In recent years the growth and expansion of micro finance programs and increasingrnattention to micro finance as a poverty reduction strategy has given rise to a numberrnof questions. What is the interrelationship between scalingup outreach and financialrnsustainability of MFIs? Are outreach and financial sustainability positively related orrnis there direct trade off between the two? What are the factors that are necessary forrnstrong outreach and financial Viability? To observe the responses to those questions,rnthe case of three institutions namely, OMFI and SMFI operating in the SouthernrnRegions and AdCSL in Addis Ababa were used. The main objective of the study is tornasses the relationship between outreach and financial sustainability and drawsrnconclusions and make recommendations for improving the financial sustainability ofrntheMFIs.rnThe study used both quantitative and qualitative methods to obtain information onrnoutreach and financial peiformance of the three sample MFIs. Primary data wererncollected through semi-structured questionnaires. Focus group discussions were heldrnwith the clients of the sample MFIs. Detailed discussions were held with employeesrnand executives of MFIs. Secondary data were mainly collected from audited financialrnstatements. Finally, adjustments to financial data were made and the peiformances ofrnthe MFI were measured by taking selected indicators.rnThe results of the study revealed that the three sample MFIs have achieved extensivernoutreach. The volume of saving as well as the gross loan portfolio has grownrnsignificantly. The participation of women in three sample MFIs was alsornencouraging. All sample MFIs under study have not achieving the level of financialrnself-sustain ability. However, the trends of their financial performance demonstraternthat there is a good and steady progress towards reaching operational self-sufficiencyrnin the three MFIs. Both AdCSI and OMFI already achieved operational selfSufficiency.rnThe results of operation demonstrate that with the increase of outreach,rnoperational self-Sufficiency has increased. Institutional capacity was identified as therndriving force to attain outreach and sustainability in the sample MFIs. Over all, thernoutreach and financial sustainability of the sample MFIs has grown significantly.rnHowever all sample MFIs did not achieve financial self-sufficiency.rnThe main constraints in improving outreach and financial sustainability of MFIs inrnEthiopia are: - Lack of experienced and competent board of directors, lack ofrncustomer responsive lending mechanism and service design, shortage of commercialrnloanable fundfor future expansion, Lack of trained manpower and efficient legalrnsystem to enforce contracts and low interest rate. In order to improve the outreachrnand financial sustainability of micro finance industry, the importance of designingrnclient centered financial service provision, the need to have competent board ofrndirectors and management body is emphasized. Furthermore, the importance ofrnhaving human resource development strategy, presence of reliable managementrninformation system, putting in place an efficient legal system to enforce contracts andrnadjustment to lending interest rate has been recommended. Financially viable MFIrnonly delivers flexible financial services to the poor that have significantly contributedrnto poverty reduction. Moreover, all development stakeholders should work togetherrnwith the micro finance programs to tackle the development challenges of Ethiopia