The Effect of Liquidity Management on the Viability of Microfinance Institutions of Ethiopia
Idris Ali Yimer
Mr. Idris Ali Yimer, Department of Commerce, Punjabi University, Patiala (Punjab), India.
Manuscript received on 28 October 2024 | Revised Manuscript received on 23 September 2024 | Manuscript Accepted on 15 November 2024 | Manuscript published on 30 November 2024 | PP: 1-8 | Volume-11 Issue-3, November 2024 | Retrieval Number: 100.1/ijmh.A175511010924 | DOI: 10.35940/ijmh.A1755.11031124
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© The Authors. Blue Eyes Intelligence Engineering and Sciences Publication (BEIESP). This is an open access article under the CC-BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/)
Abstract: Purpose: Micro-finance institutions have a significant contribution to the development of every country’s economy through strengthening society’s financial requirements. Institutions must have sufficient liquidity to generate sustainable profits. The main intention of the paper was to investigate liquidity’s impact on Micro-finance institutions’ profitability. Research Methodology: Ten years of secondary data were used from 12 Microfinance institutions, and fixed effect regression analysis was conducted using E-views version 7 software. Return on assets is used as a proxy of profitability to evaluate the financial health of MFIs. Results: This study found that the deposit loan ratio has a statistically significant and negative impact on profitability. Whereas the debt-to-equity ratio indicates a negative signal for Microfinance Institutions (MFIs) profitability, it is statistically insignificant. The effect of size and deposit-to-asset ratios on the profitability of microfinance institutions (MFIs) in Ethiopia was positive and statistically significant. Limitations: The primary constraint of the study was the lack of empirical studies on the topic. Contribution: The study focused on financial institutions, specifically microfinance firms. This study enables the institution’s management to consider each component appropriately, thereby maintaining an optimal level of liquidity and sustainable profitability.
Keywords: Viability, Effect, liquidity, Microfinance, Ethiopia.
Scope of the Article: Liquidity Management