Factors Affecting Financial Performance of Microfinance

Institutions in Ethiopia

BY: -Belay Beyene

ID: GSR/6288/12

A Thesis Submitted to
Addis Ababa University
College of Business and Economics
Department of Accounting and Finance

Presented in Partial Fulfillment of the Requirement for the Degree of Masters

of Science in Accounting and Finance

Advisor: Dr. Laxmikantham P.

June, 2021

Addis Ababa, Ethiopia

 STATEMENT OF DECLARATION

I, Belay Beyene, declare that this thesis entitled “Factors Affecting Financial performance of
Microfinance institutions in Ethiopia” is my own work and that all sources of material used
for the thesis have been duly acknowledged. I have carried out independently with the guidance
and support of the thesis advisor.

This Thesis has not been presented previously in this University or any other University. It is
submitted for the partial fulfillment of the degree of Masters of Science (MSc) in Accounting
and Finance

Name: Belay Beyene

Signature_________________________

Date ___________________________

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 Addis Ababa University

College of Business and Economics

Department of Accounting and Finance

This is to certify that the thesis prepared by Belay Beyene, entitled: “Factors Affecting
Financial performance of Microfinance institutions in Ethiopia” and submitted in partial
fulfillment of the requirements for the degree of Master of Science in Accounting and Finance
complies with the regulations of the institution and meets the accepted standards with respect to
originality and quality.

Signed by the Examining Committee:

Advisor Dr. Laxmikantham P. Signature ________________ Date_________

Internal Examiner _____________ Signature ________________ Date_________

External Examiner ____________ Signature ________________Date __________

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 Acknowledgements
First of all, I would like to thank the almighty God for giving me strength for the successful
accomplishment of this thesis. Next I am thankful to my advisor Dr. Laxmikantham for his
suggestions, constructive comments, and follow up.

I am also grateful, to National Bank of Ethiopia corporate finance directors and microfinance
supervision department staffs, for their assistance by giving audited financial statements of
microfinance institutions.

Lastly I would like to extend my immense thankfulness to my parents and friends and to all who
have even a single contribution in this work.

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 ABSTRACT
This study examined the effect of internal and external factors on financial performance of
Ethiopian microfinance institutions over a period of ten years (2010 to 2019). The study used
panel data of nineteen microfinance institutions. The study employed an explanatory research
design following a quantitative research approach. Secondary financial data were analyzed by
using multiple linear regressions model. Random effect regression model was applied to
investigate the impact of capital asset ratio, portfolio quality, and management efficiency,
employee productivity, gearing ratio, microfinance size, microfinance age, inflation rate and
real GDP on the financial performance of Ethiopian microfinance institutions measured by
return on asset. The finding of the study shows that capital asset ratio, employee productivity
and age of microfinance have statistically significant and positive relationship with financial
performance. On the other hand, variables such as management efficiency, portfolio quality, and
size of microfinance have a negative and significant relationship with MFI’s financial
performance. However, the relationship of gearing ratio, real GDP, and inflation rate with
financial performance were found to be statistically insignificant. Based on the above findings,
the study suggests that the management of Ethiopian microfinance institutions have to give due
attention in managing their CAR, PAR, MGE, EMP, SIZE and AGE of microfinance institution

Keywords: financial performance, Micro finance institutions

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Table of Contents
Acknowledgements ................................................................................................................................ iii
ABSTRACT............................................................................................................................................. iv
LIST OF FIGURES ...............................................................................................................................viii
LIST OF TABLES ................................................................................................................................viii
CHAPTER ONE ..................................................................................................................................... 1
1. INRODUCTION ................................................................................................................................. 1
1.1. Background of the Study ............................................................................................................... 1
1.2. Statements of the problem ............................................................................................................. 3
1.3. Objective of the Study................................................................................................................... 5
1.3.1. General Objective .................................................................................................................. 5
1.3.2. Specific Objectives................................................................................................................. 5
1.4. Hypotheses of the Study................................................................................................................ 6
1.5. Significance of the Study .............................................................................................................. 7
1.6. Scope of the study ......................................................................................................................... 7
1.7. Limitation of the study .................................................................................................................. 7
1.8. Organization of the paper .............................................................................................................. 8
CHAPTER TWO .................................................................................................................................... 9
2. LITERATURE REVIEW .................................................................................................................... 9
2.1. Introduction .................................................................................................................................. 9
2.2. Theoretical Review ....................................................................................................................... 9
2.2.1. Definition of microfinance institution ..................................................................................... 9
2.2.2. History of Microfinance ....................................................................................................... 10
2.2.3. History of Microfinance in Ethiopia ..................................................................................... 11
2.2.4. The Need for Microfinance .................................................................................................. 11
2.2.5. Financial services of microfinance institutions ...................................................................... 13
2.2.6. Microfinance institution and Poverty Mitigation ................................................................... 14
2.2.7. Challenges of Microfinance Institutions in Ethiopia .............................................................. 14
2.2.8. Performance Measures of Microfinance institutions .............................................................. 15
2.2.9. Sustainability of Microfinance Institutions............................................................................ 17
2.3. Financial sustainability ............................................................................................................... 18
2.4. Empirical Literature review ......................................................................................................... 19

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 2.5. Factors Affecting Financial Performance of MFIs ....................................................................... 21
2.5.1. Internal Factors .................................................................................................................... 21
2.5.2. External Factors ................................................................................................................... 25
2.6. Conclusion and Research Gap ..................................................................................................... 26
2.7. Conceptual framework ................................................................................................................ 27
CHAPTER THREE ............................................................................................................................... 28
3. RESEARCH DESIGN AND METHODOLOGY ............................................................................... 28
3.1. Introduction ................................................................................................................................ 28
3.2. Research Approach and Design ................................................................................................... 28
3.3. Research Method ........................................................................................................................ 28
3.3.1. Source of data ...................................................................................................................... 28
3.3.2. Target Population ................................................................................................................. 28
3.3.3. Sampling Technique and Sample size ................................................................................... 28
3.3.4. Data Analysis Technique ...................................................................................................... 29
3.3.5 Data Validity and Reliability ................................................................................................. 29
3.4. Ethical considerations ................................................................................................................. 29
3.5. Model Specification .................................................................................................................... 29
3.5.1 Model Assumptions .............................................................................................................. 30
3.6. Description and Measurement of variables .................................................................................. 31
3.6.1. Dependent variable............................................................................................................... 31
3.6.2 Independent variables ............................................................................................................ 32
CHAPTER FOUR ................................................................................................................................. 34
4. Data Analysis and Discussion of Results ............................................................................................ 34
4.1. Introduction ................................................................................................................................ 34
4.2. Test results for the CLRM assumptions ....................................................................................... 34
4.2.1. Test for Hetroskedasticity ..................................................................................................... 34
4.2.2. Autocorrelation test .............................................................................................................. 35
4.2.3 Test for Normality ................................................................................................................. 36
4.2.4 Test for Multicollinearity ...................................................................................................... 37
4.3 Model selection ........................................................................................................................... 38
4.4 Descriptive statistics .................................................................................................................... 38
4.5. Correlation Analysis ................................................................................................................... 42

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 4.6. Finding of the Regression ........................................................................................................... 43
4.7. Discussion of the Regression Results .......................................................................................... 45
CHAPTER FIVE ................................................................................................................................... 51
5. CONCLUSIONS AND RECOMMENDATIONS .............................................................................. 51
5.1. Conclusions ................................................................................................................................ 51
5.2. Recommendations ....................................................................................................................... 53
5.3. Suggestions for Further Research ................................................................................................ 54
REFERENCES...................................................................................................................................... 55
Appendices............................................................................................................................................ 60

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 LIST OF FIGURES
Figure2.1. Relations between financial performance and its factors ........................................................ 27

Figure4. 1. Normality test for residuals .................................................................................................. 36

LIST OF TABLES
Table3.1 Summary of the variables and measurements........................................................................... 33

Table 4.1 Heteroskedasticity Test: ARCH .............................................................................................. 35

Table4. 2 Autocorrelation test: Breusch-Godfrey serial correlation LM test............................................ 36

Table 4.3 Correlation matrixes of independent variables ........................................................................ 37

Table 4.4 Hausman Test ........................................................................................................................ 38

Table 4.5.Descriptive Statistics .............................................................................................................. 39

Table4.6. Correlation matrix of dependent and independent variables .................................................... 43

Table 4.7 Regression Result for factors affecting financial performance of Ethiopian microfinance
institutions............................................................................................................................................. 44

Table4. 8 Regression result summary ..................................................................................................... 50

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List of Acronyms
ADSCI Addis Savings and Credit Institution
ACSI Amhara Credit and Saving Institution
AVFS African Village Financial Service
AEMFI Association of Ethiopian microfinance institutions
CAP Capital asset ratio
EMP Employee productivity
BUS.GON Bussa Gonofa Microfinance S.C
CGAP Consultative Group to Assist the Poor
DECSI Dedebit Credit and Savings Institution
GDP Gross Domestic Product
GR Gearing ratio
INFL Inflation
MFIs Micro Finance Institutions
MGE Management efficiency
NBE National Bank of Ethiopia
NA Not Available
OCSSCO Oromia Credit and Savings Share Company
OMO Omo Microfinance Institution Share Company
PAR Portfolio at Risk >30 Days
PEACE Poverty Eradication and Community Empowerment Microfinance S.C
ROA Return on Asset
SFPI Specialized Financial and Promotional Institutions S.C

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 CHAPTER ONE

1. INRODUCTION

1.1. Background of the Study

Microfinance institutions are financial sectors that offer different financial service for the poor
people who are out of the conventional banking system in developing countries like Ethiopia.
According to Gallardo et al (2003), in various underdeveloped countries the formal financial
sector serves only five to twenty percent of the population and the numbers of institutions are
very limited. MFIs are defined in terms of the subsequent features: targeting the poor especially
the poor women; promoting small businesses; building capacity of the poor; extending small
loans without collaterals; linking credit with savings; and charging commercial interest rates
(Dejene, 1998 cited in Alemayehu, 2008). It has a dual goal, that of attaining financial
sustainability and reducing poverty.

The need for MFIs is highly pronounced due to the fact that the poor are 'un bankable' in the
views of the formal financial institutions, because the poor fail to bet collateral which these
institutions put as a pre-condition for disbursement of a loan. According to Helms (2006), above
three billion poor people need access to basic financial services worldwide and ignored by
commercial banks for a long time.

Following the issuance of proclamation No. 40/1996, Ethiopian Microfinance institutions were
formally established. Since the implementation of the above Proclamation and was later on
revised in the year 2009, the number of microfinance institutions and their clients are increasing
from time to time. Accordingly, numerous MFIs have formally been registered and began
providing microfinance services to their clients. The first group of few MFIs was established in
1997 through the provision of sustainable financial services to the poor who actually do not have
access to the financial support services of other recognized financial institutions. Currently, there
are 38 MFIs registered with the National Bank of Ethiopia serving clients. The market of
Ethiopian microfinance sector is dominated by some large MFIs, all of which are related to
regional government ownership. The legal instrument which regulates micro-financing

1
institutions in Ethiopia is licensing and supervision of micro-financing business proclamation No
626/2009.

Fast growth, a wide geographic coverage, a domination of government backed MFIs, attention
on rural households, the upgrade of both credit and savings products and a powerful target on
sustainability are the features of Ethiopian microfinance sector and by the fact that the sector is
Ethiopian owned and driven (Ebisa et al, 2013)

In developing countries, Microfinance Institutions (MFIs) have been introduced as a financial

institutions with an intention of providing small sized financial service to the poor who were in
need of economic services but lack of access to formal commercial banks. The microfinance
institutions services consists provision of micro loans, micro savings, micro insurance service,
money transfer, leasing and other relevant schemes to the target poor peoples who have been not
included in the conventional commercial banks due to lack of collateral necessities and high
transaction costs (Tolosa, 2014).

Micro Finance institutions contribute significantly to the national economy of Ethiopia by the
virtue of improving poverty and creating jobs. An important development instrument is
improving access to financial services because it helps in creating employment opportunities and
enhances their earnings and consumption which would in the final analysis decrease poverty.
Accesses to financial services to the poor also facilitates the economic growth by easing liquidity
constraints in production, by providing capital to start-up new enterprises or adopt new
technologies, and by helping producers to assume production risk (Getachew, 2017).

The formal banking system in Ethiopia presents many limitations to the lower income people to
finance their productive events. This has led to give more attention to microfinance as financial
intermediary through which the poor section of the population gets access to financial services.

Performance is the function of the capability of an institution to get and manage the resources in
varies means to develop competitive advantage. To improve MFIs' performance, they better
know their weaknesses and gaps in which areas are they performing well and in which did poor.
This will help for better decision making to perform in cost effective way with the available
resources. According to Wolday (2007), the challenges that Ethiopian MFIs commonly face are
three fold: it concerns, not only, financial sustainability, but also outreach - extending the

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microfinance services to large numbers of poor people, and depth of outreach - trying to reach
the low income members of society. The simplest way to determine the performance of the
microfinance institution is to look at its financial statement.

Financial performance is a means of how well microfinance institutions can utilize their assets
from their main mode of activities and earns revenue. It is also referred as a general measure of a
company's overall financial health over a specified period of time. According to Iswatia, &
Anshoria (2013, cited in Abuammr, 2019), financial performance emphasizes on variables
related directly to financial report. The role of Capital market is critical in the economic
development of a country by facilitating mobilization and distribution of capital resources to
finance long term productive investments. It facilitates and helps the process of economic growth
in the country.

Microfinance institutions are considered as one of the policy instruments to eradicate poverty
and to inspire different groups by providing initial money for small business. So as to sustain
their tremendous contribution to the poorest and developing society in the current dynamic
macro-economic environment, they need to periodically research and revisit the major
determinants of their performance especially financial performance. Therefore, the objective of
the study is to identify the factors that actually influence the financial performance of Ethiopian
microfinance institutions.

1.2. Statements of the problem

MFIs provide financial services to low income people who are not included in the conventional
banking system. According to Wolday (2000), formation of Sustainable MFIs that reach a large
number poor people who are not served by the conventional financial institutions, such as the
commercial banks has been the main component of the new development Strategy of Ethiopia.
The objective of almost all of the microfinance institutions in Ethiopia is poverty mitigation. To
achieve this objective, MFIs have a duty to be financially viable and sustainable.

Micro finance institution sector play a great role in supporting the economic activities of the
rural and urban poor people in developing countries. Investigates indicate that MFIs in
developing counties are important actors and wings in the financial sector, and they are well

3
positioned to grow and reach the millions of potential clients who presently do not have access to
mainstream financial services (Lafourcade et al., 2005).

The concept of financial performance has received significant attention from researchers in the
various areas of business. Financial performance is an issue of main concern almost by all
business stakeholders in any sector since it is an ingredient to institutional health and ultimately
its existence. Management effectiveness and efficiency may reflect by good financial
performance in utilizing a company’s resources and this may contribute to the economy at large
(Ansah-Adu et al., 2012).

Regarding MFIs performance in Ethiopia different researches have been conducted. For instance,
Ebsa.et.al (2012, cited in Belainesh, 2016) studied on determinants of financial performance and
challenges of MFIs and the financial performance assessment part covers few areas of indicators
mainly of breadth of Outreach: number of customers and the amount of loan grant to borrowers.
Berhanu (2019) carried out an investigation on determinants of microfinance institutions
performance in Ethiopia. The researcher concluded that capital structure ratio, capital adequacy
ratio, operational efficiency ratio, firm size ratio and number of borrowers affect the financial
performance of MFI. Sisay (2016) also conclude that portfolio at risk, loan loss reserve ratio,
operational self-sufficiency, financial self-sufficiency, debt to equity ratio and size of MFI are
the main determinants of financial performance of Ethiopian MFIs.

