Microfinance Institutions in Ethiopia, Kenya and Uganda: depth of Outreach to the Poor and the Quest for Financial Viability

Course ID
Ethiopian Economics Association (EEA)
Gashaw Tsegaye Ayele

The question of outreach versus vitality is among the unsettled issues in the microfinance literature. The concern is exceedingly relevant to developing countries that opt for the right policies towards financial inclusion. Even leading microfinance institutions are challenged to reach a larger number of the wider poor. In their microfinance operations, Kenya and Uganda rank first and second in Africa; fifth and eighth in the world, respectively; and Ethiopia is just an emerging country. Yet, the loan outreaches to the poor in these countries fall short of the escalating demand. This study analyses depth of loan outreach and financial viability nexus; and quantifies the path from depth to viability. Hausman-Taylor (H-T) and Generalized Structural Equation Models are employed on unbalanced panel data-set of 31 Microfinance Institution (MFIs) (2003-to-2012). The H-T estimates supported lending to the poor for enhanced viability if operational expenses are contained. Operating-Expense-Per-Loan-Portfolio and Debt-to-Equity-Ratio relate inversely with viability while ‘Real-Yield’ relates directly. The Generalized Structural Equation Model revealed a positive association between lending to the poor and size of operating expenses, which indirectly hampers viability. Support to MFIs targeted to ensuring efficiency through reduced operational costs can reinforce the mutual outreach—viability nexus.

Publisher:Ethiopian Economics Association (EEA)
Primary Descriptors:Financial Institution

Secondary Descriptor:Africa – Economic Policy

Geographic Descriptors:Ethiopia, Kenya , Uganda
Cataloge Date:09/30/2015
Broad Subject heading:Microfinance – Africa
Call Number:330.963 PRO 2015
Serial Key Title:Proceedings of the Twelfth International Conference on the Ethiopian Economy
Publication catagory:International Conference
Content type:EEA Publication
Publication date:2015-06-01 00:00:00
Conference Place: EEA Conference Center
Place of publication: Addis Ababa, Ethiopia
Type of material: Book
Current frequency: Annually
Author: Gashaw Tsegaye Ayele
Conference date:July 16 to 19, 2014