An Assessment Of The Financial Performance Of Microfinance Institutions In Zambia

AN ASSESSMENT OF THE FINANCIAL PERFORMANCE OF MFIs
IN ZAMBIA
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THE COPPERBELT UNIVERSITY
SCHOOL OF BUSINESS
ACCOUNTING & FINANCE DEPARTMENT
BANKING AND FINANCE
AN ASSESSMENT OF THE FINANCIAL
PERFORMANCE OF MFIs IN ZAMBIA
A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE AWARD
OF A BACHELOR OF SCIENCE DEGREE IN BANKING AND FINANCE
CHIYANA NDONJI
(SIN 11369493)
SUPERVISED BY
MRS .M. HIMULULI

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DECLARATION
I Chiyana Ndonji do hereby declare that this piece of work is my own and that to the best of my
knowledge it has not been undertaken at this university or any other place of learning for similar
purposes. However the work of other people included in this thesis has been duly acknowledged.
Any errors of omission, interpretation and emphasis remain my sole responsibility.
Author’s signature……………………………………Date ……………………………….
Chiyana Ndonji
11369493
Supervisor’s signature………………………………...Date…………………………………
Mrs. M. Himululi

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DEDICATION
I dedicate this work to my beloved parents Mr. and Mrs. Ndonji whose unfeigned love, spiritual
and financial support has been constant throughout my life. Thank you for always encouraging
and believing in me.
To My elder sisters Kawanga and Mulemba who have always supported and believed in me and
thus making me work hard.
To My younger brother and Sisters Joshua, Kaluvi and Deborah that this work will inspire you to
work hard and aspire to reach greater heights.
To my late sister Muzala Ndonji who always believed in me.

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ACKNOWLEDGEMENTS
I firstly wish to acknowledge the almighty God by whose grace I stand and have been able to
conduct the research and complete this thesis.
I also wish to express my sincere gratitude to my supervisor Mrs. M .Himululi for her patience
and guidance through this research without which this report would not have taken shape and for
that I am truly thankful and may the sovereign Lord bless you and your family.
I would also like to thank the Microfinance institutions management for providing information
relevant to the study without which the study would have been incomplete. Sincere gratitude to
Mr. Michael Mulenga from CETZAM for his assistance. Sincere gratitude to Mr. Patrick Zulu
from Bank of Zambia who assisted me to obtain data relevant for the study.
Sincere gratitude to my supportive family for their generosity and belief in me during the last
four years and thus giving me the zeal to work hard and aspire to reach great heights.
To the believers at Nkana gospel hall, I would like to thank you for the encouragement, support
and prayers. I would like to convey my humble thanks to br. Maybin lusambo for his support in
this report.
Sincere gratitude to Bupe Mutale who was a true friend and supported me throughout my four
years of study. To my roommate Ruth phiri, thank you for being the best roommate. My sincere
gratitude is also extended to all my friends: Joseph Samunete, Chilala Chimweta, Mizhi Kakoma,
Faith Kashweka, Nema Mseteka, Stella Tembo, Kateule Chabala, Antwine Banda, Elizabeth
Makayi, Kondwelani Nhkata, Aunt Jean, Della Banda, Sofie Kandandu, Chifugula Chikumbi,
Sombo Samunete, Kunda Chandalala, Changa Chanda, Janine, Uhenya Chalwe, Pamela Mateo,
Mangani Mselema and others that played a part in the completion of the research. Lastly I would
like to acknowledge the instrumental role played by all those that have not been specifically
mentioned, their role in the completion of this research is highly appreciated.

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LIST OF FIGURES
Figure 2.1 conceptual framework 23
Figure 4.2 Return On Assets 32
Figure 4.4 Operating expense ratio 34
Figure 4.6 Response on the qualifications of loan officers 35
Figure 4.7 Response rate on the qualifications of managers 36
Figure 4.8 Portfolio at risk at 90 days 37
Figure 4.11 Trend in the number of borrowers over the period 2010-2013 39
Figure 4.12 Factors affecting overrall financial performance 40

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LIST OF TABLES
Table 3.1 Table of MFIs in Zambia 25
Table 4.1 Questionnaires response rate 31
Table 4.3 summary of changes in ROA 33
Table 4.5 summary of changes in the operating expense ratio 34
Table 4.9 Summary of changes in the Par @ 90 days 38
Table 4.10 repsonse on the type of clients served 39
Table 4.13 Hypothesis testing summary table of sustainability 41
Table 4.14 Hypothesi testing summary table of efficiency 42
Table 4.15 Hypothesis testing summary table of portfolio at risk 42
Table 4.16 Hypotheis testing summary table of outreach 43

