Statistical analysis of the performance of microfinance institutions: the Ethiopian case

Nowadays governments and many development agents pay great attention to the development of Microfinance Institutions (MFIs) with the belief that they are able to alleviate poverty in a very shot time. This paper tried to give statistical insight in measuring the performance of MFIs in Ethiopia and the determinants of their performance. A cross-sectional data from 2006 fiscal calendar balance sheet of 26 MFIs in the country is used to carry out the study. Factor analysis (FA) of performance indicators revealed that the deposit mobilized from clients,the number of active borrowers, and the gross loan portfolio load high on one component, establishing the outreach performance dimension of the MFIs in the country. On the other hand, profit margin, OSS, return on asset and gross loan portfolio-to-total asset ratio load high on the other component, establishing the financial sustainability dimension. In order to identify the determinants of the performance of the MFIs, a seemingly unrelated regression (SUR) model was fitted on the outreach and sustainability dimension scores synthesized by FA. The number/types of financial services rendered, the number of staff per branch and their capital are found to determine the outreach performance of the MFIs in the country. It was also noted that capital has an adverse impact on the outreach efforts of the MFIs. Moreover, the financial viability of the MFIs is found to be highly determined by the average amount of loans disbursed to individuals, the financial revenue ratio and the cost per borrower ratio.