Role of Microfinance Institutions in Ethiopian Economy: A Review

Abstract

This work reviews the role of microfinance institutions in the Ethiopian economy, which was done by using a balanced scorecard (BSC) performance review approach that integrates both financial and nonfinancial metrics. The BSC framework of the review was developed using a total of performance indicators that were equally categorized under BSC perspectives (financial, customer, internal business processes, and learning and growth). The developed framework was applied to MFIs operating in Ethiopia, which have head offices in all regional capitals of the country and report to the Association of Ethiopian Microfinance Institutions (AEMFI) starting in 2010–2012 consecutively. The work of the review shows that based on their financial role, on average, the institutions reviewed are sustainable with high relative productivity and low profitability. The average non-financial performance is also high, indicating that the reviewed institutions are highly performing in both non-financial and financial measures. Beside the role performance, the work of this review confirmed the relationship assumption of BSC perspectives and it shows a positive correlation among them. The review concludes that comprehensive performance is observed when it is measured in a collective way. So, Ethiopian MFIs suggested paying attention to the use of BSC as a performance measurement tool and as a hub for specified role indicators that need enhancement.