Alemeyhu (2008) conducted a research on microfinance institutions operational and financial

performance by adopting simple descriptive analysis and using graphs and percentage progress
rates by classifying small, medium and large. The study by Yenesew (2014) and Melkamu
(2012) have also tried to see the factors influencing operational and financial sustainability of
MFIs in Ethiopia. However, the researchers used a limited number of variables such as
personnel productivity ratio, cost per borrower, liquidity ratio, number of active borrowers,
operating expense ratio, portfolio quality, real GDP and market concentration.

Therefore, the main purpose of this study is to analyze the financial data of Ethiopian
microfinance institutions from 2010 to 2019 in order to investigate the factors affecting their
financial performance. To examine the relationship among measures such as capital asset ratio,
portfolio quality, management efficiency, employee productivity, gearing ratio, size and age of

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microfinance, GDP and inflation rate and financial performance of microfinance institutions
which is measured by Return on Asset (ROA). According to the knowledge of the researcher
previous studies conducted does not include the variables management efficiency and employee
productivity in their study. Thus, this study would focus on filling these research gaps by adding
these two new variables and replicating the existing to examine their effect on financial
performance of Ethiopian MFIs.

1.3. Objective of the Study

1.3.1. General Objective

The main objective of this study is to investigate the factors affecting financial performance of
microfinance institutions in Ethiopia

1.3.2. Specific Objectives

Particularly, the study addressed the following objectives

 To determine the impact of capital asset ratio on financial performance of microfinance

institutions
 To assess the effect of portfolio quality on financial performance of microfinance
institutions
 To investigate the influence of management efficiency on financial performance of
microfinance institutions
 To analyze the effect of employee productivity on financial performance of microfinance
institutions
 To assess influence of debt to equity ratio on financial performance of microfinance
institutions
 To analyze the effect of size on financial performance of microfinance institutions
 To evaluate the effect of age on financial performance of microfinance institutions
 To determine the influence of GDP on financial performance of microfinance institutions
 To investigate the impact of inflation on financial performance of microfinance institutions

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1.4. Hypotheses of the Study
Regarding the factors affecting financial performance of Ethiopian MFIs, varies hypotheses were
tested to achieve the objectives of the study based on different empirical research and theoretical
review. According to Creswell (2009), more formal way of stating research question is by
developing hypotheses between explanatory and dependent variables. The hypothesis may be
stated as alternative hypothesis specifying the exact results to be expected. It can also be written
in null form indicating no relationship between dependent and independent variables. Thus, the
researcher developed the following hypothesis.

H1. There is a positive and significant relationship between capital asset ratio and MFIs financial
performance

H2. There is a negative and significant relationship between qualities of portfolio and MFIs
financial performance

H3. There is a positive and significant relationship between management efficiency and MFIs
financial performance

H4. There is a positive and significant relationship between employee productivity and MFIs
financial performance

H5. . There is a negative and significant relationship between gearing ratio and MFIs financial
performance

H6. There is a positive and significant relationship between size and MFIs financial performance

H7. There is a positive and significant relationship between age and MFIs financial performance

H8. There is a positive and significant relationship between real GDP and MFIs financial
performance

H9. There is a positive and significant relationship between rate of inflation and MFIs financial
performance

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1.5. Significance of the Study
The results of the study will be useful to the stakeholders such as managers, Government, donors
and regulators. To managers, the study will help them in identifying the factors affecting
financial performance of MFIs and thereby take appropriate actions to protect their MFIs from
different risks, and maintain a sound and healthy financial system through an efficient and
effective financial statement management. To Government, the results will assist to develop
adequate policies that encourage the growth and development of the MFI industry. To donors,
the study will help them to get valuable information and understand the levels of financial
performance of the MFIs have been reached. To regulators such as NBE and AEMFI, this study
will contribute to set financial performance standards. The study Will also initiate microfinance
institutions to give due emphasis on the management of identified variables. Furthermore, it
gives some supplement motivation for future researchers to conduct a further cutting-edge study.
Finally, it has been also contributed additional elements to the existing literature on financial
performance of MFIs.

1.6. Scope of the study

The scope of the study was bound on the effect of microfinance internal and external factors
affecting on the financial performance of microfinance institutions in Ethiopia by using ten
consecutive years (2010-2019) financial statements of each microfinance institution. Based on
the availability of audited financial statements data, Only 19 samples were selected out of a total
population of 38 microfinance institutions operating in Ethiopia. The selected nineteen MFIs are
existed in operation for more than ten years. The study used one dependent variable, return on
asset (ROA) and nine independent variables, such as capital asset ratio, portfolio quality,
management efficiency, employee productivity, gearing ratio, size, age, and GDP and inflation
rate.

1.7. Limitation of the study

Before carrying out this study, the researcher was hoping to include all the 38 MFls which are
registered by NBE in 2020. But the researcher was not able to do so, the first reason is some
microfinance institutions are less than ten years old, the second reason is lack of financial data
for consecutive ten years for some MFls. Therefore, the researcher has forced to include only 19
MFls in the study. Moreover, lack of financial data for 2020 has compelled the researcher to

7
confine the investigation only up to 2019. Except these limitations the study is believed to
represent the true financial performance of the institutions.

1.8. Organization of the paper

The paper is organized into five chapters. The first chapter is an introduction part which contains
background of the study, statement of the problem, objective, hypothesis, significance, scope and
limitation of the study. The second chapter comprises both theoretical and empirical reviews.
The third chapter presents methodologies and model specification of the study. The fourth
chapter includes data analysis and discussion of results. The last chapter, which is Chapter five,
is designed to provide conclusion and recommendation based on the study obtained from data
analysis.

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 CHAPTER TWO

2. LITERATURE REVIEW

2.1. Introduction
Based on the proposed study, this chapter reviews the available literature. It deals with the
theoretical framework of the study and then followed by the review of empirical studies. The
chapter proceeded with determinants of financial performance of MFIs in Ethiopia, followed by
the research gaps and then lastly conclusion and conceptual framework.

2.2. Theoretical Review

The theoretical part of this chapter involved issues such as definition of microfinance
institutions, microfinance institutions history, performance measures and sustainability of
microfinance institutions and internal and external factors affecting of financial performance of
microfinance institutions.

2.2.1. Definition of microfinance institution

Microfinance institution are defined in different ways by varies authors and institutions. But the
concept of the definitions is usually the same in which microfinance refers to the provision of
financial services; mainly savings and credit to the poor and low income households that are not
included to the commercial banks service.

Hossain & Knight (2008) defined microfinance as the supply of loans, savings, and other basic
financial services to the poor people. As the authors noted that microcredit, an essential theme of
microfinance, is broadly recognized as the practice of providing small, collateral-free loans to
members of cooperatives who else would not have access to the capital essential to initiate small
businesses.

Microfinance institution is defined as financial intermediation of all types of financial service

areas (savings, credit, funds transfer, insurance, pension remittances, etc.) (Robinson,
2001).These services are delivered to poor people and micro businesses in both urban and rural
parts, including employees who are self-employed and the public and private sectors. Parker et

9
al., (2000) also defined microfinance as providing of small loans (called “micro-credit”) or
savings services for people who are not included in the formal banking system.

Consultative Group to Assist the poor (CGAP,2012) defined microfinance as the delivery of
formal financial services to low-income and poor people, as well as others systematically
excluded from the assistances of the financial system. According to the institution, Microfinance
is not only providing a range of credit products for consumption but also savings, money
transfers, and insurance drives.

Therefore, based on the definitions given, it can be concluded as microfinance encompasses

broad financial services offered to the poor and low-income group of people for several causes
involving generating of income activities. It is a place for the poor and near poor clients to get to
financial service access, which contain not only just credit service but also savings, insurance
and fund transfer services.

2.2.2. History of Microfinance

The microfinance history can be drawn back to the center of the eighteen century when the
Lysander Spooner theorist was writing over the benefits from small amount of credits to
businesspersons and farmers as a way getting the people out of poverty (Kannan and
Panneerselvam, 2013). However it was at the end of World War II with the Marshall plan the
concept had a big effect.

In1864, the first rural credit union was established by Friedrich Wilhelm Raiffeisen in Germany
and realized that the poor farmers were being taken advantage of by loan sharks. This system
was not similar with former banks because it was owned by its members, provided rational
lending rates and was made to be a sustainable means of community economic empowerment.
By the end of the eighteen century, the concept of credit union expanded internationally and
these systems micro credit had spread all the way from Ireland to the Far East countries like
Indonesia. Similar systems were establishing in Latin America at the end of the period. In
European countries, the credit unions were possessed by its associates while in Latin America
they were possessed by the private banks and government and the institutions were not as
efficient as they were in Europe (Helms, 2006).

10
At university of Chittagong, Bangladesh, an economics lecturer, lent $27 to a group of poor
villagers in 1976. Thirty years later, the lecturer, Professor Mohammad Yunus and the founder of
Grameen Bank won the Nobel Prize 2006 for his efforts and microfinance become the world’s
favorite development idea, the silver bullet that will cure world poverty and the health creating
force of capitalism across the globe (Kannan and Panneerselvam, 2013).

Nowadays there is an influential movement in the direction of commercialization and

transformation of providers of microfinance institutions into formal financial institutions. More
and more micro finance organizations became independent from donor funds and raise their
capital from the capital markets while increasing their outreach (Helms, 2006).

2.2.3. History of Microfinance in Ethiopia

Ethiopian microfinance institutions were announced after the fall of the Derg regime. As
mentioned by various researchers, the development of microfinance institutions in Ethiopia is a
recent phenomenon. The proclamation for the establishment of microfinance institutions was
issued in 1996. From that time, numerous microfinance institutions have officially been
registered and started providing microfinance services (Wolday, 2000).

The Licensing and Supervision of Microfinance Institution Proclamation of the government in

1996 stimulated the expand of MFIs in both rural and urban areas as it authorized them, among
other things, to officially receive deposits from the general public, to draw and receive drafts,
and to manage funds for the micro financing business (Getaneh, 2005).

Ethiopian microfinance institutions development was started in latest times. However the
industry has shown outstanding growth. The issuance of Proclamation No 40/1996 provided the
establishment of formal microfinance institutions. Currently, thirty eight microfinance
institutions have legally registered by the National Bank of Ethiopia (NBE) and started
delivering financial services to the poor people.

2.2.4. The Need for Microfinance

In the development process, microfinance institutions play several roles. The need for
microfinance institutions is also enhancing in many nations. Microfinance institutions can

11
accomplish several roles such as financer economic choices of people, spreading household
income, making household less vulnerable to recession in the economy or individual,
smoothening income flows of the household, increase quality of life throughout the year and
strengthen the economic position of women so that they can act better control of decisions and
actions in their lives. In addition to this microfinance helps in the course of household asset
building. Microfinance also delivers savings service, permitting poor households to accumulate
safe, but flexible cash accounts to draw on when needed (Parker et al., 2000).

Microfinance institution services lead to women enablement by positively impacting women’s

decision making power at household level and their general socioeconomic status. Microfinance
institution services had touched over 79 million of the poorest of the world in the last 20000. As
such it has the capacity to make an important involvement to gender equality and promote
sustainable livelihood and better working condition for women (Noreen, 2011).

The problem poorness is a rotation that continues itself. When there is lack of money, there is a
lack of basic needs such as food, water and shelter. The pain of people by famine leads them to
fewer likely to work. A nonexistence of healthy makes the possible of illness that inhibits
working days. A microfinance institution changes these conditions by creating more money
accessible. Families can capitalize into better wells, better sanitation, and afford the time it may
take to access the health care they need at the time of meting their basic needs. People can stay
more productive when they are safe and healthy. When better health care can be obtained, they
make them a proportional average family size since there are more assurances of existence in
their residence. And when that happens, the possibilities of future investments will occur because
there is more confidence in being able to meet basic needs (Ayres, 2019).

Microfinance is a policy to improve the life of the poor people in terms of generating income to
cover the required cost and institutions meet the demand. Micro finances help the procedure of
development by altering the situation of the poor through facilitating several services which are
essential for poor.

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2.2.5. Financial services of microfinance institutions
Credit services

The best common credit services in MFIs are microcredit and micro leasing. Micro credits are
loans of small size that can help poor to escape their Micro leasing is a low value contract with
which one party/MFI (the lessor), in exchange for the payment of a regular installment, concedes
to another party/customer (the lessee) the use of equipment, however the ownership of the asset
remains to the lessor/MFI. Low income clients are usually unable to find the tool and therefore
MFIs allow them to obtain the availability of the asset without having to tie up capital equal to
the whole leased asset. Credit facility can be used in different ways such as source of meeting
consumption needs, source of short term working capital, and source of long term investment
capital (Torre and Vento, 2006 cited in Ayenew, 2019)

Savings services

Almost all poor need to save in order to protect themselves against periods of low income or
specific emergencies and to store the value of excess income for future investments. There are
two broad forms for which MFIs collect savings, compulsory savings and voluntary savings
.Obligatory saving products comprise of methods of mandatory saving, which indicate that some
percentage of the provided loan is detained back and placed in a fund that acts as a guarantee.
The customers can assess the amount at the end of the loan cycle. Nevertheless, the low income
people normally choose charitable saving products. These are volunteer ways of saving gathering
that permit the investor to deposit and withdraw, with varying frequency and expiry dates,
according to the products‟ liquidity (Torre and Vento, 2006). Hence micro saving deposits
provide facilities for safe keeping of savings, consumption smoothing emergencies and
accumulation of resources as well as self-financing of investments (Mukama, 2005 cited in
Ayenew, 2019).

Insurance services

Micro insurance products drawn up to reduce doubt and its effects represent an important tool in
microfinance. The micro insurance services include specialized insurance services such as life,
health, accident or livestock insurance and non-specialized facilities that deliver social safeguard

13
through available to a client’s savings or credit in cases of emergency for risk management,
social security and loan protection. This kind of delivering financial service is not common in
Tanzania.

Payment services

This is the service that allows poor to transfer money through secure channels. So far, MFIs that
give payment services are not numerous since of the difficulty of the infrastructure and the
technology that payment system require. This payment service in mainly used by banks which
force MFIs to use affiliated banks to transfer money. In this circumstance, MFIs should develop
good relationship and partnership with banks. (Torre and Vento, 2006 cited in Ayenew, 2019).

2.2.6. Microfinance institution and Poverty Mitigation

Poverty is lack of access by the poor households to the assets like human capital, natural,
physical, social-political, or financial (savings and access to credit) necessary for a higher
standard of income or welfare. In poor countries like Ethiopia greater attention has been paid to
poverty alleviation through microfinance, especially in the last decade. The successful use of the
micro finance is considered as a victory for the disadvantaged segments. Considering the poverty
alleviating impact of micro finance, currently many microfinance institutions are working
throughout the developing world. The capacity of microfinance institution to allow its
beneficiaries by decreasing the income poverty and through possibility to expand ones agency
and economic independence could further add to the incentives to join and stay. Yet, the
institutional policies and vulnerability of the poor people limit the chances of the poor to
participate and maintain the banking relationship and could erode the impact or reduce the
benefits that this relationship brings (Mulugeta, 2015 cited in Ayenew, 2019).

2.2.7. Challenges of Microfinance Institutions in Ethiopia

The stated below are some challenges faced by MFIs.

Internal challenges such as deficiency of loan able funds for additional enlargement, high
turnover of employees, lowly customer treatment, poor documentation, poor management
system, not use computerized system, no training given by the microfinance institutions, the

14
institutions couldn’t assume the customer objections and don’t take corrective decisions; and
external challenges such as high credit risk due to poor loan repayment, high competition with
conventional banks and improper interference of third party in the decision of loan approval
(Kumar, 2011).

