Financial Sustainability of Micro Financing Institutions: a Case Study of ‘Special Financial and Promotional Institution' and ‘Poverty Eradication and Community Empowerment Micro finance Institution'

Hailesillasie Tsige

Wisdom consult PLC. P.O.Box: 7876, Addis Ababa

E-mail: wisdomconsult@ethionet.et

ABSTRACT

Microfinance institutions (MFIs) have two challenges, to become viable institution that built a firm foundation for efficient operation, and how to increase outreach so that a significant number of poor have access to financial services. Both these challenges are very essential for the successes of MFIs. The purpose of the paper is therefore, to examine how outreach, financial self-sufficiency and institution building are related and to see their role in improving financial sustainability of MFIs. The primary role of MFIs is to provide financial intermediation (mainly saving and credit services). Saving is an organic complement to credit. The absence of such a link is an important factor in the lack of sustainability to many credit projects. Savings help to build up resources to increase credit and to achieve sustainability of lending without reliance to external resources. Efficient and relatively low cost operational procedures are necessary conditions for an MFI to become self-sustainable. The long-range survival of MFIs depends on their ability to earn enough revenue to satisfy their obligations and still provide a satisfactory return on the owners¢ investment. To attain a high level of outreach and self-sustainability strong institutional capability is also a very essential variable.