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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Abstract: Purpose: Micro-finance institutions have a great contribution to the development of every country’s economy through strengthening society’s financial requirements. The institutions need to have adequate liquidity to generate sustainable profit. 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 by the use of E-views version 7 software. Return on assets used as the proxy of profitability to evaluate the financial healthiness of MFIs. Results: This study found that the deposit loan ratio has a significant and negative impact on profitability statistically. Whereas, the debt-to-equity ratio shows a negative signal on Micro-finance Institutions (MFIs) profitability but statistically insignificant. The impact regarding size and deposit asset ratios was positive and significant on MFIs’ profitability of Ethiopia. Limitations: Lack of empirical study on the topic was the basic constraint of the study. Contribution: The study concentrated on the financial institutions specifically on microfinance firms. This study helps the institution’s management to give appropriate considerations for each component to preserve an optimal level of liquidity and sustainable profit.

Keywords: Viability, Effect, liquidity, Microfinance, Ethiopia.
Scope of the Article: Liquidity Management