Restricted in product development and inventions due to the regulatory framework affecting the
kind and development products; the owner (mother NGO, government or shareholders) not clear
defining the products; lack of competition; high risk and high cost developing new products; and
limited capacity of the institutions to develop financial products ( Wolday, 2000).

According to Vilkar (2016), Geographic factors are the challenges faced by MFIs. Most MFIs
approve that the environmental factors make it hard to connect with customers of far areas which
create a problem in growth and expansion of the organization. The other difficulties for MFIs are
different business models. Assisting the very wide variety of attributes and lending activities is
difficult and necessitates a considerable amount of cost and efforts. In addition, high transaction
cost is a big challenge for microfinance institutions. The size of transactions is very small, while
the fixed cost of those transactions is very high.

Rural agriculture related constraints due to seasonality environment of the agricultural loans are
creating stresses on the markets; lack of well-developed small, medium or large scale irrigation
practices. In addition, major challenges that affect microfinance institutions are default risk
inherited from borrowers, insufficient donor funding and lack of understanding of the definition
and concept of microfinance institutions by the client (Dahir, 2015 cited in Getachew, 2017)

2.2.8. Performance Measures of Microfinance institutions

Performance of an institution shall be measured from the objectives of the organizations angel.
The primary goal of microfinance institution is to decrease poverty and to increase the living
standards of the poor both in rural and urban areas. The different perspective on which the
microfinance institutions financial and total performance is to be measured has created two
opposing but having the same goals school of thought about the microfinance institutions
industry. The first one is called Welfarist approach and the second is the institutionist approach.

15
The Institutionist Approach: According to this approach the primary aim of microfinance
institution is financial deepening. That is, the setting up of a distinct system of “sustainable”
financial intermediation for the poor who are either ignored or are underserved by the recognized
financial system. The activists of this Institutionist approach offer emphasis to more on the
accomplishment of financial self-sufficiency, breadth of outreach or numbers of clients, depth of
outreach or levels of poverty reached and positive effect of clients. The institutionists initiate
from the main and obvious suppositions that donors cannot subsidize adequate financial services
by the MFIs delivered to all of the possible institutions clients. These institutionists also trust that
the only way to overwhelmed this restriction is to attract private sources of capital and this in
turn needs MFIs to be sustainable and profitable (Elia, M. 2006). According to this approach
point of view sustainable financial institutions that deliver financial services to the poor are
essential if the main goal is substantial poverty eradication.

The focus of this school of thought is not on depth of outreach (level of poverty of clients) rather
must be place on breadth of outreach (number of clients reached). It would fail the target of
poverty reduction if the system is not able to raise the number of clients reached. Moreover, they
believe and focus that if the approach of structuring sustainable MFIs are used the poorest will
also obtain advantage from it, while the other way around of pointing the poorest with extremely
subsidized programs will have a low overall influence due to the restricted and unbalanced donor
funding. The Welfarist Approach: The main objective of this school of thought is self-
employment of the poorer of the economically active poor, especially women. The interest of the
Welfarist approach depends in the “family” and they offer more attention on the depth of
outreach (the levels of poverty reached). The Welfarists are extremely concentrated with the use
of financial services to shrink the impact of severe poverty among distinct members as well as
societies. The concentration of this approach is on the unexpected improvement in the well-being
of observers. Although there are significant attendances of differences between these two schools
of thought, they have some similarities in their thoughts as well. As much as the two schools of
thought want to solve the problem of financial needs of the poor people, microfinance events
should aim at attaining the objectives of the two approaches (Nelson, 2011). The Welfarist
school of thought emphasizes on depth (number of clients reached) rather than breadth of
outreach (poverty level of clients) and receive subsidies on a continuing basis. The Welfarist

16
school of thought receive subsidies as they trust and attention that if sustainability is considered
as essential requirement, the achievement of the social mission of microfinance is at risk. Now
the clients are the center of attention that are aided rather than the institution or developing self-
sustained industry and also the they accept the subsidies or needed subsidies on continuing basis
and this school of thought not just emphases on financial self-sufficiency as an essential tool
(Elia, 2006).

The main difference of the two schools of thought is on the way or methodology of eradicating
poverty. According to Welfarists, targeting the very poor is the primary objective and
profitability shall be secondary. The Welfarists choose to charge subsidized and low interest
rates by trusting on donor funds. Institutionalists on the other hand debates that donor funds are
unreliable and MFI by themselves must generate adequate incomes to reach more poor people in
the future.

2.2.9. Sustainability of Microfinance Institutions

Sustainability of a microfinance institution refers to the long-run extension of its program

subsequent the project activities have been ended. It causes that proper systems and processes
have been put in place that will empower the microfinance services to be accessible on a
continuous basis and that the clients ongoing to get advantage from the services in a repetitive
manner. This also would mean that the package would meet the requirements of the participants
through resources raised on their own strength, either from among themselves or from outside
sources (Guntz, 2011).

As the concept of microfinance came into consideration, the debatable issue of whether donor
support is essential in the long term and the matter of sustainability of such microfinance
institutions came up as well. It could be debated that the long term sustainability of microfinance
institution is not vital as long as money was given to micro businesspersons and a startup help
was rendered. This in turn would imply that the current operational activities of the micro
businesses are more vital than the long term survival of the financial institution that rose after the
startup (Fikremariam, 2015).

17
As MFIs desire to reach as many poor people as possible in the long run to fulfill their goal to
fight against the worldwide poverty, it became apparent that this outreach of microfinance
institution is only attainable on a sustainable and well-organized basis. It could be assumed that
sustainable MFls are typically for profit commercial firms, but actually this is not the case.
About two-thirds of the sustainable microfinance institutions are NGOs, cooperatives, public
banks, or other not-for-profit organizations (Rosenberg et al., 2009).

In general Sustainability means the capability of a program to continuously carry out events and
services in quest of the statutory objectives. Sustainability can be separated in to two types;
operational sustainability and financial sustainability.

2.3. Financial sustainability

The capability of microfinance institutions to happen in the long run by means of their own
income producing activities excluding any contributions from donors is referred as financial
sustainability. According to Meyer (2002), the MFI’s financial sustainability o is significant as
the poor gets best advantage if they have access to financial services to the poor over period
rather than obtain just certain future loan but deprived of future loans since the MFI has died out.
As Meyer (2002), there are two levels of financial sustainability that can be measured;
operational self-sustainability and financial self-sustainability. Operational self-sustainability
means that operating income is sufficient to cover operating costs. Financial self-sustainability
means that the MFI also can cover the costs of funds and other forms of subsidies received when
valued at market rates.

Microfinance institution has received a lot of emphasis as an important poverty mitigation tool.
The UN declared to be the international Year of Microcredit in 2005, and Mohammad Yunus
received the Nobel Peace prize in 2006. These developments have directed to great expectations
about the possible poverty-reducing effects of microfinance between policy-makers and aid
organizations. But in order to be able to make a significant and long-term contribution to
reducing worldwide poverty, MFIs need to be successful in extending loans to poor borrowers,
while at the same time, they require to be able to at least replace the costs of their lending

18
activities, i.e., they may want to concern on being financial sustainable in the long run
(Armendariz & Labie, 2011).

2.4. Empirical Literature review

This part provides a short review of the previous researches made on the determinants of micro
finance performance from both developed and developing countries. Below are some of the
summaries of previous empirical studies by different scholars in various nations.

(Hermes & Hundon, 2018), in their research on “determinants of microfinance institutions”,

made a systematic review on determinants of financial and social performance of MFIs, by using
secondary data. The majority of their study was based on quantitative methods to analyze the
performance of microfinance institutions. Their result was maturity; size and type of
organization, funding sources available, governance structure, conditions external to MFIs etc.
have direct and inverse impact on performance of MFIs.

Ongore & Kusa, (2013) has also conducted an investigation on Operational Sustainability
determinants of Kenyan Micro Finance Institutions. The main objective of the research was to
investigate the factors that affect the operations self- sufficiency and financial sustainability. A
descriptive research design was employed by the study and data was collected from thirty
microfinance institutions. The obtained data was analyzed by linear multiple regression model.
The study used Capital to asset ratio and Operating Expenses/Loan Portfolio indicators as
independent variable and Operational Self Sufficiency ratio as dependent variable in the
regression model. Accordingly, the study revealed that the factors that influence the operations
and financial sustainability are capital/ asset ratio and operating expenses.

Lawrence (2012) has also tried to find out the factors influencing the sustainability of
Microfinance Institutions in Murang’a Municipality. The main objective the study was to
identify whether financial regulations, geographical coverage and reach of the microfinance
institutions in Morang’s municipality influence their sustainability. The study used financial
regulations, geographical coverage and reach as explanatory variables to see their effect on
explained variable, sustainability of microfinance institutions. The study concluded that financial
regulations, number of clients served, financial coverage and volume of credit transacted were
the factors that highly influenced the sustainability of microfinance institutions.

19
Waithaka (2013), made a study on indicators that influence the social performance of
microfinance institutions in Kenya. The analysis was made by using various statistical tools to
make tests like validity, reliability, and factor analysis and normality test for dependent variable.
The result was the leadership characteristics, involvement of stakeholders in MFIs, size of MFIs,
age of MFIs have impact on performance of MFIs.

Yenesew (2014) conducted a research entitled on factors influencing Ethiopian microfinance

institutions performance. His objective is to investigate determinants of MFIs financial
performance in Ethiopia from the period 2003 to 2011 using OLS estimation method to extent
the effect of microfinance specific and macroeconomic determinants on financial performance of
MFIs with is measured by return on asset (ROA). The outcomes of the investigation indicated
that variables such as operational efficiency, GDP, and size of MFIs influence financial
performance of MFIs significantly. On the other hand, variables like portfolio at risk, debt to
equity ratio and market concentration have negative and insignificant effect of financial
performance of MFIs.

Letenah (2009, cited in Eyerusalem, 2014) conducted a research on performance analysis of

selected Ethiopian MFIs. The study assessed both outreach and sustainability and revealed that
there was a relationship between them. The study was conducted on sixteen MFIs whose reports
were available on Mix Market data. Data were analyzed using statistical analysis techniques
specifically one sample test and the investigation used Kruskal-Wallis test and Pearson
correlation coefficients. The result of this investigation exhibited that performance of MFIs in
terms of depth of outreach for the fact they couldn’t reached the poorest of the poor, but they are
good at measures of breadth of outreach.

Berhanu, (2019) carried out a research on determinants of microfinance institution in Ethiopia to

examine their Financial Performance in the case of Damota branch. The study collected primary
data from 38 staff respondents through quationarrie and secondary data from five years (2013-
2017).The researcher concluded capital adequacy ratio, operational efficiency ratio, firm size
ratio, numbers of borrowers and age ratio of MFI have inverse relationship on performance
measurement of ROA.

20
Alemayehu (2008) also studied on determining the performance of MFIs in Ethiopia by selecting
six microfinance institutions. The study focused on analysis of profitability and sustainability,
asset and liability management, and efficiency and productivity of MFIs in Ethiopian using a
descriptive analysis of data collected from audited annual reports of 6 microfinance institutions
covering a period of five years (2002-2006). The result of the study showed that most of the
MFIs were doing well in terms of Operational self-sufficiency and financial self-sufficiency
though both operational and financial self-sufficiency declined with the size of the institutions.
The researcher concluded that the sustainability of large and medium Ethiopian MFIs were
inspiring, but the case in small MFIs in Ethiopia demands concern for the fact their good
outreach actions are not accompanied with good sustainability determinants.

2.5. Factors Affecting Financial Performance of MFIs

As suggested by varies empirical studies, internal and external factors influenced the
performance of microfinance institutions. Muriu (2011) point out that the determinants of MFIs
performance can be categorized into two main classes namely the internal determinants which
are under the control of management and the external determinants those factors that are not
related to management controllable. The internal determinants include microfinance specific
variables while the external factors reflect environmental factors that are expected to influence
the performance of microfinance institutions

2.5.1. Internal Factors

Internal factors of microfinance performance can be defined as factors that are influenced by
microfinance’s management decisions. These include: capital asset ratio, portfolio quality,
management efficiency, employee productivity, Gearing ratio, size and age of MFIs.

A. Capital asset ratio

Capital to asset ratio is a measure of solvency of MFIs. This ratio supports MFIs assess their
ability to achieve their obligations and absorb unexpected loss.

An acceptable capital to asset ratio level of determination is generally based on an assessment of

microfinance institution expected losses as well as its financial strength and ability to absorb
such losses. The expected losses of microfinance institutions have to generally be covered
through provisioning by the accounting policies, which eliminates expected losses from both
21
assets and equity. According to Yenesew (2014), the amount of capital needed to cover
additional unexpected losses is measured by the ratio to substantiate that the MFI is well
capitalized for potential shocks.

Muriu (2011), studied on determinants of profitability of MFIs employing a panel data set of 210
microfinance institutions; he revealed that capital adequacy had robust and significant positive
association with MFI profitability. It was described by the comparatively high coefficient of the
equity to assets ratio through the specifications. The influence remains the same even after the
inclusion of the outside indicators. Intuitively, it had been a sign that well capitalized MFIs are
further flexible in dealing with problems ascending from unexpected losses and witnessed a
reduced cost of funding or lower external funding. Hartarska and Nadolnyak (2008) found a
positive impact of capital ratio on the financial performance of MFI measured by the ratio of
operational self-sufficiency.

B. Portfolio quality

A Portfolio is the total funds available for the MFI as loans to its clients. Portfolio quality
indicates how best the institution is able to defend such portfolio against all forms of risks. It is a
vital area of performance analysis, since the major source of risk for any financial institution
resides in its loan portfolio. Therefore, MFIs have to attempt to keep the quality of their
portfolios (Dissanayake, 2012). For this research, portfolio quality is measured as portfolio at
risk over 30 days (PAR >30 days).

The portfolio at risk (PAR) measure indicates how efficient a MFI is in making collections. The
higher the PAR indicates that low repayment rates. This is an implication of the MFI is
inefficient. The more inefficient the MFI results from the higher the Portfolio at risk and then,
the less financial performance of the MFI. In general it indicates that the portfolio-at-risk
(Par>30) is the key indicator influencing the performance of microfinance institutions in
Ethiopia. Regarding the standard of portfolio, managers have a positive insight in keeping its
quality. In other words, a high portfolio-at-risk would restrict the revenue derived from
microcredit operations and thus decline the amount of lendable funds (Sima, 2013)

According to Muriu, (2011) investigation on factors determining profitability MFIs in African,

Credit risk of the institutions which is measured by the addicting the level of loans past due 30

22
days and still accruing interest is negatively and significantly correlated to the profitability of
microfinance institutions. Lafourcade et al, (2006) has also undertaken a research on Overview
of the Outreach and Financial Performance of Microfinance Institutions in Africa by taking 163
MFIs from 25 nations indicates that MFIs round the world continue to confirm low PAR > 30
days, with a global average of 5.2 percent but African MFIs uphold relatively high portfolio
quality, with a mean PAR > 30 days of four percent, carrying out better than their counterparts in
South Asia. When microfinance institutions are met with poor portfolio quality, they will write
off the loans from their records or refinance the loans by ranging the term, varying the payment
schedule, or both. The result specifies that loan at risk is inversely related with financial
performance of MFIs. Therefore, this study finds confirmation to support the conjecture that
increased exposure to credit risk is normally associated with lower financial performance of
MFIs.

C. Management efficiency

Management efficiency is one of the influential factors that determine the MFIs financial
performance. The capability of the management to exploit its resources efficiently, income
maximization and reducing operating costs is measured by financial ratio. The ratio of operating
expense to operating income is used as the proxy of efficient microfinance management.

