Determinant of Liquidity in Large Micro finance Institution: (in case of Ethiopian Micro finance Institution)

Abstract

Liquidity is one of the major concerns for financial institution and thus achieving the optimum level of liquidity is crucial. The main objective of this study was to identify the determinants of liquidity of micro finance institutions in Ethiopia. In order to achieve the research objectives, data was collected from a sample of 12 micro finance institutions in Ethiopia over the period from 2011 to 2018. MFIs specific and macroeconomic variables were analyzed by using the balanced panel random effect regression model. MFIs liquidity is measured in two ratios.The findings of the study revealed that, GDP has negative and statistically insignificant impact on liquidity; while capital adequacy, Leverage,Tangibility and inflation have positive and statistically insignificant impact on liquidity of Ethiopian micro finance institutions.