DETERMINANT OF LIQUIDITY IN MICROFINANCE INSTITUTION: (IN CASE OF ETHIOPIAN MICROFINANCE 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 microfinance institutions in Ethiopia. In order to achieve the research objectives, data was collected from a sample of 12 microfinance institutions in Ethiopia over the period from 2005 to 2014. MFIs specific and macroeconomic variables were analyzed by using the balanced panel random effect regression model. MFIs liquidity is measured in two ratios: liquid asset to deposit and liquid asset to total asset. The findings of the study revealed that, FDI has negative and statistically significant impact on liquidity; while GD, profitability and inflation have positive and statistically significant impact on liquidity of Ethiopian microfinance institutions. However, non performing loan has no statistically significant effect on the liquidly of Ethiopian microfinance institutions.