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Microfinance Institutions (MFIs) worldwide strive to attain financial sustainability while at the same time being obliged to provide financial services to the poor at reasonable costs thus raised a need for MFIs to operate as efficient as possible so as to attain both goals. Efficiency in operation of microfinance institutions has gained ground among microfinance scholars, practitioners and stakeholders because its significance in assisting MFIs to achieve their main objective of poverty alleviation. The main purpose of conducting this study therefore, was to evaluate the determinants of efficiency in operation of MFIs in Tanzania.
The methodology employed in this study involved the use an Analytical Research design where a Quantitative approach of data analysis was conducted using a Fixed Effect panel regression model for the six years‟ panel data of 19 MFIs in Tanzania. The results obtained from the econometric analysis of data indicated that the variables gross loan portfolio, capital-to-asset ratio, cost per borrows, and personnel expenses ratio were statistically significant at 1% and 5% significant level.
It was concluded that the gross loan portfolio, capital-to-asset ratio, cost per borrows, and personnel expenses ratio were the determinants of efficiency in operation of MFIs in Tanzania. And basing on that conclusion, it was recommended that MFIs in Tanzania should increase the amount of gross loan portfolio through extending small and medium sized loans to a large number of customers, maintain optimal capital structure and efficiently utilisation of labour force in order to attain efficiency in operation, thus provide financial services to the poor at affordable cost to attain microfinance goal of poverty eradication. |
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