Factors Affecting the Social Outreach of Microfinance Institutions: Evidence from Ethiopian Microfinance Institutions

Abstract

The main objective of the study was to assess the factors affecting the social outreach of microfinance institutions in Ethiopia. The outreach of microfinance was measured in terms of the number of clients served as breadth of outreach and the socio-economic level of the clients as depth of outreach. The study was conducted using secondary data collected from the Association of Ethiopian Microfinance Institutions for the period 2007-2020, which was published in its annual bulletin. A sample of 14 microfinance institutions was selected based on the consistency of their financial and performance reports to the association since 2007. The study was based on an explanatory research design. A balanced panel data was analysed using the random effect panel data regression model. The study found that borrowers per loan officers, cost per borrower, deposit to loan ratio, gross loan to asset ratio, operating expense to loan portfolio, return on asset, age, size, and product of microfinance are variables significantly affecting the social outreach of microfinance in Ethiopia. The study found that microfinance institutions are serving a fraction of the poor in Ethiopia. Microfinance institutions in Ethiopia need to maintain the momentum and trends of depth and breadth. MFIs need to accelerate their progress in order to reach more of the poor.