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LIST OF ABBREVIATIONS
AMIZ Association for Microfinance Institutions in Zambia
BoZ Bank of Zambia
CGAP Consultant Group to assist the poorest
CAMEL Capital adequacy, Asset quality, Management, Earnings, and Liquidity
EFC Entrepreneurs financial center
FFS financial self-sustainability
MFI Micro finance institutions
MIS Management information systems
MIX Microfinance Information exchange
NGO Non-Governmental Organization
OSS Operational Self-Sustainability
PaR Portfolio at Risk
PEARLS Protection. Effective Financial Structure, Asset Quality, Rate of Return and
Costs Liquidity, Sign of Growth
ROA Return on assets
ROE Return on equity
SEEP Social Environmental and Economic Performance
SSA Sub Saharan Africa

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TABLE OF CONTENTS
DECLARATION..........................................................................................................................................ii
DEDICATION.............................................................................................................................................iii
ACKNOWLEDGEMENTS.........................................................................................................................iv
LIST OF FIGURES ......................................................................................................................................v
LIST OF TABLES.......................................................................................................................................vi
LIST OF ABBREVIATIONS.................................................................................................................vii
ABSTRACT..............................................................................................................................................1
CHAPTER ONE .......................................................................................................................................2
1.0 INTRODUCTION ..............................................................................................................................2
1.1 BACKGROUND TO THE STUDY...................................................................................................2
1.2 PROBLEM STATEMENT.................................................................................................................5
1.3 OBJECTIVES.....................................................................................................................................5
1.3.1 GENERAL OBJECTIVE.................................................................................................................5
1.3.2 SPECIFIC OBJECTIVES............................................................................................................5
1.4 STATEMENTS OF HYPOTHESIS ...................................................................................................5
1.5 SIGNIFICANCE OF THE STUDY....................................................................................................6
1.6 SCOPE OF THE STUDY...................................................................................................................7
CHAPTER TWO ......................................................................................................................................8
LITERATURE REVIEW .............................................................................................................................8
2.0 INTRODUCTION ..............................................................................................................................8
2.1 DEFINITION OF TERMS..................................................................................................................8
2.1.1 Definition of an MFI and microfinance .......................................................................................8
2.1.2 Definition of financial performance.............................................................................................8
2.1.3 Definition of assessment..............................................................................................................9
2.2 DIMENSIONS AND INDICATORS OF FINANCIAL PERFORMANCE OF MFIs ......................9
2.2.1 Portfolio quality ...........................................................................................................................9
2.2.2 Efficiency and productivity........................................................................................................10
2.2.3 Sustainability..............................................................................................................................11
2.2.4 Profitability ................................................................................................................................13
2.2.5 liability/asset management.........................................................................................................14
2.2.6 Outreach.....................................................................................................................................15
2.3 MODELS OF FINANCIAL PERFORMANCE EVALUATION ....................................................15

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2.3.1 CAMEL model...............................................................................................................................16
2.3.2 Mix model for performance evaluation......................................................................................16
2.4 PAST STUDIES ON THE FINANCIAL PERFORAMNCE OF MFIs. ..........................................18
2.4.1 Financial performance of African MFIs ....................................................................................18
2.4.2 Financial performance of MFIs in other regions of the world...................................................21
2.5 PERFORMANCE OF ZAMBIAN MFIs..........................................................................................22
2.6 CONCEPTUAL FRAMEWORK .....................................................................................................23
CHAPTER THREE ................................................................................................................................24
RESEARCH METHODOLOGY................................................................................................................24
3.0 INTRODUCTION ............................................................................................................................24
3.2 RESEARCH DESIGN......................................................................................................................24
3.3 DEFINITION OF THE POPULATION...........................................................................................25
3.4 DATA COLLECTION AND TECHINQUES..................................................................................26
3.4.1 Primary data...............................................................................................................................26
3.4.2 Secondary data...........................................................................................................................27
3.5 DATA ANALYSIS...........................................................................................................................27
3.6 DATA ANALYSIS TOOLS.............................................................................................................27
3.8 LIMITATIONS OF THE STUDY....................................................................................................28
3.8 ETHICAL CONSIDERATIONS......................................................................................................28
3.9 CHAPTER SUMMARY...................................................................................................................29
CHAPTER FOUR.......................................................................................................................................30
REASEARCH FINDINGS, INTERPRETATION AND ANALYSIS...................................................30
4.0 INTRODUCTION ............................................................................................................................30
4.1 DISTRIBUTION AND RESPONSIVE RATE ................................................................................30
4.2 MFI SUSTAINABILITY..................................................................................................................31
4.3 ZAMBIAN MFI EFFICIENCY........................................................................................................33
4.3.1 Operating expense ratio .............................................................................................................33
4.3.2 Qualification of staff..................................................................................................................35
4.4 ZAMBIAN MFI PORTFOLIO QUALITY ....................................................................................36
4.5 ZAMBIAN MFI OUTREACH.........................................................................................................38
4.5.1 Types of clients..............................................................................................................................38
4.5.2 The number of borrowers...............................................................................................................39
4.6 FACTORS THAT AFFECT OVERALL FINANCIAL PERFORMANCE OF THE MFIS ...........40
4.7 HYPOTHESIS TESTING.................................................................................................................41

