Determinant of Micro Finance Outreach in Ethiopia

Abstract

Microfinance institutions (MFIs) are developed to provide financial services to poor people usually ignored by commercialized institutions. Their main purpose is to increase outreach both in terms of depth by providing small loans and reaching maximum number of poor people. This study aims to study the factors that influence the outreach performance of MFIs in Ethiopia. By using random effect regression, factors that influence the depth and breadth of outreach were determined. The MF industry as a whole is challenged by the need to reach the poorest customers and at the same time needs to have depth. The study found that microfinance; portfolio at risk, size of MFIs, borrower per loan officer, return on equity and operating expense ratio affect the outreach of microfinance institution in Ethiopia. This study recommends microfinance institutions to consider more numbers of borrowers, find ways of serving the borrowers at the lowest possible operating expense, be able to control their portfolio to generate more return with reaching out to the poorest customer. This study is based on quantitative research approach using panel data as a main data analyses technique. The study was based on a 9 years secondary data obtained from association of microfinance and mix market data base for selected 12 microfinances. The study found that grant to age of microfinance, size of micro finance, return on equity, portfolio at risk, prating expense ratio, affect the microfinance outreach in Ethiopia. Finally, it has been recommended that they should increase the value of their total assets.