DETERMINANTS OF FINANCIAL SUSTAINABILITY OF MICRO FINANCE INSTITUTIONS IN ETHIOPIA.

ABSTRACT A microfinance institution has become one of the world's most popular poverty-reduction strategies, however, while the growth of microfinance institutions has been unprecedented in the past three decades, and their sustainability is still subject to contentious debate. Therefore the major goal of this study was to examine the determinants of financial sustainability of microfinance institutions by using evidence from Ethiopian micro finance institutions. The study used an explanatory research design and quantitative research methods. The research was conducted in 16 microfinance institutions. A sample of 16 microfinance institutions was selected using purposive sampling methods based on availability of financial statements. Therefore the current study used the secondary data gathered from national bank of Ethiopia and association Ethiopian microfinance institutions and the data were evaluated with descriptive statistics and multiple liner regression model analysis using STATA 14 version software. The study revealed that Depth is statistically positive and has significant effects on financial sustainability of microfinance institutions in Ethiopia, whereas Debt to equity ratio ,Cost per borrower and PAR >90 day had a statistically negative and significant impact on financial sustainability. And the other three variables breadth, Risk coverage ratio and operating expense ratio had statistically positive and negative insignificant effects respectively on financial sustainability. Finally, the study concluded that all variables with a negative sign reduce financial sustainability of Ethiopian microfinance institutions. As a result, the researcher recommended that policymakers, governments, financial institutions, and development organizations take into account the aforementioned financial sustainability elements in their attempts to address the problem of financial sustainability and combat poverty among certain segments of the population.