D. Employee productivity

The people in a MFI are the most valuable resources and the major driving force for successes
and failures. The quality of human resources employed by a MFI affects its financial
performance. Currently increase in global competition in every direction makes MFIs to use
competent employees on the one hand and efficient technology on the other hand. MFIs increase
their financial performance from improved labor productivity, which, among other things, is a
result of the higher quality hired labor. Employee productivity is measured by the ratio of income
to salary and other benefit expense.

E. Gearing ratio

The debt /equity ratio or gearing ratio of a microfinance institution is computed by dividing total
liability by total equity. Total liability of MFI comprises everything that owes to others,

23
including deposit, borrowings, account payable and other liability accounts. Capital adequacy of
a MFI is measured by the simplest measure of liability to equity ratio because this ratio measures
the total leverage of the microfinance institutions.

The debt to equity ratio implies what proportion of equity and debt the microfinance institution is
using to finance its assets. In the life cycle of a MFI, This proportion is so much allied to where it
is found. Habitually, the capital structure of a MFI keeps a definite arrangement over its life
cycle. Startups are observed by a greater dependency on donations, usually in the form of equity
grants while as the MFIs mature, they have a tendency to display higher debt leverage through
borrowing and even enter into a formal institution or a regulated niche bank (Jorgensen, 2011).
According to Dissanayake (2012), debt to equity ratio of MFIs is a statistically insignificant
determinant variable for the model at 5 percent significance level. The direction of the
coefficient of the corresponding models is not as per the predicted direction of the researcher.

F. MFI Size

A total asset of a microfinance institution is used to measure its size. The size of a MFI is
included to capture the economies or diseconomies of scale in this study. Large firms have the
advantage of getting the access to credit finance for investment, possess a larger pool of qualified
human capital and have a greater choice for strategic diversification compared to small firms
(Hermes & Hundon, 2018). According to Cull et al, (2007) MFI’s size is directly positively
linked to its financial performance. MFI’s total asset is used as a proxy of size.

As Cull et al, (2007) point out that the size of MFIs and financial performance are significantly
related but loan size is negatively related to financial performance. This means that controlling
for other relevant factors; institutions that make smaller loans are not necessarily less profitable.
However the result showed that larger loan sizes are associated with smaller average costs for
both individual-based creditors and solidarity group creditors. Since larger loan size is often
occupied to specify less outreach to the poor society, the result could have negative implication.

G. Age of MFIs

The MFI age deals to the period that the institution has been in operation since its initial
inception. There is an idea that as MFIs matures, and thus acquire experience in their sector; they

24
increase their likelihood of achieving financial sustainability after they get mature in their
operation. This can be clarified by the fact that MFIs progressively improve their control over all
operations related to issuance of micro credit related performance (Ayayi & Sene, 2010). The
age of MFI is measured by number of years’ experience.

The age of microfinance institution has positive impact on financial performance of MFI
measured by microfinances dual objectives of financial sustainability and outreach. The number
of years’ experience is used to measure the age of MFI by since establishment of MFI that age
has great influence on financial performance of MFIs.

2.5.2. External Factors

The external factors are variables that are considered to be beyond microfinance management but
reflect the economic environment that affects the operation and performance of financial
institutions. Several external factors have been suggested as impacting on financial performance
of MFIs but for this study GDP and inflation rate are used.

A. Real GDP
The research used real GDP growth as a proxy of the macroeconomic environment.
Questionably, this is the prime informative single indicator of progress in development economic
of a country. Weak economic environments can adverse the standards of the loan portfolio,
thereby decreasing income. In contrast, an expansion in economic conditions has positive impact
on the profitability of the institutions (Muriu, 2011).

An investigation conducted by Imai et al., (2012) working paper entitled financial performance
of microfinance institutions a macroeconomic and institutional perspective drawing up on the
Microfinance institutions and they obtained that GDP has positive influence on microfinance
institutions financial performance. According to (Yenesew, 2014), Real GDP is a variable which
is expected to exhibit positive relationship with MFIs financial performance. This
macroeconomic variable is the most informative particular indicator of improvement in
economic development. Weak economic environments can adverse the quality of loan portfolio,
thereby decreasing financial performance of MFIs. In contrast, an enhancement in economic
environments, have positive impact on the profitability of the institutions (Muriu, 2011).

B. Inflation rate

25
Another important external condition which may affect both the costs and revenues of MFIs is
the inflation rate. High inflation is related with higher costs as well as higher income. According
to Ahlin et al. (2008), inflation can hamper the microfinance lending mission and may also effect
on microfinance cost of funds and borrowers’ incentives for defaults. The study used annual
inflation rate to express the inflation for microfinance institutions.

The other study undertaken by Belayneh (2011) in the banking industry that is determinants of
profitability in commercial banks also show that high inflation rate is associated with higher
costs as well as higher income. If a bank’s revenue increases more quickly than its costs,
inflation is expected to exert a positive effect on profitability. On the other hand, if its costs
increase faster than its revenue a negative coefficient is expected on profitability.

2.6. Conclusion and Research Gap

Financial performance is important to all business sectors mainly for microfinance industry
which is in line with the above mentioned theoretical as well as empirical review since the
stability of MFIs depends on their performance. The empirical literatures that are discussed so
far showed that, MFIs performance is affected by different factors such as internal, external and
industry specific factors. The literatures that are developed to examine the determinants of
microfinance performance show different and even contradictory results. This indicates that there
is no consensus in the micro financing literature on determinates of financial performance of
MFIs.

In the context of Ethiopia, the studies conducted by Letenah (2009), Yenesew (2014), Berhanu
(2019), Sisay (2016), Alemayehu (2008) assessed the determinants of financial performance of
Ethiopian MFIs. In order to investigate the determinants financial performance of MFIs, the
previous studies have used variables such as breadth of outreach, portfolio quality, capital
adequacy, debt to equity ratio, liquidity ratio, operational efficiency, asset quality, loan loss
reserve, number of active borrowers, size of MFI, age, real GDP, inflation, foreign exchange rate
and market concentration. Accordingly, as per the knowledge of the researcher, all the studies
failed to include the important variables like management efficiency and employee productivity.
Because these variables are important variables which can significantly affect the performance of
Ethiopian microfinance industry.

26
2.7. Conceptual framework
Varies empirical evidences proposed that the financial performances of microfinance institutions
are influenced by both internal and external factors. Both Internal and external factors used in
this study include Capital asset ratio, Portfolio Quality, Management efficiency, Employee
productivity, Debt to equity ratio, Microfinance Size, Age, real GDP and Inflation rate only for
the study proposed.

Figure2.1. Relations between financial performance and its factors

Internal factors External factors

Capital Asset ratio

Portfolio quality
Management efficiency
GDP
Employee productivity
Financial
Performance Inflation rate
Gearing ratio

Size
Age

Conceptual framework for the study

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 CHAPTER THREE

3. RESEARCH DESIGN AND METHODOLOGY

3.1. Introduction
This chapter mainly includes research approach, research design, research method, target
population, sampling techniques and sample size, methods of data collection, data analysis,
techniques data reliability and validity, ethical considerations, model Specification, model
assumptions and Description and Measurement of variables.

3.2. Research Approach and Design

The main objective of this study is to investigate the factors affecting financial performance of
Ethiopian MFIs for the period covers 2010 to 2019. The study adopted an explanatory research
design following a quantitative research approach to achieve the stated objective. The rationale
behind selecting an explanatory research design is, it is useful especially when a study needs to
measure the cause and effect relations between dependent and independent variables.

3.3. Research Method

3.3.1. Source of data

This study used purely secondary source of data that was taken from the national bank of
Ethiopia and audited financial statements of each MFI for consecutive 10 years were utilized.
Accordingly, financial data for 19 MFIs for the year 2010-2019 were collected from the NBE.

3.3.2. Target Population

The target population of this particular study included all the microfinance institutions currently
operating in Ethiopia. At present, there are 38 microfinance institutions registered by the NBE
which are providing a microfinance service to the poor society in Ethiopia on the current period.

3.3.3. Sampling Technique and Sample size

The study employed non probability sampling specifically purposive sampling technique to
select the samples based on the age and accessibility of complete audited financial statements.
The rationale behind selecting purposive sampling technique than others is, it considered more

28
appropriate when the universe happens to be small. Accordingly, from 38 microfinance
institutions currently operating in Ethiopia, 19 microfinance institutions have included as a
sample in the study operating for more than ten years (2010-2019). The selected nineteen MFIs
are: ACSI, ADCSI, OCSSCO, OMO, DCSI, Aggar, AVFS, Ben.Gum, BUS.GON, Eshet, Gasha,
Harbu, Meklit, Metemamen, PEACE, Sidama, SFPI, Wassa and Wisdom. Among the 19 MFls
selected the first five are government owned as per the order mentioned.

3.3.4. Data Analysis Technique

The collected panel data were analyzed by using descriptive statistics and multiple linear
regression analysis. The secondary data was analyzed by using E-views 10 for windows software
package and then obtain and analyze statistical results. Basically, the mean, standard deviation,
minimum and maximum values of the study were analyzed using descriptive statistical tools.

3.3.5 Data Validity and Reliability

To insure the validity and reliability of this study, the researcher has provided sufficient
information and reliable data. Moreover, as much as possible the researcher tried to get audited
financial statements of the selected MFIs from national bank of Ethiopia which is legally
legitimate.

3.4. Ethical considerations

The study has been followed to ethical principles with respect of the data collection and use of it
in the study. All the ideas and concepts taken from other scholars that used for reviewing the
literature are acknowledged. In addition the data obtained will not be passed to third party at any
circumstances and only used for the purpose of this research study.

3.5. Model Specification

In this research, the general multiple linear regression model is adopted to examine the effect
internal (CAR, PAR, MGE, EMP, GR, SIZE and AGE) and external (real GDP and inflation
rate) variables on MFIs financial performance. The regression model is stated as shown on the
equation below.

ROAit = βoi + β1CARit + β2PORit + β3MGEit + β4EMPit + β5GRit + β6SIZEit +β7AGEit

+β8GDPit+ 9INFit+€it

29
Where: β1 to β9 are the coefficients of the variables and €it is the error term.

Βoi = constant term which differs across MFIs but constant over time

ROAit = Return on total asset for MFI i at time t

CARit = Capital asset ratio for MFI i at time t

PARit = portfolio quality for MFI i at time t

MGEit = management efficiency for MFI i at time t

EMPit = employee productivity for MFI i at time t

GRit = gearing ratio for MFI i at time t

SIZEit = size of microfinance for MFI i at time t

AGEit = age of micro finance for MFI i at time t

GDPit = real growth domestic product of the country

INFit = inflation rate for MFI i at time t

3.5.1 Model Assumptions

To ensure that the data fits the basic assumptions of classical linear regression model, the
following diagnostic tests were conducted in this study.

Heteroscedasticity Test

According to Brooks (2008), Heteroscedasticity occurs when the variance of the error term is not
constant. From the several tests used to detect the Heteroscedasticity problem, this study used
the Autoregressive Conditional Heteroscedasticity (ARCH) test to detect Heteroscedasticity. The
test based on the null hypothesis that there is no Heteroscedasticity problem in the model.

Test for Autocorrelation

Autocorrelation or serial correlation assumed that the errors are uncorrelated with one another.
That means errors associated with one time period are uncorrelated with the errors of any other

30
time period. If the errors are correlated with one another, it would be stated that auto correlated
occurs or the errors are said to be serially correlated. To test the presence of autocorrelation, the
researcher employed Breusch-Godfrey Serial Correlation LM test.

Test for normality

Normality test was conducted to confirm if the residuals are normally distributed. To ascertain
this assumption, the researcher employed the Jacque-Bera (JB) test in this study. As noted by
Brooks (2008), if the residuals are normally distributed, the histogram should be bell-shaped and
the Jacque- Bera statistic would not be significant at 5% significant level.

Test for Multicollinearity

Multicollinearity will occur when some or all of the independent variables are highly correlated
with one another. If the multicollinearity occurs, the regression model is unable to tell which
independent variables are affecting the dependent variable. According to Gujarati (2004), the
rule of thumb is that if the pair-wise correlation coefficient between two repressors is above of
0.8, it is concluded that there is problem of multicollinearity.

Model Specification Test

According to Brooks (2008), there are two broad types of panel data estimator approaches that
can be employed in the empirical research: fixed effects (FE) and random effects (RA) models.
In order to run the regression, the Hausman test was made to detect which model is appropriate
from the two classes of panel data approaches. Accordingly, if the result of the p-value for the
test is less than 5% or 0.05, it indicates the fixed effect model is appropriate but if p-value for the
test is in excess of 5%, it shows that the random effect is to be preferred. The test was based on
the null hypothesis that the preferred model is random effect and the alternative states that the
fixed effect is appropriate.

3.6. Description and Measurement of variables

3.6.1. Dependent variable

Specifically for this study the dependent variable is the financial performance of the MFIs which
was measured by the ratio of return on total asset (ROA).

31
Return on Asset (ROA)

The ROA measures how well the MFI uses all its assets to generate income.

Return on Asset (ROA) =Net income/ Total asset

3.6.2 Independent variables

To measure the financial performance of Ethiopian MFIs, nine explanatory variables were
chosen. The seven independent variables are selected based on previous studies conducted in the
area of microfinance institutions performance and the rest two are new variables. These variables
are capital asset ratio, portfolio quality, management efficiency, employee productivity, gearing
ratio, size of microfinance and age of microfinance, GDP and inflation rate.

Capital asset ratio: The ratio of equity to asset was used

Portfolio Quality: Outstanding balance, loan overdue>30 days to Adjusted gross loan portfolio

Management efficiency: The ratio of operating expense to operating income was used

Employee productivity: The ratio of total income to salary and benefit expense

Gearing ratio: The ratio of debt to equity was used

MFI size: The natural logarithm of the total asset of the MFI

MFI Age: Number of years of operation

Real GDP: The yearly real gross domestic product growth rate was used

Inflation: The yearly inflation rate was taken for each MFI.

32
Table3.1 Summary of the variables and measurements
Variable Measures Notation Exp. sign

Dependent Return on The ratio of net income to total assets ROA N/A
variable asset

Capital asset The ratio of equity to total assets CAR +

ratio

Portfolio The ratio of outstanding balance, loan PAR _

quality overdue>30 days to Adjusted gross
loan portfolio

Management The ratio of operating expense to MGE +

efficiency operating income

Employee The ratio of income to salary and other EMP +

productivity benefit expense
Independent
Gearing ratio The ratio of debt to equity GR _
variables

Size of MFI Natural logarithm of the total asset SIZE +

Age of MFI Number of years of operation AGE +

Economic Real GDP growth (in %) GDP +

growth

Inflation The annual inflation rate INFL +

33
 CHAPTER FOUR

4. Data Analysis and Discussion of Results

4.1. Introduction
The previous chapter presented the research method adopted in this study. The purpose of this
chapter is to present results and discussions of the factors affecting financial performance of
microfinance institutions in Ethiopia based on annual balanced panel data of the selected
microfinance institutions over the period of 2010-2019. The next discussion presents the tests
for the assumptions of classical linear regression model, the descriptive statistics, the correlation
analysis among the dependent and explanatory variables and the results of the panel data
regression analysis respectively.

4.2. Test results for the CLRM assumptions

As it is mentioned in the methodology part of this study, diagnostic tests were carried out to
confirm that the data fits the basic assumptions of classical linear regression model. Hence, the
following sections discuss results of the diagnostic tests (i.e., heteroskedasticity, autocorrelation,
multicollinearity, normality and model specification test) that ensure whether the data fits the
basic assumptions of classical linear regression model or not.

