Assessment Of The Financial Performance Of Microfinance Institutions And Their Outreach In The Case Of Ginchi Town, West Shoa, Oromia, Ethiopia

Abstract

Financial institutions play a vital role in poverty reduction, employment generation and economic development of both developed and developing countries. Microfinance institutions (MFIs) provide a range of financial services to poor households. Their worldwide growth in numbers had a positive impact by providing the poor with loans, savings products, fund transfers and insurance facilities. The aim of this study was to assess and investigate the financial performance of microfinance institution in case of Dendi woreda in Ginchi town of West Shoa zone through various criteria such as outreach, Return on Asset, Return on Equity, Outreach and portfolio at risk. The descriptive research methodology has been employed by using secondary panel data in the year 2011-2019 on the variables of Outreach, Return on Equity, Return on Asset and portfolio at risk. Based on the result with respect to all variables of all MFIs (OCSCO, Busa Gonafa and Wasasa at Ginchi town has increasing within different degree from year to year until 2019. According to the result of outreach, Return on Equity and Return on Asset, there was an increment within different degree for all OCSCO, Busa Gonafa and Wasasa until 2019, which shows financial sustainability and profitability of MFIs. According to the result of portfolio at risk (PAR), there was an increasing from the year of 2011-2019 which affect the Financial Performance and outreach of MFIs. Increasing in PAR indicate that, there was uncollected loan or there was loan default in the study area which is risky for MFIs. So, to collect unpaid loan during the given period of time; the concerned body should take some remedial action in the study area. The MFIs managers and policy makers should give high concern to minimize the percentage of portfolio at risk (PAR) that negatively affect the financial performance of MFIs in Ginchi town. Hence PAR has various adverse effects on profit and profitability of MFIs that all concerned parties have put emplace appropriate risk mitigation strategies to overcome the adverse negative effects.