The Relationship Between Outreach And Financial Sustainability An Empirical Study On Ethiopian Microfinance Institutions

The overall objective of the study was to scrutinize the relationship between microfinancernoutreach and financial sustainability in Ethiopia. The study specifically aimed at establishing thernrelationship between loan outreach and microfinance institutions’ financial sustainability inrnEthiopia. MFIs in Ethiopia enable to increase industrial outreach to 3.9 million clients. Yet, thernloan service outreaches to the poor in Ethiopia fall short of the escalating demand. Quantitativerndesign was employed and it was found suitable for the study since it aimed at establishing thernrelationship between microfinance outreach variables and financial sustainability. Thernpopulation for the study was composed of 35 microfinance institutions in Ethiopia. Secondaryrndata was collected from 14 purposively selected microfinance institutions reporting theirrnfinancial and operational data to either of AEMFI or NBE over the period 2003-2014. Multiplernregression analysis was then carried out on a panel data collected in order to examinernrelationships between variables. Significant positive relationship between breadth of outreachrnmeasured as number of active borrowers and gross loan to asset ratio and financialrnsustainability was evident among microfinance institutions in Ethiopia. However, there is a tradernof between microfinance institutions depth of outreach measured by average loan size andrnfinancial sustainability as this variable shown statistically significant association with financialrnsustainability. Operating expense per loan portfolio relate inversely with financial sustainabilityrnwhile yield relates directly. Thus, it was concluded that the relationship between outreach andrnfinancial sustainability of MFIs in Ethiopia is depends on the variables used. Therefore, thisrnstudy recommends that microfinance institutions in Ethiopia should increase the numbers ofrnborrowing clients they are serving to be benefited from economics of scale.rnKey words: Microfinance, loan outreach, financial sustainability, economies of scale

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