Determinants Of Microfinance Institutions Loan Portfolios Quality Empirical Evidence From Ethiopia

This s tudy e xamined d eterminants of l oan por tfolios qual ity, us ing pane l dat a of fourteen (14)rnMFIs from the period 2003- 2012. The study employed four dependent variables as proxies forrnloan por tfolios qual ity, nam ely: l oan l oss r ate (LLR), por tfolio at r isk o ver 3 0-days ( PAR-rn30days), por tfolio at r isk ov er 90 -days ( PAR-90days) and write-off r atio (WO R).This st udy i srncrucial f rom t he fact t hat t here i s l imited r esearch on M FIs l oan por tfolios qual ity us ingrnquantitative appr oach i n E thiopia. Based on t he pool ed o rdinary l east squares (OLS) andrnrandom effects generalized least squares, the study finds an i nstitution size (LnTA) is negativelyrnand s ignificantly i nfluences L LR and W OR. O perating e xpense (OPPEXP) has a ne gativernsignificant r elationship with L LR, P AR-30days and W OR. A ge of t he M FIs ha s a pos itivernsignificant r elationship with P AR-90days. P ercentage of women bor rowers (WOMBOR) has arnpositive s ignificant i mpact on P AR-30days. D eposit t o l oans (DTL) pos itively and s ignificantlyrninfluences LLR and WOR. Gross loan portfolio/ total asset (GLP/TA) has a negative significantrnimpact on L LR and W OR. V oluntary s avings ( LnVOLSAV) has a ne gative s ignificantrnrelationship with LLR, PAR-90days and W OR. The regression results also show that Return onrnequity ( ROE) has a ne gative s ignificant r elationship with L LR, P AR-30days, P AR-90days andrnWOR. Change in growth national income (CH-GNI) negatively and significantly influences PAR-rn30days and P AR-90days. The s tudy finds i nsignificant r esults on l everage and i nflation. Si ncernMFIs pr ovide f inancial s ervices t o t he poor pe ople t hose who c annot pr ovide c ollateral, t husrnthey m ay hi ghly f ace de fault r isk when bo rrowers f ail t o r epay t heir obl igations a s pe r t hernagreement. A ccordingly, t he f indings of t he s tudy may ha ve i mplications f or M FIs and pol icyrnmakers in that it provides hint on some important determinants of loan portfolios quality

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