4.2.1. Test for Hetroskedasticity

One of the basic assumptions of the classical linear regression model is homoscedasticity which
states that the variance of the errors must be constant. If the errors of the different observation do
not have the same variance, they are said to be heteroskedastic (Brooks, 2008). The study would
be employed the Autoregressive Conditional Heteroskedasticity (ARCH) test to detect the
presence of heteroskedasticity. The null hypothesis is that the variance of the errors is constant or
the alternative hypothesis that the errors do not have a constant variance.

In this study as it observed from table 4.1 below, both the F-statistic and Chi-Square versions of
the test statistic gave the same conclusion that there is no evidence for the presence of
heteroscedasticity, since the p-values were above 0.05. This shows that, there is no evidence that
we do not reject the null hypothesis indicating that the residuals are homoscedastic, since the p-
value was considerably in excess of 0.05 or it is above5%.

34
Table4.1. Heteroskedasticity Test: ARCH

F-statistic 0.769379 Prob. F(1,186) 0.3815

Obs*R-squared 0.774448 Prob. Chi-Square(1) 0.3788

Source: E-views 10 output (2021)

4.2.2. Autocorrelation test

According to Brooks (2008), autocorrelation problem exist in the model if there is an indication
that the error term for any observation is correlated to the error term of other observation. In
other words, it is assumed that the errors term in one-time period is uncorrelated with the error
term in any other time period. If the errors associated with one observation are not uncorrelated
with any another observation, they are stated as auto correlated or serially correlated. To conduct
the autocorrelation test, Breusch-Godfrey Serial Correlation LM Test was adopted in this study.
The p-value is gained to determine whether there is an autocorrelation problem or not in the
model. If the p-value is more than 5 percent significant level, it implies that there is no
autocorrelation problem in the model. The model specification test consists of the null hypothesis
that there is no problem of autocorrelation or the alternative hypothesis that there is
autocorrelation problem. Decision: Reject H0 if the p-value is less than significance level 0.05.
Otherwise, do not reject H0. The table 4.2 below showed that the probability value (p-value) of
F-statistic is 0.0673 which is greater than 0.05. The Chi-Square P-value of the model also
supports the absence of serial correlation. Thus, there is no evidence for the presence of auto
correlation in the model.

35
Table4. 2 Autocorrelation test: Breusch-Godfrey serial correlation LM test

F-statistic 1.872231 Prob. F(8,170) 0.0673

Obs*R-squared 15.30353 Prob. Chi-Square(8) 0.0535

Source: E-views 10 output (2021)

4.2.3 Test for Normality

Another third important diagnostic test carried out in this study is the normality assumption.
Normality test is used to decide whether the residuals are normally distributed or not. According
to Brooks (2008). If the p-value of the Bera-Jarque statistic is not significant at 5% significant
level, the residuals are normally distributed. As he noted also the histogram should be bell-
shaped. The null hypothesis of the model specification is that the residuals are normally
distributed. The normality tests for this study as shown in figure 4.1 below, the histogram is bell-
shaped and the Bera-Jarque statistic had a P-value of 0.139 which is greater than 0.05, implying
that the residuals are normally distributed. Therefore, the residuals are normally distributed in
this study and concluded that there was no problem of normality in the model.

Figure4. 1. Normality test for residuals

Source: E-views 10 output (2021)

36
 4.2.4 Test for Multicollinearity
Multicollinearity will occur if some or all of the independent variables are highly correlated with
one another. If there is no multicollinearity problem in a model, adding or removing a variable
from a regression model would not cause to change the values of the coefficients on the former
variables (Brooks, 2008). This study used high pair-wise correlation coefficients method to
detect the existence of multicollinearity. According to Hair et.al (2006), multicollinearity could
only be a problem if the pair-wise correlation coefficient among repressors is above 0.90. As it
appears in the correlation matrix table below, correlations between size and gearing ratio
(0.5787) and between age and size (0.53680) are relatively higher than the rest coefficients but
still it can be said fair. The rest of the correlation coefficients were lower indicating the absence
of multicollinearity in this study, making the regression analysis more reliable. Thus, there is no
such high correlation between independent variables. Accordingly, there is no multicollinearity
problem in this study.

Table 4.3 Correlation matrixes of independent variables

CAR PAR MGE EMP GR SIZE AGE GDP INFL

CAR 1.0000

PAR -0.1148 1.0000

MGE 0.1388 0.2159 1.0000

EMP 0.1317 -0.1225 -0.3454 1.0000

GR -0.7283 -0.0232 -0.0191 -0.1861 1.0000

SIZE -0.3997 -0.2499 -0.2758 -0.0842 0.5787 1.0000

AGE -0.4321 -0.0486 -0.1787 -0.1552 0.4364 0.5368 1.0000

GDP 0.1980 0.0333 0.0203 0.2416 -0.1840 -0.2213 -0.4995 1.0000

INFL 0.0108 -0.0525 -0.0175 0.0550 -0.0535 -0.0816 -0.1964 -0.2219 1.0000

Source: E-views 10 output (2021)

37
4.3 Model selection
To examine internal and external factors affecting the financial performance of MFIs in Ethiopia
under this study, panel regression method was applied. According to Brooks (2008), there are
two types of panel estimator approaches, namely: fixed effects models (FEM) and random
effects models (REM). In order to run the regression, the study decided on the appropriate panel
regression model between the two panel data estimators- fixed effect and random effect model.

The Hausman test was performed to detect the appropriateness of the model to be adopted.
According to Brooks (2008), if the null hypothesis is rejected then we employ Fixed Effects
method. The null hypothesis is that the preferred model is random effects and the alternative
hypothesis states that the fixed effect is preferred. Decision: Reject null hypothesis if probability
value is less than significance level 0.05. Accept null hypothesis if probability value is greater
than 0.05.

The table 4.4 below showed that the probability value (p-value) here is 1.0000 which is greater
than 0.05. Therefore, according to the results presented below the study adopted Random effects
model.

Table4.4. Hausman Test

Correlated Random Effects - Hausman Test

Equation: Untitled

Test cross-section random effects

Test Summary Chi-Sq. Statistic Chi-Sq. d.f Prob.

Cross-section random 0.000000 9 1.0000

Source: E-views 10 output (2021)

4.4 Descriptive statistics

This section discusses the outcomes obtained from the descriptive statistics for both dependent
and independent variable. The dependent is Return on Asset (ROA), and the independent

38
variables: capital asset ratio (CAR), portfolio at risk (PAR), management efficiency (MGE),
employee productivity (EMP), gearing ratio (GR), SIZE, AGE, real gross domestic product
(GDP) and inflation rate (INFL). Key figures, including mean, standard deviation, minimum and
maximum values were reported. These figures give overall description about the data used in the
model. In all, a total of 190 observations were presented for nineteen microfinance institutions
covering a period of 2010-2019. The table below provided a summary of the descriptive statistics
for all variables.

Table 4.5.Descriptive Statistics

Variable Observation Mean Median Max Min Std.Dev

ROA 190 0.106076 0.066028 0.454508 -0.223296 0.122551

CAR 190 0.344911 0.339895 0.802099 -0.024816 0.142918

PAR 190 0.045848 0.033300 0.260000 0.000000 0.044951

MGE 190 0.675471 0.644332 4.817761 0.138060 0.432913

EMP 190 4.721482 3.836808 18.30826 0.172794 2.991238

GR 190 2.233518 1.893987 11.88495 0.246722 1.504452

SIZE 190 12.52305 12.12500 17.30000 9.700000 1.904885

AGE 190 15.18421 15.00000 22.00000 5.000000 3.686492

GDP 190 0.095590 0.100750 0.114000 0.077000 0.011996

INFL 190 0.124021 0.097105 0.341000 0.028000 0.082639

Source: E-views 10 output (2021)

As it is shown in the table 4.5 above, the financial performance of Ethiopian Micro Finance
institutions which is measured by Return on Asset for 190 observations indicates that averagely
positive value of 0.10 during the study period of (2010-2019). In addition to this the Maximum

39
value of ROA is 0.454 and its minimum value is -0.223. This shows that the MFIs included in
the sample in the study period was generated on average 0.10 cents in every one birr investment
they made on total asset and the profitable MFIs earned 0.454 cent of profit after tax for a single
birr investment they made on total asset. On the contrary, not profitable MFIs lost 0.223 cents for
one birr investment made on total assets of the firm. The Standard deviation of financial
performance (ROA) is 0.122. This standard deviation ascertains the disparity of rates of return
earned by MFIs.

Regarding to the Capital to asset ratio variable the maximum and the minimum values were
80.20 % and -2.48%.respectively. In addition the average capital to asset ratio showed a value of
34.49% which is above the statutory requirement of 12% set by national bank of Ethiopia.
14.29% is the standard deviation of this variable. This indicates the presence of large deviation in
capital to asset ratio of the selected MFIs for the study period.

Quality of Portfolio measured in terms of portfolio at risk greater than 30 days for the selected
MFIs was on average 4.58% which revealed that, there is a healthy loan portfolio. The maximum
and minimum values were 26% and 0% respectively. The maximum 26 % result implies that the
credit portfolio of some MFIs in the sample is fairly risky. The standard deviation is 4.49%.
This indicates that there is a large deviation among the MFIs. The result of the study shows
during the study period on the sample MFIs is that from loan portfolio the portion of the
portfolio unpaid is 4.58 % in average that is good. Thus, the result of PAR greater than 30 days
reflects that Ethiopian MFIs in the study period 2010-2019 had acceptable portfolio quality.

Management efficiency is measured by the ratio microfinance operating expense to operating

income. The mean value of management efficiency was 0.675 its standard deviation was 0.432.
The results 0.138 and 4.817 represent the minimum and maximum values respectively. The mean
value reveals that Ethiopian microfinance institutions are efficient due to the low operating
expense per unit of operating return, which means for 0.675 birr operating expense there was one
birr operating income.

Employee productivity has maximum of 18.03 and a minimum of 0.172. The mean value is 4.72.
2.99 is its standard deviation. This indicates that the Ethiopia microfinance institutions obtain an
average return of 4.72 birr for each 1 birr of salary and other benefit expense paid. The outcome

40
shows that the Ethiopia MFIs are utilized their manpower effectively during the study period. In
relation to gearing ratio or Debt to equity ratio implies that the average value of 2.233 and
maximum value of 11.88 and 0.4467 minimum value. Meaning as per the mean value of this
variable (2.233) indicates, MFIs in Ethiopia are leveraged on average than financed through
equity capital because the AEMFI’s suggested standard of debt to equity is 1.5177. On the other
side the minimum gearing ratio (debt to equity) 0.2467 indicating few MFI are financed more
through equity capital than debt. However, the maximum value for this variable is 11.88 which
indicate that debt financing is more considered instead of having proportional financing
structure, therefore highly leveraged. Gearing ratio or the debt to equity ratio has a standard
deviation 1.5044. This illustrates the disparity of gearing ratio between the MFIs. The debt to
equity ratio or gearing ratio of Ethiopia microfinance institution was able to uphold a mean value
of 1.5 of their equity (AEMFI, 2013). Hence, the outcome of the study indicates the value greater
than the minimum requirement.

The size of microfinance institutions were proxy to their natural logarithm of each MFI's total
asset. The average value of this variable was 12.52358 during the study period .The minimum
value of this variable is 9.696961 and its maximum value is 17.2998. The standard deviation is
1.904863. This value is the third highest value among explanatory variables and indicating
higher disparity of size (total asset) in sample MFIs in Ethiopia. This is due to the variability of
data obtained from MFIs. On the other hand, the outputs of the descriptive statistics indicate that,
the age of microfinance institutions which is measured by number of years of operation had a
mean value of 15.18 with the minimum and maximum values of 5 and 22 respectively. The
largest standard deviation was recorded in this variable which was 368.86%. The outcomes of
the variables illustrate the presence of big difference in size and age of the sampled MFls during
the study period. This is actually visible in Ethiopian MFls.

In regard to macroeconomic variables, table 4.5 also shows that the mean real GDP growth in
Ethiopia for the last consecutive ten years was 9.56%, with a maximum of 11.4% and a
minimum of 7.7%. The standard deviation is 1.19%. This implies that economic growth in
Ethiopia during the period of 2010 to 2019 remains reasonably stable and the result of this stable
economic growth led positive effect to the MFIs financial performance. The other macro-
economic variable employed in this study is inflation, which had a mean value of 12.4%. The

41
minimum and maximum values were 2.8% and 34.1% respectively. Inflation had somewhat a
higher standard deviation (8.23%) compared to GDP. This implies that inflation rate in Ethiopia
remains somewhat unstable during the study period.

4.5. Correlation Analysis

This analysis is used to indicate that at what extent the explanatory variables are influential on
the financial performance indicator (ROA). Correlation coefficient between two variables ranges
from positive one of perfect positive relationship to negative one of perfect negative relationship.
The main significance of calculating each variables correlation is to describe about the reliabilit y
of relationship to each other. The degree of relationship between the explanatory and dependent
variables were explained by the parameter coefficients. The coefficients show the magnitude and
direction of the relationships. The higher the value of the coefficient, the stronger is the
relationship and the smaller the coefficient, the weak relationship. The sign also shows the
direction of the relationship.

As we can see in the table 4.6 below, employee productivity is positively correlated to ROA and
relatively, highly impacting to this performance indicator variable, ROA. This indicates that
improve employee productivity results to increase in income. On the other hand, portfolio
quality, management efficiency, gearing ratio, size and inflation seems to be negatively
correlated with the financial performance measure, ROA, indicating that, when these mentioned
microfinance explanatory variables increase, financial performance moves to the opposite
direction. In contrary the other variables, capital asset ratio, age and real GDP were positively
correlated with return on asset, indicating that as these variables increase, financial performance
also increases or moves to the same direction.

42
 Table4.6. Correlation matrix of dependent and independent variables

ROA CAR PAR MGE EMP GR SIZE AGE GDP INFL

ROA 1.0000

CAR 0.1633 1.0000

PAR -0.2752 -0.1148 1.0000

MGE -0.6896 0.1388 0.2159 1.0000

EMP 0.5187 0.1317 -0.1225 -0.3454 1.0000

GR -0.2262 -0.7283 -0.0232 -0.0191 -0.1861 1.0000

SIZE -0.0552 -0.3997 -0.2499 -0.2758 -0.0842 0.5787 1.0000

AGE 0.0537 -0.4321 -0.0486 -0.1787 -0.1552 0.4364 0.5368 1.0000

GDP 0.0501 0.1980 0.0333 0.0203 0.2416 -0.1840 -0.2213 -0.4995 1.0000

INFL -0.0149 0.0108 -0.0525 -0.0175 0.0550 -0.0535 -0.0816 -0.1964 -0.2219 1.0000

Source: E-views 10 output (2021)

4.6. Finding of the Regression

This section presents the regression result of random effect model that was made to examine the
factors affecting financial performance of Ethiopian MFIs. Accordingly, the regression result
was made and coefficients of the variables were estimated via E-views 10 software package. As
stated above, random effect regression model is an appropriate model used in this study.
Therefore, the model used to examine the factors affecting financial performance of MFIs in
Ethiopia. To test the relationship between the financial performance of the MFIs and selected
internal and external determinant variables, as stated in chapter three the following linear
regression model was developed.

ROA = β0 + β1 CAR +β2 PAR+ β3 MGE + β4 EMP+β5GR+β6 SIZE+ β7 AGE + β8 GDP +

β9INFL+ ε

43
Table 4.7 Regression Result for factors affecting financial performance of
Ethiopian microfinance institutions.

Variable Coefficient Std. Error t-Statistic Prob.

