1(PhD) Assistant Professor, Department of Management, College of Business and Economics, Addis Ababa University, Ethiopia Email id: yoh2003@gmail.com or Yohannes.workeaferahu@aau.edu.et
2(PhD), Associate Professor, Department of Management, College of Business and Economics, Addis Ababa University, Ethiopia Email id: JagadishBrahma@gmail.com or Jagadish.Brahma@aau.edu.et
3Senior Examiner of MFIs, Student at Addis Ababa University, National Bank of Ethiopia Email id: zerihunnecho143@gmail.com
Online published on 22 April, 2020.
The robust financial innovation has unreserved role in boosting profitability of Microfinance Institutions (MFIs). In contrast, inefficiencies in financial innovations lead to poor profitability and upset the growth of MFIs. Since, sufficient researches had not been conducted in this subject, this study was carried out to fill the gap. Descriptive design and mixed research methods were used. The audited financial statements of 16 sampled MFIs for 8years were collected from National Bank of Ethiopia (NBE)and additional responses were gained from 8 sampled MFIs’ Operation Department Managers and 8 NBE principal & senior examiners through open ended questionnaires. Accordingly, the explanatory variables have explained the profitability of MFIs by 65% (i.e. R2). The percentage change of credit innovation changes percentage of profitability of MFIs. Besides, there are credit products that were not addressed by MFIs. The percentage change in total saving changes percentage of profitability of MFIs. Therefore, the credit and saving product innovations are strongly, positively and significantly affect the profitability of MFIs. Institutional innovation credited to equity capital and the equity capital significantly affects profitability of MFIs. Hence, institutional innovation of MFIs is practically and statistically affects profitability MFIs by boosting their equity capital. On the other hand, in most Ethiopian MFIs institutional innovation that secures their profitability was not practiced. The percentage change increased in operational expense decrease the percentage change of profitability of MFIs. Hence, the newly created or improved financial process innovation decreases operational expenses of MFIs that in response increases the profitability of MFIs. I. abstract, credit product innovation, saving product innovation, financial process innovation, and institutional innovation are strongly and significantly affect profitability of MFIs in Ethiopia. Accordingly, the financial innovation practices of MFIs in Ethiopia needs due attention.
Ethiopia, Microfinance Institutions, Financial Innovation, Profitability
