methods. (11th ed). McGraw-Hill
Publications. New York, United States

Dissanayake (2012). The Determinants of Operational Self Sufficiency: An Empirical Analysis

of Sri Lankan Microfinance Institutions University of Kelaniya.

Ebisa Deribie, G. N. (2013). Filling the Breach: Microfinance. Journal of Business and
Economic Management.

Elia, M. (2006) Microfinance Text and Cases, Basics on micro finance cases studies from the
Arab Region.

44
Ganka, D. (2010). Financial sustainability of rural microfinance institutions in Tanzania. PhD
thesis, University of Greenwich, Australia.

Gibson, D.S. and J.W. Meehan (2002). Financing Microfinance for Poverty Reduction. Paper
commissioned by the Microcredit Summit Campaign.

Gwas, N., &Ngambi M. (2014). Competition and Performance of Microfinance Institutions in

Cameroon, International Journal of Research in Social Sciences, Vol.3, (No.8).

Helms, B. (2006) access for all, building inclusive financial system The International Bank for
Reconstruction and Development. The World Bank, Washington, DC 20433.

J. J. Pollinger, J. Outhwaite, and H. C. Guzmán, (2007). The Question of Sustainability for

Microfinance Institutions, Journal of Small Business Management 2007 45(1).

Jalal, R.N. & Sahar, N.U. (2020). Asian emerging market perspective of macroeconomic factors,
stock return, and volatility. International Journal of Management, 11(8), 1456-1475.

K. H. Odowa, L. Ali. (2019) Determinants of Financial Sustainability of Microfinance

Institutions in Ethiopia. Indian Management Studies Journal 23, 79-96 81.

Kasenge, E. (2011). Achieving Sustainability While Delivering on the Social Impact. Challenges
Facing Microfinance Institutions.

Kimando, N. L. (2012). Factors Influencing the Sustainability of Micro-Finance Institutions in

Murang’a Municipality. International Journal of Business and Commerce, Vol. 1 (No.
10).

Kipesha,F.E. & Zhang, X. (2013). Sustainability, Profitability and Outreach Tradeoffs:

Evidences from Microfinance Institutions in East Africa. European Journal of Business
and Management, Vol.5, No.8, 2013.

Kombo, D. K., & Tromp, L.A. (2009). Proposal and Thesis Writing: An introduction. Nairobi :
Pauline’s Publication of Africa.

Kothari, C. R. (2014). Research methodology: Methods and techniques. New Delhi: New Age
International (P) Ltd Publishers.

45
Lafourcade, A. L., Isern, J., Mwangi, P. & Brown, M. (2005). Overview of the outreach and
financial performance of microfinance institutions in Africa. Microfinance Information
exchange, Washington, DC. http://www. Mix market.

Ledgerwood, J. (1999). Microfinance Handbook: An Institutional and Financial Perspective.

World Bank, Washington D.C.: World Bank, Sustainable Banking with the Poor Project.

Melkamu, T. (2012). Determinants of Operational and Financial Self-Sufficiency: Empirical

Evidence of Ethiopian MFIs. MSc thesis, Addis Ababa University, Addis Ababa Ethiopia.

Meyer, J. (2012). Track record of financial institutions in assessing the poor in Asia, ADB
research institute paper, No.49.

Mia, M.A. (2016). Microfinance institutions and legal status. The Journal of Asian Finance,
Economics, and Business, 3(2), 21–31.

Molyneux, P. (2012). The financial crisis in Europe: evolution, policy responses and lessons for
the future, Journal of Financial Regulation and Compliance, 17 (4), 62‐80.

Mugenda, O. M., & Mugenda, A. G. (2003). Research Methods: Quantitative and Qualitative
Approaches. Nairobi: Acts Press

Nadiya M (2011). An inside View of the Factors Affecting the operational self sufficiency of
Indian MFIs. A mixed method enquiry Oikos Foundation for Economy and Ecology.

Nawaz, A. (2010). Issues in Subsidies and Sustainability of Microfinance. An Empirical

Investigation. CEB Working Paper, Centre Emile Bernheim. Research Institute in
Management Science, University of Brussels, Belgium.

Nelson, S. (2011) Performance Assessment of Micro Finance Institution in the Ashaiman

Municipality, MSc thesis.

Nyamsogoro, G. (2010). Microfinance Institutions in Tanzania: A Review of Growth and

Performance Trends, the Accountant Journal, 26 (3), 3-16.

Nyamsogoro, G. D. (2010). Financial sustainability of rural microfinance institutions (MFIs) in

Tanzania. Australia: PhD thesis, University of Greenwich.

46
O. Marzys - R. (2006). Microfinance institutions: profitability at the service of outreach? A study
of the microfinance industry in the ECA region, College of Europe Bruges campus,
European economic studies department.

Ousoombangi D. (2018) challenges that face the operations of microfinance institutions in

Kenya, Nairobi.

Postelnicu and Hermes (2018). performance of and capital of micro finance, jornal of business
ethics, Groningen University.

R. Srinivasan and M S Sriram. (2013). Microfinance: IIMB Management Review.

Ramanaiah M.Venkata and Mangala C.Gowri. (2011). A Review of Ethiopian Micro Finance
Institutions and their Role in Poverty Reduction. A Case Study on Amhara Credit and
Saving Institution (ACSI)

Randhawa B. and Gallardo J. (2003). Microfinance Regulation in Tanzania: Implications for

sustainability.

S. Noreen (2011) role of microfinances in empowerment of female population of Bahawalpur

district, international journal.

Schreiner m and h. h. Colombet (2001). from urban to rular; lesson from micro finance from
argenrina. Development policy review, vol. 19, no.3,pp-339-354.

Seifu A. and Desalegn K. (2018). Factors affecting profitability of Micro finance institution.
International journal, Wolaita Sodo University, Ethiopia Vol.9, No.5.

Sekaran, U. & Bougie, R. (2011). Reseacrh Methods for business: A skill building approach.
(5th ed). New Delhi: John Wiley & Sons.

Shu, Cletus Ambe, and Bilge Oney(2014). Outreach and Performance Analysis of Microfinance
Institutions in Cameroon. Economic Research-Ekonomska Istrazivanja 27: 107–19.

Sileshi Mirani (2015). Determinants of Financial and operational Sustainability of MFIs in

Ethiopia. Masters thesis, Addis Ababa University.

T. Mutambanadzo, T. Bhiri, & S. Makunike (2013). analysis challenges faced by Zimbabwean

microfinance institutions in providing financial services to the poor and informal sector in
47
 the dollarized regime.

Teninet E. (2020) determinants of operational and financial sustainability of the micro finance
institutions in Ethiopia. Saint Mary University, Ethiopia.

Tilahun Aemiro (2013) “Determinants of Financial Sustainability of Microfinance Institutions in

East Africa” European Journal of Business and Management, 17 (5).

USAID, “Measuring performance of Microfinance Institution: a frame work for reporting,

Analysis and Monitoring, trainer‟s guide”.

Vingo, T. (2012). Capital Structure and Microfinance Performance. Retrieved July 3, 2015,
URL: http://etheses.bham.ac.uk/4428/.

Woller, Gary (2000), “Reassessing the Financial Viability of Village Banking: Past Performance
and Future Prospects”, Micro-Banking Bulletin.

Z.A. Khan (2017) et al, Determinants of Financial Self Sufficiency in Microfinance Institutions
on Pakistan, India and Bangladesh, Vol.6, No.2 pp. 296-301,
Zeeshan.khan687@gmail.com.

Zikmund, W. G., Carr, J. C., & Griffin, M. (2013). Business Research Methods (Book Only):
Cengage Learning.

48