C 0.241134 0.103791 2.323259 0.0213

CAR 0.121700 0.062494 1.947398 0.0530*

PAR -0.336693 0.108924 -3.091078 0.0023***

MGE -0.145599 0.012254 -11.88186 0.0000***

EMP 0.008513 0.001955 4.354422 0.0000***

GR -0.002605 0.005903 -0.441307 0.6595

SIZE -0.014170 0.006939 -2.041919 0.0426**

AGE 0.005317 0.002669 1.992187 0.0479**

GDP 0.049232 0.480998 0.102354 0.9186

INFL -0.045279 0.056859 -0.796347 0.4269

R-squared 0.588882

Adjusted R-
squared 0.568326

S.E. of
regression 0.054625

F-statistic 28.64785

Prob(F-statistic) 0.000000

Source: E-views 10 output (2021)

Note: ***, ** and * denote significant at 1%, 5%, and 10% levels respectively.

44
Empirical model of the factors affecting financial performance of Ethiopian microfinance
institutions was provided as follows:

ROA=0.2411 + 0.1217CAR - 0.3367PAR + -0.1456MGE + 0.0085EMP -0.0022GR -

0.0142SIZE + 0.0053AGE + 0.0053GDP -0.0453INFL+ ε

4.7. Discussion of the Regression Results

Based on the outcomes indicated in table 4.7 above, the internal independent variables, capital
asset ratio, management efficiency, portfolio quality, employee productivity, size and age had
statistically significant impact on financial performance of microfinance institutions. The rest
microfinance specific independent variable, gearing ratio and the macroeconomic independent
variables used in this study, GDP and inflation rate had statistically insignificant impact on
financial performance of the MFIs. The significant variables, portfolio quality, management
efficiency and employee productivity were significant at 1% significance level since the p-value
for these variables was almost 0.000 and capital asset ratio, size and age were significant at 5%
significance level since the p-value for these variables were 0.0530, 0.0426 and 0.0479
respectively.

The result also shows that the coefficient of Portfolio at Risk>30 days, management efficiency,
gearing ratio, size, and inflation against ROA were negative with the coefficients of -0.3367, -
0.1456, -0.0026, -0.0142 and -0.0453 respectively. This described as; there was an inverse
relationship between the aforementioned five explanatory variables and ROA. As a result, the
increase of the above mentioned variables will lead to a decrease in financial performance. On
the other hand, variables like capita asset ratio, employee productivity, age and GDP had a
positive relationship with financial performance as indicated by the coefficients of 0.1217,
0.0085, 0.0053 and 0.0492 respectively. This clearly shows that there was a direct relationship
between the above listed four explanatory variables and ROA.

Based on the regression result, the values of R-squared statistics and the Adjusted-R squared
statistics of the model was 58.88% and 56.83% respectively. The R-squared result implies that
58.88% variation in the dependent variable (ROA) is described by the explanatory variables of
the Ethiopian microfinance institutions, Capital to Asset ratio, Portfolio at Risk>30 days, MGE,
EMP, GR, Size, Age, GDP and Inflation jointly and the remaining 41.12% was explained by

45
other factors which are not included in the model, while the result of the adjusted-R squared
indicates that the changes in the independent variables explain 56.83% of the changes in the
dependent variable. That is Capital to Asset ratio, Portfolio at Risk>30 days, MGE, EMP, GR,
Size, Age, GDP and Inflation collectively explain 56.83% of the changes in ROA. The 0.000
value of the Prob (F-statistic) indicates that strong statistical significance, which enhanced the
reliability and validity of the model. Each variable is presented in detail in the following section.

Capital to Asset ratio

The regression results of this study indicated that the relationship between capital to asset ratio
and ROA is positive (0.1217). It is statistically significant variable at 10% significance level (P-
value 0.053). This reveals that for the study period 2010 up to 2019 capital strength of Ethiopian
MFIs have a positive relationship with their financial performance or holding constant all other
variables, increasing CAR by one unit causes to increase the ROA by 0.1217 birr. Hence, the
hypothesis saying there is a significant positive effect between capital to asset ratio and financial
performance of MFIs is not rejected or data did support the hypothesis. The result of this study is
similar to the findings of Muriu (2011) but inconsistent with the finding of Sima (2013) and
Ayayi (2009). In general, capital strength can affect financial performance of Ethiopian
microfinance institutions.

Portfolio quality

The regression results of table 4.7 above showed that the explanatory variable portfolio at risk
which was measured by Loan overdue greater than 30 days to gross loan portfolio was
statistically significant at one percent of significant level (P-value 0.0023). The beta value or
coefficient of this variable was -0.336693 which implies that there is an inverse relationship
between portfolio at risk and performance indicator, return on asset of MFIs. This negative
relationship proves that a higher portfolio at risk would tend financial performance to decrease or
the higher the PAR, the more inefficient the MFI will be and, thus, the less financial
performance. Accordingly, this study failed to reject the hypothesis saying, there is a significant
negative relationship between quality of portfolio and financial performance of Ethiopian MFls
because the data did support to ascertain. The result of the study is compatible with the findings
of Sisay (2016), Sima (2013), Muriu (2011) and it is opposite to Dissanayake (2012). In general,

46
it can be said that the portfolio-at-risk (Par>30) is the key indicator of the financial performance
of Ethiopian MFIs.

Management Efficiency

The regression results of this study indicated that the impact of management efficiency on
financial performance of Ethiopian MFIs is negative. The result shows that, a negative
coefficient of -0.1456 and it was statistically significant at 1% significance level (p-value=
0.0000). The result indicated that there was an inverse relationship between management
efficiency and financial performance of Ethiopian MFIs during the study period. The negative
relationship revealed that holding constant all other variables, increasing operational expense on
operational income, causes to decrease the financial performance of microfinance institutions,
ROA. Thus, the hypothesis that states there is a positive and significant relationship between
management efficiency and financial performance is rejected or data did not support the
hypothesis. Therefore, the managers of Ethiopian MFIs should improve their efficiency to
decrease operating expense and increase their financial performance, ROA. Generally
management efficiency was a key factor affecting financial performance of Ethiopian MFIs for
the study period 2010-2019.

Employee Productivity

As the above random effect regression output indicated that, employee productivity has a
positive impact (0.0085) on MFIs financial performance (ROA). The result also showed that it
was found to significantly affect the financial performance of MFIs at 1% level of significance
(p-value= 0.0000). This revealed that holding other things constant, an increase in employee
productivity causes to increase the dependent variable, ROA. It shows that microfinance
institutions can increase their financial performance from improved employee productivity and
with a better pay. This result also implies that the better MFIs pay the better employee
productivity and competition among the institutions. Therefore, better pay to employee leads to
enhance the financial performance of microfinance institutions in Ethiopia. Thus the hypothesis
that stated earlier, there is a significant positive relationship between employee productivity and
financial performance was failed to reject because data did support the hypothesis.

Gearing Ratio

47
The regression results of this study indicates that the relationship between gearing ratio/debt to
equity ratio and ROA is negative (-0.0026) and it was also statistically insignificant (p-
value=0.6595). This higher p-value indicating that the variable is statistically insignificant to
explain the dependent variable return on asset of MFIs. This indicates that, this variable has little
effect on performance of Ethiopian MFIs during the study period. The negative relationship was
in line with the results of prior studies Sisay (2016), and Yenesew (2014). However, the result
was opposite to Dissanayake, (2012) and Muriu, (2011). Thus, based on the regression result
from the study, the study rejected the hypothesis which states gearing ratio has negative and
significant relationship with financial performance of Ethiopian MFIs.

Size

Natural logarithm of total asset is used as a proxy of size of MFIs in the regression model. The
result indicates that size is inversely related to financial performance of microfinance institutions
and statistically significant at 5% of significance level (p-value=0.0426). The negative
coefficient of -0.0142 implies that microfinance size has a negative causal relationship with the
financial performance of microfinance institution, return on asset. This could show that, large
microfinance institutions are not effectively managing their organizational resources and they
couldn’t capitalize their economies of scale. Therefore the study rejected the hypothesis which
states that size of microfinance institution is positively and significantly related with its financial
performance of MFIs because the data did not support the result. The finding of this study was
consistent with the findings of Sisay (2016) and Sima (2013) but opposite to Melkamu (2012)
and Muriu (2011).

Age of MFIs

The regression results of this study showed that age of a MFI has a positive (0.005317) impact
on ROA. The regression result also indicated that this variable was found to statistically affect at
5% significance level (P-value of 0.0479). The direct relationship between age of microfinance
and financial performance of MFI in Ethiopia indicates that as MFIs mature gets experience,
they increase their likelihood of achieving financial performance better than new MFIs. This
indicates that age was a key factor of financial performance of Ethiopian MFIs having a direct
relationship with ROA. This is also practical in Ethiopia where matured MFIs have high

48
financial performance compared to new MFIs Thus, based on the regression result from the
study, the study accepted the hypothesis which states age has positive and significant relationship
with financial performance of Ethiopian MFIs. The finding of this study was consistent with the
findings of S Yenesew (2014) and Yonas (2012).

Real GDP

Turning to the macroeconomic variables, the researcher observed that the macroeconomic
variable, real GDP had a positive coefficient (0.0492). This variable was statistically
insignificant even at 10 percent (P-value of 0.9186) which indicates that improvement in
economic conditions did not significantly affect financial performance of Ethiopian MFls during
the study period 2010-2019. The positive coefficient sign which is not beyond the researchers
expectation result shows that one-unit increase in GDP contributes nearly 0.049 units to increase
in return on assets. Moreover, higher GDP growth leads to higher microfinance financial
performance in Ethiopia. This result is agreed with Fikremariam (2015) but inconsistent with the
studies by Muriu (2011) and Sima (2013)). Therefore the hypothesis which says there is a
significant positive relationship between GDP and financial performance of MFls is failed to
reject since the data supported the hypothesis.

Inflation

Inflation was the other macroeconomic factor included in the study. The coefficient estimate of
inflation (-0.0453) in this particular study revealed that a negative association with the financial
performance of MFIs in Ethiopian. This implies the existence of inverse relationship among
inflation and financial performance of microfinance institutions. However, this negative
association was statistically insignificant (a p-value of 0.4269). Thus, the findings suggested that
inflation was not a major factor that affects the financial performance of Ethiopian MFIs.
Accordingly, the hypothesis saying, there is a significant positive effect between inflation and
financial performance of Ethiopian MFIs not accepted because the data did not support the
hypothesis formulated earlier. The result is similar with the findings of Muriu (20 11) and
Fikremariam (2015).

49
 Table4. 8. Regression result summary

Explanatory Variables Expected impact on financial Performance Actual impact on financial Performance
(ROA) (ROA)

CAR Positive & significant positive& insignificant

PAR Negative & significant Negative & significant

MGE positive & significant Negative& significant

EMP positive &significant positive & significant

GR Negative & significant Negative & insignificant

SIZE Positive & significant Negative & significant

AGE Positive& significant Positive& significant

GDP Positive & significant Positive & insignificant

INFL Positive & significant Negative & insignificant

50
 CHAPTER FIVE

5. CONCLUSIONS AND RECOMMENDATIONS

The preceding chapter presented the analysis of the findings and discussions of the study. This
chapter deals with the conclusions attained and the recommendations forwarded by the
researcher based on the findings of the study. This final chapter is organized into three sections.
The first section presents the conclusions of the study, the second section presents the
recommendations provided based on the findings of the study and the third section raises issue
for further study in the subject matter.

5.1. Conclusions
The main objective of this study was to examine the internal and external factors affecting
financial performance of MFIs in Ethiopia from 2010 to 2019. The internal factors included in
this study are variables such as capital asset ratio, portfolio quality, and management efficiency,
employee productivity, gearing ratio, size and age of MFIs. The macroeconomic factors included
in the study are GDP and inflation rate. Furthermore, the study used Return on Asset (ROA) as
the main measure of financial performance of MFIs.

By considering the nature and objective of the research, a quantitative research approach was
adopted to accomplish the stated objective of the study. The study used secondary data of 19
audited Ethiopian MFIs. The data was found from the national bank of Ethiopia. The collected
data from a sample size of nineteen MFIs over the period of 2010 to 2019 were analyzed using
descriptive statistics, correlation matrix and multiple linear regression analysis.

Based on the descriptive and empirical evidence obtained from the econometric results in the
prior chapter, the researcher generally concluded that financial performance of Ethiopian
microfinance institutions are highly affected by the internal factors than external factors.

Descriptive analysis outcomes show that Ethiopian MFIs averagely generating positive ROA.
This is an indication that Ethiopian MFIs generate profit in addition to their main role on poverty
reduction.

51
Capital to asset ratio showed a positive coefficient against ROA, which is in line with prior
expectations and the variable, was statistically significant. The statistically significant impact
indicating that an increase in this independent variable causes to increase the financial
performance (ROA) of Ethiopian MFls.

As expected, portfolio quality showed a negative coefficient and statistically significant impact
on ROA and also the variable was depicting that as Ethiopian MFls hold high portfolio at risk
their financial performance declines.

Management efficiency has a negative impact on ROA with strong significance coefficient
which is not in line with prior expectations. This depicts that the higher the cost, the lower the
financial performance of Ethiopian MFls.

The outcome of the study showed that a positive relationship between employee productivity and
financial performance with strong statistical significance. This indicates that as MFIs pay better
salary to their employees would improve their financial performance.

Gearing ratio showed a negative coefficient against ROA, which is in line with prior
expectations and the variable was statistically insignificant; indicating that debt to equity ratio
has little contribution on financial performance of Ethiopian MFIs.

Size of MFIs which is measured by natural log of total asset has a significant negative influence
on financial performance of MFIs. This implies that bigger microfinance institutions of the
nation, experience more significant fall in their capacity of financial performance.

As expected, age of MFIs as measured with the number of years a MFI is under operation
showed a positive coefficient and statistically significant variable; implying that the more the
maturity of the MFI the higher the financial performance will be.

The other variables included in the study which are the macroeconomic variables, real GDP and
inflation rate were found to be statistically insignificant indicators on financial performance of
MFIs in Ethiopian. This indicates that these factors have little or no impact on the financial
performance of Ethiopian MFIs in this model as far all those variables were not significant even
at 10 percent significance level.

52
In general, the findings revealed that capital to asset ratio, portfolio quality; management
efficiency, employee productivity, size and age of MFIs are the major significant factors of the
financial performance of the Ethiopian MFIs. But, the result of the regression model indicated
that the influences of debt to equity ratio, inflation rate and real GDP on ROA of microfinance
institutions in Ethiopia are insignificant for the period study period 2010 to 2019. The
relationship between financial performance indicator, ROA and capital to asset ratio, employee
productivity, age and GDP were found to be positive while portfolio quality, management
efficiency, gearing ratio, size of microfinance and inflation rate relationship with financial
performance with financial performance were negative.

5.2. Recommendations
Based on the findings of the study, the researcher has recommended certain points what he
thought to be very critical if considered and implemented by the microfinance institutions
accordingly and properly. Thus, the researcher forwarded the following recommendations.

 Capital to asset ratio, portfolio at risk, management efficiency, employee productivity,

microfinance size and age are significant factors of financial performance of MFIs in
Ethiopia. Therefore, the managements of MFIs should give great attention in properly
managing these independent variables.

 The explanatory powers of microfinance-specific variables are far more important in

explaining the variability in ROA for MFIs in Ethiopia than external variables. Thus,
MFIs in Ethiopia should be concerned about internal structures and policies in fashioning
out strategies to improve their financial performance.

 The managers and policy makers of MFIs should give high concern in the motives of
MFIs that is the institutions including the two motives together. Meaning the managers
and policy makers should give due attention for both eradicating poverty and financial
sustainability of MFIs.

 The government should create conducive environment by availing different facilities and
infrastructures for MFIs as they are main players in achieving countrywide goals.

53
  Enhancing the capacity and skill of employee and management through continuous
trainings, experience sharing and provision of advice and consultancy are essential to
make better financial performance of MFIs.

