FACTORS AFFECTING FINANCIAL SUSTAINABILITY OF MICROFINANCE INSTITUTION IN ETHIOPIA.A PANEL RESEARCH FROM SOME SELECTED MICRO FINANCE INSTITUTIONS

Abstract Micro finance institutions has a dual purpose which is profit alleviation by providing banking service to those who have not an access at formal banks and making of profit. For providing of such service MFI s are required to be financially viable and stable. However an ups and downs in the past few years in their financial sustainability had been seen. Therefore understanding and finding the possible factors for such problems should have to be a crucial point for researchers. This research is conducted with main objective of finding of various possible factors which have an effect on financials sustainability of MFI in Ethiopia. The required data was extracted from annual reports of MFI which is available at NBE for the period of 2012-2022. Even if there are 53 registered MFIs, only 10 of them have a full and completed data at NBE. Therefore using purposive sampling method only 10 MFIs had been selected for this research purpose. the researcher had used both descriptive and explanatory research design followed by quantitative approach. The collected data was analyzed using STATA 16. Descriptive statics of each variables, CLRM assumption test, model selection test (PBLM test and houseman test) to select among panel regression models had been carried out all of them had been satisfied. Finally random effect model had been found the most appropriate based on the comparisons. The descriptive statics of the research indicates FSS of MFIs in Ethiopia for the study years is below the standard which is 100%. The R-square of the model also justified that, the explanatory variables in the model explains 81% of the dependent variable which is Financial sustainability. From regression analysis’s it has found that breadth, outreach, Deposit mobilization , Debit to equity ratio, DEAPTH and Yield on gross loan portfolio has a positive significant effect on Financial sustainability . In the reverse of this Cost per borrower, Operating efficiency ratio and Portfolio risk has negative significant effect on Financial sustainability. However the effect of inflation, female borrowers productivity return in equity has insignificant effect on FSS. Finally the research had recommended to increase number of active borrowers for decreasing cot per borrowers, to increase its operating efficiency and revise its portfolio in general for reducing its negative effect and to strengthen other variables which has a positive effect in order to enhance there positive effect on FSS