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Microfinance sector is an integral part in economic development of many regions in particularly East Africa. However an enduring problem facing MFI‟s is how to achieve profitability that is to operate in a profitable way. Therefore the factors determining MFI‟s are not well known, hence this study is a key stepping stone towards identifying those factors. The main objective of the study is to identify the factors determining the profitability of MFIs in East Africa whereby the specific objectives are assessment of the credit quality of MFIs, the women contribution in reduction of risks and cost and loan officer‟s productivity; the study is significant to the MFIs, MFI‟s customers, regulatory authorities and students. A case study approach was adopted i.e ACB from Tanzania, ACB SA from Rwanda, BIMAS and BFDP from Kenya; a quantitative research approach of ordinary least square (OLS) on unbalanced panel data was used, this was run through the Stata software. The method of data collection was documentation whereby secondary data from Mix Market website were used from the four (4) MFIs collectively for the period between 1999 and 2012. I found a negative correlation between percentage of women borrowers, risks and costs implying that as women increase MFI‟s costs and risks decrease, also the study revealed that with increase in portfolio chances of default of loans increases hence provision increase with increase in loan portfolio, furthermore loan officers productivity or efficiency depends largely on how many borrowers a single loan officer is attending. In concluding, the factors determining the profitability of MFIs in East Africa are total assets, active borrowers, capital ratio, leverage, provision for loan impairment, yield, portfolio at risk 30 days, cost per borrowers, operating expense ratio and average loan size. Also the women borrowers pay a huge contribution in reduction of risk and cost, furthermore the credit quality was impaired since portfolio increase with provisions, and lastly the loan officer‟s productivity was impaired. |
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