5.3. Suggestions for Further Research

Finally, this research study tried to examine the effect of internal and external factors on
financial performance of MFIs in Ethiopia and it will serve as an input for further study.
However, the variables included in the study are not enough to measure the financial
performance of the MFIs. Thus, further researchers should conduct by including other internal
and external variables such as lending methodology, number of branches, marketing strategy and
unemployment rate. Having further investigation with the inclusion of the above variables might
have a better role in examining other factors that affect for the financial performance of MFIs in
Ethiopian.

54
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Appendices
Appendix-I Regression output

Dependent Variable: ROA

Method: Panel EGLS (Cross-section random effects)
Date: 04/18/21 Time: 16:24
Sample: 2010 2019
Periods included: 10
Cross-sections included: 19
Total panel (balanced) observations: 190
Swamy and Arora estimator of component variances

Variable Coefficient Std. Error t-Statistic Prob.

C 0.241134 0.103791 2.323259 0.0213

CAR 0.121700 0.062494 1.947398 0.0530
PAR -0.336693 0.108924 -3.091078 0.0023
MGE -0.145599 0.012254 -11.88186 0.0000
EMP 0.008513 0.001955 4.354422 0.0000
GR -0.002605 0.005903 -0.441307 0.6595
SIZE -0.014170 0.006939 -2.041919 0.0426
AGE 0.005317 0.002669 1.992187 0.0479
GDP 0.049232 0.480998 0.102354 0.9186
INFL -0.045279 0.056859 -0.796347 0.4269

Effects Specification
S.D. Rho

Cross-section random 0.047490 0.4357

Idiosyncratic random 0.054046 0.5643

Weighted Statistics

R-squared 0.588882 Mean dependent var 0.035920

Adjusted R-squared 0.568326 S.D. dependent var 0.083141
S.E. of regression 0.054625 Sum squared resid 0.537109
F-statistic 28.64785 Durbin-Watson stat 0.988212
Prob(F-statistic) 0.000000

Unweighted Statistics

R-squared 0.646771 Mean dependent var 0.106076

Sum squared resid 1.002654 Durbin-Watson stat 0.529372

60
Appendix-II Heteroskedasticity Test: ARCH

Heteroskedasticity Test: ARCH

F-statistic 0.769379 Prob. F(1,186) 0.3815

Obs*R-squared 0.774448 Prob. Chi-Square(1) 0.3788

Test Equation:

Dependent Variable: RESID^2

Method: Least Squares

Date: 04/19/21 Time: 05:37

Sample (adjusted): 3 190

Included observations: 188 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

C 0.002235 0.000394 5.671873 0.0000

RESID^2(-1) 0.064162 0.073149 0.877142 0.3815

R-squared 0.004119 Mean dependent var 0.002388

Adjusted R-squared -0.001235 S.D. dependent var 0.004843

S.E. of regression 0.004846 Akaike info criterion -7.810710

Sum squared resid 0.004368 Schwarz criterion -7.776280

Log likelihood 736.2068 Hannan-Quinn criter. -7.796760

F-statistic 0.769379 Durbin-Watson stat 1.996770

Prob(F-statistic) 0.381541

61
Appendix-III autocorrelation test: Breusch-Godfrey

Breusch-Godfrey Serial Correlation LM Test:

F-statistic 1.872231 Prob. F(8,170) 0.0673

Obs*R-squared 15.30353 Prob. Chi-Square(8) 0.0535

Test Equation:
Dependent Variable: RESID
Method: Least Squares
Date: 04/17/21 Time: 16:05
Sample: 2 190
Included observations: 189
Presample missing value lagged residuals set to zero.

Variable Coefficient Std. Error t-Statistic Prob.

C 0.045034 0.065142 0.691324 0.4903

CAR -0.017991 0.040607 -0.443059 0.6583
PAR -0.037469 0.089502 -0.418642 0.6760
MGE -0.005090 0.010866 -0.468435 0.6401
EMP 0.001133 0.001418 0.799270 0.4252
GR -0.001410 0.004202 -0.335448 0.7377
SIZE -0.001108 0.002817 -0.393439 0.6945
AGE -0.000106 0.001519 -0.069625 0.9446
GDP -0.107287 0.392764 -0.273158 0.7851
INFL -0.010832 0.049909 -0.217037 0.8284
LAGROA -0.082238 0.045089 -1.823898 0.0699
RESID(-1) 0.253060 0.085275 2.967576 0.0034
RESID(-2) 0.111791 0.079951 1.398236 0.1639
RESID(-3) 0.044956 0.079167 0.567866 0.5709
RESID(-4) 0.075057 0.078168 0.960208 0.3383
RESID(-5) 0.039988 0.078807 0.507421 0.6125
RESID(-6) -0.039223 0.078607 -0.498976 0.6184
RESID(-7) -0.059472 0.078600 -0.756644 0.4503
RESID(-8) -0.007120 0.077532 -0.091839 0.9269

R-squared 0.080971 Mean dependent var -1.01E-17

Adjusted R-squared -0.016338 S.D. dependent var 0.048885
S.E. of regression 0.049282 Akaike info criterion -3.087389
Sum squared resid 0.412889 Schwarz criterion -2.761499

62
Log likelihood 310.7582 Hannan-Quinn criter. -2.955363
F-statistic 0.832103 Durbin-Watson stat 1.989871
Prob(F-statistic) 0.660674

Appendix-IV Tests for multicollinearity

CAR PAR MGE EMP GR SIZE AGE GDP INFL

CAR 1
-
PAR 0.11479561 1
MGE 0.13876370 0.2158937 1
-
EMP 0.13170740 -0.1225177 0.3453717 1
- - -
GR 0.72827569 -0.0232180 0.0190508 0.1861175 1
- - -
SIZE 0.39968326 -0.2499408 0.2757899 0.0841574 0.5786662 1
- - -
AGE 0.43208165 -0.0486328 0.1786609 0.1552199 0.4364276 0.5367565 1
- - -
GDP 0.19801679 0.0333461 0.0202721 0.2416486 0.1840002 0.2213204 0.49952627 1
- - - -
INFL 0.01078411 -0.0524766 0.0174579 0.0549905 0.0534989 0.0815571 0.19635874 -0.2219155 1

Appendix-V Model Specification Test: Hausman Test

Correlated Random Effects - Hausman Test

Equation: Untitled
Test cross-section random effects

Test Summary Chi-Sq. Statistic Chi-Sq. d.f. Prob.

Cross-section random 0.000000 9 1.0000

Cross-section test variance is invalid. Hausman statistic set to zero.

63
 Appendix-VI Ratio Data

MFI Year ROA CAR PAR MGE EMP GR SIZE AGE GDP INFL
ACSI 2010 0.059603 0.327263 0.035 0.405402 3.855775 1.79877893 14.56 13 0.1057 0.028
ACSI 2011 0.065514 0.278903 0.0146 0.415861 3.881172 2.585476903 15.00 14 0.114 0.181
ACSI 2012 0.07103 0.27944 0.01 0.390313 4.274064 2.578583705 15.29 15 0.087 0.341
ACSI 2013 0.06266 0.266717 0.059 0.440205 4.131398 2.749295273 15.59 16 0.0994 0.135
ACSI 2014 0.055143 0.239995 0.0075 0.457694 5.77328 3.166759087 15.95 17 0.103 0.081
ACSI 2015 0.053066 0.230172 0.0047 0.483197 5.445015 3.34457443 16.28 18 0.1041 0.077
ACSI 2016 0.051605 0.22738 0.008 0.540705 4.383718 3.397922069 16.54 19 0.08 0.097
ACSI 2017 0.054995 0.233726 0.005 0.533088 3.594022 3.278522084 16.78 20 0.1021 0.072
ACSI 2018 0.04577 0.215014 0.02 0.570666 3.651324 3.650859562 17.11 21 0.077 0.131
ACSI 2019 0.038158 0.214933 0.04 0.691484 3.52666 3.652611675 17.30 22 0.0836 0.0972
DCSI 2010 0.020533 0.306009 0.067 0.535184 6.149364 3.203608378 14.45 13 0.1057 0.028
DCSI 2011 0.018666 0.240291 0.0216 0.58073 4.932107 3.161619317 14.81 14 0.114 0.181
DCSI 2012 0.025221 0.246019 0.045 0.680393 3.849051 3.064726061 14.91 15 0.087 0.341
DCSI 2013 0.01555 0.221847 0.1137 0.78347 3.443074 3.507609547 15.09 16 0.0994 0.135
DCSI 2014 0.026007 0.215028 0.0426 0.707111 4.433735 3.650546368 15.25 17 0.103 0.081
DCSI 2015 0.026527 0.224565 0.0683 0.707124 4.214578 3.453050877 15.34 18 0.1041 0.077
DCSI 2016 0.000891 0.215141 0.01 0.992621 3.24111 3.648117823 15.39 19 0.08 0.097
DCSI 2017 -0.01798 0.127118 0.005 1.368898 1.78815 6.866703222 15.77 20 0.1021 0.072
DCSI 2018 0.032861 0.145088 0.02 0.717365 3.571142 5.892377068 15.89 21 0.077 0.131
DCSI 2019 0.023657 0.1364 0.05 0.738216 4.024413 6.331364085 16.38 22 0.0836 0.0972
OCSSCO 2010 0.100305 0.241565 0.046 0.406387 9.187975 3.139665762 14.14 13 0.1057 0.028
OCSSCO 2011 0.131371 0.263398 0.0352 0.376736 9.929994 2.796538046 14.34 14 0.114 0.181
OCSSCO 2012 0.150347 0.27119 0.032 0.340126 8.602259 2.687452138 14.56 15 0.087 0.341
OCSSCO 2013 0.148203 0.250757 0.0287 0.384881 8.114703 2.987930246 14.88 16 0.0994 0.135
OCSSCO 2014 0.12935 0.195602 0.0362 0.404725 5.816939 4.112427432 15.33 17 0.103 0.081
OCSSCO 2015 0.184152 0.255178 0.0531 0.360217 6.860791 2.918835505 15.37 18 0.1041 0.077
OCSSCO 2016 0.223319 0.293212 0.002 0.633016 3.410605 2.410498356 15.46 19 0.08 0.097
OCSSCO 2017 0.177533 0.219401 0.01 0.26537 6.999892 3.557855747 15.97 20 0.1021 0.072
OCSSCO 2018 0.166514 0.19599 0.03 0.289098 7.704684 4.102314063 16.32 21 0.077 0.131
OCSSCO 2019 0.045298 0.182863 0.07 0.624779 3.717607 4.46856562 16.43 22 0.0836 0.0972
OMO 2010 0.00301 0.27338 0.066 0.999696 3.076574 2.657917937 13.36 13 0.1057 0.028

64
OMO 2011 0.014405 0.244695 0.1516 0.903455 3.07669 3.086712522 13.51 14 0.114 0.181
OMO 2012 0.025721 0.17809 0.094 0.905916 2.074996 4.615142652 14.10 15 0.087 0.341
OMO 2013 0.028739 0.172123 0.0645 0.709747 2.796675 4.809783819 14.44 16 0.0994 0.135
OMO 2014 0.024693 0.146305 0.042 0.720622 2.628262 5.835020663 14.81 17 0.103 0.081
OMO 2015 0.031599 0.145933 0.0359 0.672212 3.064288 5.852446106 15.09 18 0.1041 0.077
OMO 2016 0.024888 0.115649 0.012 0.745377 2.771186 7.646877877 15.27 19 0.08 0.097
OMO 2017 0.021288 0.07761 0.013 0.765432 2.750198 11.88495135 15.57 20 0.1021 0.072
OMO 2018 0.017679 0.106429 0.02 0.790829 2.531294 8.395925395 15.97 21 0.077 0.131
OMO 2019 0.03528 0.192286 0.02 0.658716 2.680618 4.200594515 16.01 22 0.0836 0.0972
SFPI 2010 0.440211 0.448152 0.032 0.13806 16.64385 1.231391674 11.02 13 0.1057 0.028
SFPI 2011 0.454508 0.461479 0.0599 0.214574 9.798654 1.16694832 11.15 14 0.114 0.181
SFPI 2012 0.421475 0.426716 0.027 0.246106 9.186912 1.343477483 11.44 15 0.087 0.341
SFPI 2013 0.354787 0.360074 0.0236 0.264043 9.226868 1.777205859 11.86 16 0.0994 0.135
SFPI 2014 0.380157 0.384691 0.0306 0.254196 8.776269 1.599490058 12.01 17 0.103 0.081
SFPI 2015 0.332887 0.336226 0.0238 0.273623 7.273513 1.974187825 12.32 18 0.1041 0.077
SFPI 2016 0.332807 0.342368 0.03 0.314416 5.633221 1.920834395 12.43 19 0.08 0.097
SFPI 2017 0.332269 0.340528 0.018 0.302194 6.054257 1.936615477 12.58 20 0.1021 0.072
SFPI 2018 0.036359 0.324323 0.04 0.804784 2.476184 2.083346477 12.75 21 0.077 0.131
SFPI 2019 0.028822 0.194582 0.03 0.854279 2.596942 4.139225197 12.93 22 0.0836 0.0972
Gasha 2010 0.01594 0.038392 0.135 0.936501 5.367297 1.408532234 9.81 12 0.1057 0.028
Gasha 2011 0.073162 0.17089 0.1106 0.720159 6.042783 1.335802084 9.95 13 0.114 0.181
Gasha 2012 0.008887 0.022544 0.0186 0.941426 7.090128 1.536776896 10.05 14 0.087 0.341
Gasha 2013 0.004633 0.013525 0.021 0.952264 8.672351 2.020443021 10 15 0.0994 0.135
Gasha 2014 -0.0073 -0.02482 0.046 1.035222 5.809562 2.40041394 10.39 16 0.103 0.081
Gasha 2015 0.031641 0.112292 0.081 0.859683 4.963871 2.548903855 10.57 17 0.1041 0.077
Gasha 2016 0.052277 0.177585 0.121 0.799437 4.579216 2.396982338 10.71 18 0.08 0.097
Gasha 2017 0.037307 0.122262 0.156 0.839535 3.742384 2.277170543 10.87 19 0.1021 0.072
Gasha 2018 0.028816 0.099328 0.26 0.87656 2.933597 2.447030737 11.02 20 0.077 0.131
Gasha 2019 0.036298 0.126645 0.24 0.852762 2.652797 2.488990426 11.16 21 0.0836 0.0972
Vision 2010 -0.02302 0.472236 0.0694 1.130441 3.987264 1.117586743 11.70 12 0.1057 0.028
Vision 2011 -0.04556 0.480915 0.0211 1.211336 4.378541 1.07937167 11.84 13 0.114 0.181
Vision 2012 -0.012 0.476546 0.014 1.067098 4.568972 1.098435986 12.45 14 0.087 0.341
Vision 2013 0.054755 0.484797 0.0092 0.753042 3.875639 1.062716917 12.86 15 0.0994 0.135

