The Performance of Ethiopian Microfinance Institutions in Balancing Social Responsibility and Financial Sustainability

Abstract

The lack of loanable funds exposes historically marginalized societies, such as women, lower-income earners, and rural communities, to situations in which an informal village lender charges exploitative interest rates. The reprioritization of microfinance institutions toward financial sustainability at the expense of social responsibility is a contributor to this problem. This study was an evaluation of the relevance of the business model in measuring performance and comparing the measurement of the balance of social responsibility and financial sustainability by microfinance institutions in Ethiopia. A quantitative research method was used to collect data and one-way analysis of variance was used to compare the business models. The results showed that business models made a difference in measuring the social responsibility performance of microfinance institutions. Nongovernmental and governmental microfinance institutions did not show significant difference in balancing social responsibility and financial sustainability. The two business models were more low-income oriented than were commercial microfinance institutions. The leaders of microfinance institutions and partners should not rush to commercialization but should design and implement a suitable business model that balances social responsibility and financial sustainability without significantly sacrificing one to the other. Hence, local, and international development agencies can enter into partnership with nongovernmental or governmental microfinance institutions to reduce poverty.