An Assessment of the Financial Sustainability of Microfinance Institutions

The poor in the developing countries are constrained by savings and the absence of credit access from formal financial institutions to establish small scale enterprises as they are perceived to be un-bankable. Since the late 1980 Micro-Finance Institutions have mushroomed with the primary aim of resolving the problem of access to credit by the poor. However, extending financial credit to them is challenging given their financial strength, businesses, locations, abilities, social obligations and mindset. This study attempts to look into Micro-Finance Institutions’ performance from the financial sustainability angle in East Africa with secondary data sources from the Micro finance information exchange for the period 2012 – 2017. The study finds that financial sustainability of these institutions is enhanced on one hand and hindered on the other by several factors. It identifies outreach and profitability as enhancing factors while capital structure, efficiency and portfolio quality as hindering ones. Specifically, it noted that number of active borrowers, deposit to GNP per capita, profit margin, real yield on portfolio on one hand and debt to equity, donations, personnel expenses to loan portfolio, loan loss rate and portfolio at risk more than 30 days on the other as enhancing and hindering financial sustainability respectively