DETERMINANT OF CAPITAL STRUCTURE IN MICRO FINANCE INSTITUTION (EVIDENCE FROM LARGE ETHIOPIAN MICRO FINANCE INSTITUTION)

Abstract

The choice of capital structure in microfinance institution is one of the most important strategic financial decisions of firms. Since financing decisions influence microfinance institution and hence firm’s value, this study examines the impact of capital structure in microfinance institution of core business operations of micro finance institution in Ethiopia. In order to meet the objectives of this study a quantitative panel data methodology would be employed. The panel data were obtained from the audit 10 microfinance institution of Ethiopia for the period of seven year (20082014) the panel data fixed effect estimation model would be applied for the data analysis through statistical package. Moreover, loan to deposit, spread and asset size also had statistically significant and positive relationship would be microfinance institution. Finance should give due consideration to manage their debts properly, mobilize deposit sufficiently, increase loan advances, spread, and size in their financing decisions. Furthermore, finance also advised to reduce non-deposit debt financing and raise equity financing so that to keep costs of financing at minimum level and hence optimize micro finance institution and the value of finance. Besides, the policy maker, capital structure in microfinance institution of Ethiopia also recommended reconsidering to raise the minimum capital requirement for finance. Finally, future researchers also recommended assessing the overall performance of finance and other business sectors in the area of this research