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4.7.1 H1: Hypothesis testing on sustainability....................................................................................41
4.7.2 H2: Hypothesis testing on efficiency.........................................................................................41
4.7.3 H3: Hypothesis testing on portfolio quality...............................................................................42
4.7.4 H4: Hypothesis testing on outreach ...........................................................................................42
4.9 SUMMARY OF HYPOTHESIS TESTING FINDINGS .................................................................43
CHAPTER FIVE ........................................................................................................................................44
GENERAL CONCLUSIONS AND RECCOMMENDATIONS ...............................................................44
5.0 INTRODUCTION ............................................................................................................................44
5.1 Summary of findings.........................................................................................................................44
5.1.1 Sustainability of MFIs in Zambia ..............................................................................................44
5.1.2 Zambian MFI efficiency ............................................................................................................45
5.1.3 Zambian MFIs portfolio quality.................................................................................................45
5.1.4 Zambian MFI outreach...............................................................................................................46
5.2 CONCLUSION.................................................................................................................................46
5.3 RECOMMENDATIONS..................................................................................................................47
5.3.1 Recommendations for the research............................................................................................47
5.3.2 Recommendations for further study...........................................................................................47
REFERENCES .......................................................................................................................................48
APPENDICES ........................................................................................................................................51
APPENDIX 1:FORMULARS ................................................................................................................52
Appendix 2: CACULATED RATIOS, MEANS , STANDARD DEVIATION AND VARIANCE .....53
APPENDIX 3 :QUESTIONARE............................................................................................................56

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ABSTRACT
Microfinance institutions are a viable way of poverty alleviation across the world. However in its
earlier years of establishment, MFIs main concern was the social performance of the institutions
neglecting financial health. For sustainable poverty alleviation, the microfinance institutions
need to have sound financial performance. Concerns were raised in the Microfinance
transparency report in 2011 that the MFI industry in Zambia had poor financial performance
indicating that it was below African standards. This study assessed the financial performance of
MFIs in Zambia from 2010 -2013. It focused on the outreach, sustainability, efficiency and
portfolio quality of the Zambian MFIs with the indicators in use being; number of borrowers,
return on assets, operating expense ratio and portfolio at risk respectively. The specific
objectives of the study were: To determine whether microfinance institutions in Zambia are
financially sustainable; To determine whether MFIs in Zambia are efficient in their operations
;To assess the quality of the loan portfolio of MFIs in Zambia ;To determine whether MFIs in
Zambia have high outreach to the poor. The research methodology used was descriptive research
design. The population considered was all prudentially regulated 33 MFIs in Zambia 4 of them
being developmental MFIs using a census. Data was collected using mostly secondary sources
such as financial statements from bank of Zambia, AMIZ and the MIXmarket; however primary
sources were also used by the use of questionnaires. Data was analysed using ratio analysis,
trend analysis and a t-test was used to test the null hypothesis. The findings of the research were
that the industry was sustainable thus indicating good financial performance in this aspect. The
efficiency of the MFIs in Zambia is poor as proved by the hypothesis testing and trend analysis.
Furthermore the finding indicates that the portfolio quality and the outreach of MFIs though
improving for the industry is poor thus poor financial performance in this aspect are poor. The
findings indicate that developmental MFIs have a lower ROA and poor efficiency in comparison
to the industry as a whole, however, the portfolio and outreach quality is better than that of the
industry. Furthermore, Government regulation and high lending rates affect performance of
MFIs. It is recommended that BOZ should not impose regulations such as interest ceilings that
are detriment to MFIs. MFIs should also increase provision of microfinance to non-salaried
clients such as the farmers, artisans etc. so as to improve outreach. Further studies should be
carried out on the portfolio quality of MFIs in Zambia with the indicator being the write off ratio.

