Determinants of financial performance of microfinance institutions in Tanzania

Abstract

The aim of the study was to determine the relationship between selected factors and performance of Microfinance institutions in Tanzania by integrating financial performance measures. The study used the following variables: debt ratio, portfolio to assets ratio and operating expense ratio as key measures of performance. The study was analyzed using OLS regression model. The findings of the study show that the financial performance of the MFIs reviewed was low. This low financial performance was due to the low profit margin. In addition, the high amounts of operating expenses and liabilities drained down the amount of net income of the MFIs. Microfinance institutions need to balance the financial performance to ensure survival in a competitive market while meeting their social objective. Likewise, the study faced challenges in collecting data due to the fact that most MFIs were not regulated hence giving difficulties in getting their financial statements to measure their performance.