Abstract:
Microfinance institution in Ethiopia is a fast-growing sector in the financial industry. This
research, "Determinants of Performance of Microfinance Institution in Ethiopia," aims to identify
factors influencing the performance of microfinance institutions (MFIs) in Ethiopia, specifically
addressing the effect of firm-specific factors: capital adequacy, leverage, outreach, size, operating
efficiency, credit risk and Macroeconomic factors (Inflation and GDP) on the financial
performance of selected microfinance institutions. The study uses a quantitative research
approach with an explanatory design to analyze data from 20 selected MFIs in Ethiopia for the
period 2012 to 2022 with 220 observations, using entirely secondary data. Data is sourced from
the National Bank of Ethiopia (NBE) and World Bank database for microfinance financial
inclusion. Before the analysis is carried out secondary data is extracted and arranged with using
excel spreadsheet. The finding from regression output revealed that leverage and capital
adequacy affects ROA negatively and significantly whereas, operating efficiency and GDP growth
rate affects ROA positively and significantly. Therefore, based on the finding the researcher
concluded that both firm-specific and macroeconomic factors affect performance of MFIs during
the study period and policy makers, directors and the government should consider the effect of the
above factors for the financial health and wellbeing of the sectors.
