“Microfinance Institutions operating in Addis Ababa: Institutional Viability and Financial Performance” the case of ADCSI, SFPI and Wisdom MFIs

Currently micro-financing is one of the most powerful tools for combating poverty primarily by providing loan to the poor section of the society. The number of micro financing institutions serving the poor in Ethiopia has grown to over 30 with in short period of time. The growth and expansion of microfinance programs and increasing attention to microfinance as a poverty reduction strategy has given rise to a number of questions. What are the factors that are necessary for strong institutional viability and financial performance?What are the problems in achieving institutional sustainability and strong financial performance of MFIs? The case of three microfinance institutions namely, ADCSI, SFPI, and Wisdom operating in Addis Ababa were used to respond to the above questions. The main objective of the study is to assess the institutional viability and financial performance and draws conclusions and make recommendations for improving the institutional viability and financial performance of the MFIs. The study used both quantitative and qualitative methods to obtain information on institutional viability and financial performance of the three sample MFIs. Primary data were collected through unstructured interview. Secondary data were mainly collected from audited financial statements. Finally, adjustments to financial data were made and the performances of the MFI were measured by taking selected indicators. The results of the study revealed that the ADCSI and Wisdom MFIs have achieved financial self-sufficiency in the years 2005 and 2006 respectively. SFPI has not achieved the level of financial self-sufficiency at all. However, the trends of their financial performance demonstrate that there is a good and steady progress towards improving financial self-sufficiency in the three MFIs. Both ADCSI and SFPI already achieved operational self-Sufficiency. The main constraints in institutional and financial sustainability of MFIs Operating in Addis Ababa are: - Lack of experienced and competent board of directors, Lack of trained manpower and efficient legal system to enforce contracts. In order to improve, institutional and financial viability of microfinance institution, the need to have competent board of directors and management body is emphasized. Furthermore, the importance of having human resource development strategy and putting in place an efficient legal system to enforce contracts has been recommended.

Andinet Asmelash