Assessment Of Risk Management And Its Impact On Financial Performance Of Selected Microfinance Institutions In West Shewa Zone

Abstract

This study examines risk management and its impact on financial performance of selected microfinance institution in west shewa zone. The target populations of this study were total numbers of loan officers, managers and operational managers of selected microfinance institutions in west shewa zone. The researcherhas been selected sample from MFIs institutions.Micro finance institution loan officers, 107, managers, 24 and operational managers 24 totally 167 were target population.Under this study, both internal and external factors were included. The internal factors used in this study include capital adequacy and liquidity management whereas; the external factor is foreign exchange rate. Moreover, return on asset (ROA) and return on equity (ROE)were used to measure the financial performance. In This study model selection was made by conducting specification test and based on the result random effect model was adopted. The regression result showed that , CAR have a significant positive influence on the financial performance of selected microfinance institution in west shewa zone measured by return on asset and return on equity. Whereas:, Liquidity Ratio and Operational risks have a significant negative influence on the financial performance of selected microfinance institution in west shewa zone measured by return on asset and return on equity. Thus, management of microfinance should do their best to strengthen the identified risk factors. Internal risk factors such as CAR , LLP , LIQR and CIR with the external variable foreign exchange rate this study examined the Risk Management and Its Impact on Financial Performance of selected microfinance institution in west shewa zone