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Vision 2014 0.083853 0.520148 0.0448 0.681123 2.856716 0.922531469 12.98 16 0.103 0.081
Vision 2015 0.145988 0.545189 0.0223 0.534684 3.309756 0.834224762 13.12 17 0.1041 0.077
Vision 2016 0.209816 0.536516 0.047 0.46715 1.894531 0.86387585 13.33 18 0.08 0.097
Vision 2017 0.253958 0.512642 0.027 0.380321 3.693214 0.950678585 13.56 19 0.1021 0.072
Vision 2018 0.229175 0.396725 0.03 0.406461 2.985426 1.520637339 14.00 20 0.077 0.131
Vision 2019 0.070726 0.357283 0.05 0.68957 3.083115 1.798898887 14.40 21 0.0836 0.0972
Sidama 2010 0.006046 0.310604 0.17 0.958281 3.783564 2.219543013 10.50 12 0.1057 0.028
Sidama 2011 0.018689 0.284944 0.1253 0.89865 2.968513 2.509469066 10.79 13 0.114 0.181
Sidama 2012 0.044112 0.26429 0.051 0.781426 2.783098 2.783724269 11.05 14 0.087 0.341
Sidama 2013 0.03441 0.201562 0.0345 0.812819 3.938792 3.96124878 11.53 15 0.0994 0.135
Sidama 2014 0.050736 0.331475 0.0455 0.763067 3.876021 2.016815422 11.70 16 0.103 0.081
Sidama 2015 0.047619 0.339725 0.0375 0.783318 2.31968 1.943562991 11.82 17 0.1041 0.077
Sidama 2016 0.048129 0.295085 0.043 0.726896 2.714601 2.388853501 12.14 18 0.08 0.097
Sidama 2017 0.070283 0.328782 0.052 0.660538 1.980318 2.041523933 12.34 19 0.1021 0.072
Sidama 2018 0.06969 0.35291 0.021 0.627638 2.250657 1.833581659 12.65 20 0.077 0.131
Sidama 2019 0.056575 0.389288 0.014 0.691854 3.226905 1.568790997 12.85 21 0.0836 0.0972
AVFS 2010 0.110865 0.55631 0.036 0.671047 2.837651 0.797559361 9.89 12 0.1057 0.028
AVFS 2011 0.112179 0.553468 0.0739 0.675383 3.352925 0.806789495 9.96 13 0.114 0.181
AVFS 2012 0.076371 0.44496 0.01 0.711756 2.526075 1.247381755 10.13 14 0.087 0.341
AVFS 2013 0.043324 0.416197 0.0437 0.894922 2.172724 1.402710606 10.15 15 0.0994 0.135
AVFS 2014 0.04205 0.399425 0.026 0.837684 2.189093 1.503600699 10.20 16 0.103 0.081
AVFS 2015 0.014146 0.416397 0.0211 0.939998 1.913902 1.401546031 10.19 17 0.1041 0.077
AVFS 2016 -0.07069 0.534784 0.043 1.2809 1.623584 0.869914472 9.98 18 0.08 0.097
AVFS 2017 0.033574 0.533927 0.054 0.866376 2.035504 0.872913536 9.96 19 0.1021 0.072
AVFS 2018 0.014146 0.416397 0.1 0.939998 1.913902 1.401546031 10.19 20 0.077 0.131
AVFS 2019 -0.14875 0.217367 0.09 1.71999 1.235416 3.60050577 9.98 21 0.0836 0.0972
Bus.Gon 2010 0.195871 0.494498 0.016 0.443729 9.146973 1.02225443 11.00 11 0.1057 0.028
Bus.Gon 2011 0.265915 0.526225 0.0068 0.388682 9.010354 0.900326185 11.33 12 0.114 0.181
Bus.Gon 2012 0.22953 0.464963 0.006 0.396715 8.617892 1.150708117 11.73 13 0.087 0.341
Bus.Gon 2013 0.228743 0.392249 0.0051 0.386337 7.921792 1.549401633 12.16 14 0.0994 0.135
Bus.Gon 2014 0.239449 0.37111 0.0047 0.356225 7.391501 1.694616485 12.47 15 0.103 0.081
Bus.Gon 2015 0.245134 0.355975 0.0115 0.347068 5.957406 1.80918678 12.73 16 0.1041 0.077

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Bus.Gon 2016 0.283312 0.411673 0.012 0.741993 3.100482 1.429113596 12.76 17 0.08 0.097
Bus.Gon 2017 0.068131 0.425902 0.013 0.674196 2.985624 1.347955578 12.90 18 0.1021 0.072
Bus.Gon 2018 0.047933 0.348911 0.02 0.760029 2.810963 1.866061037 13.25 19 0.077 0.131
Bus.Gon 2019 0.044308 0.291444 0.02 0.759697 2.754698 2.431183319 13.56 20 0.0836 0.0972
PEACE 2010 0.346325 0.370644 0.004 0.298723 10.17834 1.698015364 10.88 11 0.1057 0.028
PEACE 2011 0.415233 0.437881 0.0034 0.244245 9.516783 1.283734398 10.95 12 0.114 0.181
PEACE 2012 0.431662 0.451663 0 0.238698 9.057922 1.214042603 11.07 13 0.087 0.341
PEACE 2013 0.408506 0.423888 0.0014 0.250887 9.134807 1.359110423 11.34 14 0.0994 0.135
PEACE 2014 0.422995 0.436384 0.0017 0.25371 8.250098 1.291555594 11.47 15 0.103 0.081
PEACE 2015 0.423704 0.435931 0.0021 0.275628 6.203653 1.293940212 11.56 16 0.1041 0.077
PEACE 2016 0.223157 0.439958 0.007 0.621881 5.378075 1.272927073 11.66 17 0.08 0.097
PEACE 2017 0.244026 0.426659 0.005 0.405277 3.478544 1.343775576 11.83 18 0.1021 0.072
PEACE 2018 0.206994 0.333637 0.003 0.447189 3.672679 1.997273086 12.19 19 0.077 0.131
PEACE 2019 0.058128 0.301339 0.06 0.754741 2.649321 2.318521309 12.52 20 0.0836 0.0972
ADCSI 2010 0.032857 0.648341 0.046 0.582486 5.039967 0.542399385 13.18 10 0.1057 0.028
ADCSI 2011 0.029271 0.490986 0.0378 0.625425 4.585809 1.036719449 13.55 11 0.114 0.181
ADCSI 2012 0.030377 0.382209 0.025 0.581354 4.499544 1.616369368 14.01 12 0.087 0.341
ADCSI 2013 0.077254 0.406056 0.0296 0.414104 4.320452 1.462712868 14.24 13 0.0994 0.135
ADCSI 2014 0.080786 0.381997 0.0299 0.421002 4.160937 1.617823206 14.60 14 0.103 0.081
ADCSI 2015 0.097205 0.384519 0.0422 0.422418 3.824564 1.600654196 14.82 15 0.1041 0.077
ADCSI 2016 0.138802 0.391841 0.035 0.336134 3.608971 1.552056921 14.92 16 0.08 0.097
ADCSI 2017 0.165605 0.331501 0.01 0.295721 3.134258 2.016583092 15.08 17 0.1021 0.072
ADCSI 2018 0.188133 0.349461 0.03 0.253747 5.176327 1.861552456 15.19 18 0.077 0.131
ADCSI 2019 0.050776 0.329662 0.04 0.447341 5.820502 2.033412988 15.51 19 0.0836 0.0972
Meklit 2010 0.129227 0.226161 0.238 0.597663 5.903305 3.421636591 10.12 10 0.1057 0.028
Meklit 2011 0.18595 0.275713 0.2123 0.49471 6.534664 2.626915966 10.23 11 0.114 0.181
Meklit 2012 0.094749 0.335234 0.102 0.636993 3.945229 1.983003041 10.39 12 0.087 0.341
Meklit 2013 0.287897 0.343658 0.0414 0.316337 6.282762 1.909865637 10.71 13 0.0994 0.135
Meklit 2014 0.330489 0.413265 0.0321 0.299006 6.359547 1.492100318 10.90 14 0.103 0.081
Meklit 2015 0.351403 0.411185 0.0421 0.32611 6.139331 1.431993212 11.07 15 0.1041 0.077
Meklit 2016 0.36366 0.416594 0.029 0.330929 5.863427 1.400410723 11.24 16 0.08 0.097
Meklit 2017 0.300499 0.422931 0.024 0.447973 5.296124 1.364446669 11.43 17 0.1021 0.072
Meklit 2018 0.272925 0.422994 0.04 0.410557 4.986421 1.364102367 11.72 18 0.077 0.131

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Meklit 2019 0.065201 0.41249 0.16 0.680111 4.913296 1.424297219 12.14 19 0.0836 0.0972
Wasasa 2010 0.16707 0.313694 0.04 0.295684 14.40917 2.187823891 11.46 10 0.1057 0.028
Wasasa 2011 0.188631 0.346658 0.0225 0.349745 9.001409 1.884691085 11.76 11 0.114 0.181
Wasasa 2012 0.173779 0.414874 0.013 0.316838 8.543891 1.410372648 12.31 12 0.087 0.341
Wasasa 2013 0.21722 0.317824 0.059 0.347523 6.752105 2.146389664 12.38 13 0.0994 0.135
Wasasa 2014 0.207102 0.296578 0.001 0.387218 5.423178 2.371792328 12.64 14 0.103 0.081
Wasasa 2015 0.169622 0.234793 0.076 0.381946 4.298632 3.259074537 13.05 15 0.1041 0.077
Wasasa 2016 0.169946 0.22861 0.009 0.4254 3.641903 3.374266455 13.23 16 0.08 0.097
Wasasa 2017 0.206325 0.269015 0.017 0.416516 3.579424 2.717263407 13.21 17 0.1021 0.072
Wasasa 2018 0.230623 0.293322 0.02 0.379085 2.790878 2.409226848 13.24 18 0.077 0.131
Wasasa 2019 0.02482 0.268172 0.01 0.819029 2.722474 2.728956739 13.59 19 0.0836 0.0972
Eshet 2010 0.070823 0.654497 0.12 0.708888 7.021913 0.52788807 10.72 10 0.1057 0.028
Eshet 2011 0.066541 0.639164 0.1283 0.731179 11.64948 0.564540376 10.74 11 0.114 0.181
Eshet 2012 0.123926 0.618378 0.046 0.613654 11.21444 0.617135869 10.92 12 0.087 0.341
Eshet 2013 0.142282 0.544262 0.0162 0.582969 18.30826 0.83735095 11.09 13 0.0994 0.135
Eshet 2014 0.166022 0.48624 0.0146 0.554815 17.34495 1.05660102 11.10 14 0.103 0.081
Eshet 2015 0.193235 0.51993 0.0221 0.556352 12.39238 0.92333943 11.01 15 0.1041 0.077
Eshet 2016 0.101387 0.354567 0.039 0.777786 5.755727 1.820339585 10.95 16 0.08 0.097
Eshet 2017 0.077373 0.340066 0.0395 0.793113 3.693239 1.940596771 10.97 17 0.1021 0.072
Eshet 2018 0.058646 0.346254 0.041 0.841665 1.749141 1.888046301 10.95 18 0.077 0.131
Eshet 2019 0.00139 0.269736 0.1136 0.994914 0.172794 2.707320337 11.18 19 0.0836 0.0972
Ben.Gum 2010 -0.03954 0.481388 0.11 1.202433 7.158617 1.002149815 11 9 0.1057 0.028
Ben.Gum 2011 -0.02543 0.358553 0.0409 1.105251 8.157195 1.788989991 11.46 10 0.114 0.181
Ben.Gum 2012 0.004338 0.24735 0.041 0.958886 3.709194 3.042849741 11.85 11 0.087 0.341
Ben.Gum 2013 0.045475 0.362609 0.0092 0.739537 4.404872 1.757785849 11.65 12 0.0994 0.135
Ben.Gum 2014 0.017547 0.312502 0.0448 0.88047 4.24354 2.199977607 11.89 13 0.103 0.081
Ben.Gum 2015 0.013694 0.294321 0.0223 0.908389 3.268483 2.397656827 11.98 14 0.1041 0.077
Ben.Gum 2016 0.003928 0.266036 0.06 0.97312 3.124228 2.758895732 12.08 15 0.08 0.097
Ben.Gum 2017 0.029336 0.308088 0.083 0.803123 4.179989 2.245820891 12.49 16 0.1021 0.072
Ben.Gum 2018 0.036604 0.264789 0.091 0.65167 2.81649 2.776586963 12.79 17 0.077 0.131
Ben.Gum 2019 0.028346 0.246741 0.114 0.741978 3.480537 3.052830872 12.98 18 0.0836 0.0972

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Metemamn 2010 -0.2233 0.789287 0.08 4.817761 3.072071 0.266966247 9.70 8 0.1057 0.028
Metemamn 2011 -0.20527 0.802099 0.0926 2.343011 2.416054 0.246722064 9.75 9 0.114 0.181
Metemamn 2012 -0.14898 0.612256 0.075 1.935185 2.04837 0.633303107 10.04 10 0.087 0.341
Metemamn 2013 -0.01804 0.467949 0.0398 1.110536 1.968063 1.136987119 10.67 11 0.0994 0.135
Metemamn 2014 0.061843 0.649764 0.0291 0.655251 2.096851 0.539025157 11.08 12 0.103 0.081
Metemamn 2015 0.095609 0.509222 0.0303 0.533824 3.365401 0.963778275 11.67 13 0.1041 0.077
Metemamn 2016 0.118717 0.500878 0.036 0.540881 3.151214 0.996493819 11.99 14 0.08 0.097
Metemamn 2017 0.172929 0.503879 0.041 0.502094 3.764001 0.984601578 12.07 15 0.1021 0.072
Metemamn 2018 0.193062 0.480406 0.0293 0.427388 4.824307 1.081575505 12.35 16 0.077 0.131
Metemamn 2019 0.196304 0.32805 0.048 0.401967 5.366414 2.048319253 12.72 17 0.0836 0.0972
Aggar 2010 0.056907 0.307561 0.02 1.165787 0.500249 0.363282784 10 6 0.1057 0.028
Aggar 2011 0.078161 0.349687 0.0209 0.658315 0.789931 1.859661767 10.04 7 0.114 0.181
Aggar 2012 0.084516 0.297251 0.077 0.670506 0.717332 2.364189783 10.58 8 0.087 0.341
Aggar 2013 0.090132 0.397507 0.037 0.622376 0.924055 1.515678433 11.15 9 0.0994 0.135
Aggar 2014 0.108777 0.391382 0.0545 0.455066 0.441854 1.555053208 11.54 10 0.103 0.081
Aggar 2015 0.128006 0.42264 0.0974 0.431316 0.228298 1.366084902 11.93 11 0.1041 0.077
Aggar 2016 0.120858 0.430312 0.0991 0.418467 7.694915 1.323893094 12.41 12 0.08 0.097
Aggar 2017 0.11557 0.510425 0.087 0.438498 1.195916 0.959150523 12.69 13 0.1021 0.072
Aggar 2018 0.11718 0.538926 0.112 0.614826 4.098066 0.855540818 12.92 14 0.077 0.131
Aggar 2019 0.074922 0.429682 0.0734 0.600263 2.844777 1.327301875 13.33 15 0.0836 0.0972
Harbu 2010 0.007877 0.768125 0.02 0.90422 2.410786 0.301871773 9.81 5 0.1057 0.028
Harbu 2011 0.116104 0.518147 0.0233 0.473242 2.74719 0.929946572 10.31 6 0.114 0.181
Harbu 2012 0.00617 0.33144 0.0211 0.952279 1.767556 2.017143694 10.85 7 0.087 0.341
Harbu 2013 0.007762 0.310435 0.0132 0.954987 3.037809 2.221280116 11.02 8 0.0994 0.135
Harbu 2014 0.009276 0.344835 0.0103 0.946787 2.522104 1.899928155 11.05 9 0.103 0.081
Harbu 2015 0.010169 0.379231 0.0129 1.490017 2.126293 1.636911078 11.14 10 0.1041 0.077
Harbu 2016 0.004943 0.299075 0.0151 0.978458 2.236192 2.343651899 11.39 11 0.08 0.097
Harbu 2017 0.007662 0.222369 0.011 0.943307 2.197248 3.497030147 11.78 12 0.1021 0.072
Harbu 2018 0.027902 0.193869 0.027 0.831763 3.382447 4.158138929 12.11 13 0.077 0.131
Harbu 2019 0.115287 0.168332 0.0251 0.575586 4.767906 4.940643627 12.34 14 0.0836 0.0972

69