DETERMINANTS OF NON-PERFORMING LOAN IN ETHIOPIAN MICRO FINANCE INSTITUTION SHARE COMPANY.

Abstract

This study determines the effect of macro and firm specific factors on non-performing loan of Ethiopian microfinance institution Share Company. The non-performing loan (NPL) which was regressed against the macro and microeconomic variables including interest rate, inflation rate, business efficiency, business profit margin, capital adequacy, return on asset, and loan to deposit ratio of the non-performing loan of Ethiopian micro finance institution. The period of the study was ten years from 2012 to 2021 G.C. The study employed panel data which was obtained from the national bank of Ethiopia. Ministry of Finance and Economic Cooperation and annual audited financial statements from Ethiopian microfinance share company selected in the sample. Data was analysed using ordinary Least Square Method (OLS) which assumes linearity between the dependent variable and the independent variables and the analysis technique was panel model analysis aided by research STATA-14 software.The fitted regression model value of ( ) was 73.8% which reveal that the model is good fitted. The non-performing loan of micro finance institution Share Company was found to be positively affected by interest rate, loan to deposit ratio, and business efficiency, but inflation rate, business profit margin and capital adequacy was negatively affect the non-performing loan of Ethiopian microfinance share company. The study suggests that focusing and giving more attention for macro and microeconomic factors could degrade the non-performing loan of microfinance institution Share Company in Ethiopia.