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The fast growing microfinance sector industry in Tanzania has called for the need of microfinance efficiency to fuel their financial and social sustainability. Although different MFIs exist for different reasons, it is through microfinance efficiency where such MFIs converge. Regardless of their type and goals, MFIs are strongly recommended to be strong sustainable both operationally and financially. However, sustainability of MFIs is impossible to achieve without first strive to achieve microfinance efficiency. This is particularly important if the level of competition in the industry is growing fast like the one in Tanzania. Therefore, there is undeniable a link between MFIs sustainability and microfinance efficiency, and the two concepts cannot be separated. A lot of studies have been done in the area of financial sustainability, but no one, if any, has been done to find out the impact of microfinance efficiency on sustainability of MFIs in Tanzania. This study, therefore, intended to bridge this gape.
This study employed quantitative approach using panel data to analyse data of seven MFIs whose information are contained in the MIX database. It was revealed that Cost per borrower, borrowers per loan office and number of borrowers influence the microfinance efficiency of MFIs in Tanzania. In addition, the study revealed a positive relationship between microfinance efficiency, as measured by number of borrowers and borrowers per loan officer, and the sustainability of MFIs. On the other side, negative correlation appear to exist between write off ratio, risk coverage ratio, cost per borrower & loan size with the financial sustainability.
From the study findings, among others, it is recommended that the policy makers to step in the industry and impose the regulation to all MFIs regardless of their size, type and location just like what is done by the Bank of Tanzania in regulating financial institutions. Otherwise MFIs may end up reversing the primary reason of their existence. |
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