Determinants And Management Of Credit Risk In Micro Finance Institutions Empirical Study On Selected Mfis In Ethiopia

Credit risk is one of the risks any financial institution is exposed for; managing their credit risk will be the key to their financial sustainability. The general objective of this research is to determine the factors influencing Ethiopian Micro finance institutions credit risk, management of credit risk of major Ethiopian MFIs, and an entire review of the management techniques and practices on credit risk management. The researcher used a mixed approach study where the quantitative data show the determinants of credit risk and the qualitative data describes the causes, techniques and other things related with credit risk which is better described qualitatively. In total ten years data of ten MFIs were used to make an econometrics model and five structured interviews are administered to collect the qualitative data. The finding suggest that five variables i.e. loan to deposit ratio, average loan per borrower, total assets, leverage, and management efficiency are significantly affecting the credit risk, and their credit risk arises from different aspects that can be seen from three perspective i.e. external and internal factors, borrowers and lenders characteristics, and firm and loan characteristics. Although, Ethiopian MFIs have different techniques that are used to manage their credit risk.

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