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CHAPTER ONE
1.0 INTRODUCTION
This chapter is the introduction to the study, it includes the background to the study , the
problem statement, the objectives, statement of hypotheses and the significance of the study to
the MFIs , regulators , donors , investors , clients, and finally it includes the scope of the study.
1.1 BACKGROUND TO THE STUDY
Microfinance institutions (MFIs) were established and intended for the benefit of financing the
poor; it was because of this objective that MFIs assessed their performance primarily on the
social aspect neglecting financial health of the institutions (Woller & Brau, 2004). However due
to the failure of most donor funded MFIs in the world in the 1990s, there rose a need for MFIs to
assess their financial performance (Johannsen & Zeller, 2006).
Throughout the world, the financial performance of MFIs has been one of the issues that has
caught the attention of many researchers due to the importance of the continual existence of the
microfinance institutions (Ganka .D.N, 2010). Financial performance of MFIs is the ability of the
institution to operate efficiently in its management of its resources and attainment of objectives,
profitably and survive growth in quantitative terms (Micro Save, 2008). The main aspects of
financial performance being profitability and sustainability, efficiency and productivity, asset/
liability management and portfolio quality. A study conducted in east Africa, Asia, Latin
America and Eastern Europe reviewed that the financial performance of most MFIs globally was
good in the areas of profitability and yet sustainability and portfolio risk was still a major
problem for most of these institutions (tucker and Miller, 2004). However though MFIs around
the world had shown an increase in the risk (Portfolio at risk) African MFIs had the lowest level
of risk (MIX, 2005).

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MFIs in Africa have experienced a dynamic growth rate in outreach compared to other regions of
the world such as eastern Europe and central Asia, however despite the rapid growth rate of these
institutions, they have recorded poor profits and financial performance over the years in terms of
the return in assets and efficiency ratios in comparison to other regions of the world with the
exception of South Africa (Daher, LeSaout, 2012).African MFIs have shown a decrease in the
net operating margins over the years, decrease in the portfolio quality and an increase in
provisional and operating costs (Africa Microfinance Transparency, 2012).
Across the different regions of Africa, MFIs in East Africa are the most profitable and those in
West Africa also generate positive returns, whereas MFIs in Southern Africa, Indian Ocean and
Central Africa regions generate negative returns (MIX, 2010).The sub-Saharan Africa (SSA)
however recorded higher operating costs worldwide of 19% which was higher than the
acceptable 14% due to high cost of managing savings and high transactions costs in accessing
rural areas (CGAP, 2011).
A study in Tanzania showed that the financial performance of MFIs in Tanzania was poor with
low relative productivity, efficiency and profitability (Erasmus Fabian Kipesha, 2013). A similar
study in Ghana, indicated that the financial performance of MFIs in Ghana with regard to the
capital asset ratio of 15% was lower than the benchmark for both Africa and West Africa,
however the profitability of MFIs was positive (Ghana Microfinance Institution Network, 2008).
However while African countries such as Ethiopia have shown good financial performance over
the years in comparison to other African countries in their profitability, there overall risk has
experienced an increase and the cost of funds has been very expensive as the commercial bank
lending rates are high (African microfinance transparency report, 2010). While in India and
Bangladesh the financial performance of MFIs was good with Bangladesh MFIs out performing
Indian MFIs because Indian MFIs incurred high operating costs (A. K Rai, 2012). However the
high operating costs in Asia were due to training costs, offering small loans with short maturities
etc. unlike African countries where high operating costs were largely due to inefficiencies.

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Zambia like the rest of Africa had followed the trend in the growth of microfinance institutions
in terms of number of borrowers, savers and new microfinance institutions (Juliana Siwale and
John Ritchie, 2011). The MIX market gave statistics of the total number of clients being 31,340
borrowers and a gross loan portfolio of USD 6.5 million as at 2009.
Though the number of microfinance institutions in Zambia has increased over the years from 25
regulated institutions in 2010 to 33 regulated in 2013 and over 200 unregulated institutions, the
microfinance transparency report ( 2011, p5) indicated that the microfinance sector of Zambia
still remains under developed even according to African standards.
The sector is undeveloped and has poor performance even according to African standards with a
limited number of borrowers and very few MFIs having attained financial sustainability due to
much reliance on donor funds , only 2 MFIs were financially sustainable in 2009
(www.microcapital.org/Zambia-microfinance-survey-current-microlending). Whereas some
MFIs such as EFC had attained relatively good financial performance, some had recorded very
poor financial performance with negative Return On Assets( ROA) and Return On Equity( ROE)
and operational self-sufficiency less than 100% in 2012 and 2013 (www.mixmarket.org)
High reliance on donor funds have had implications on the financial performance of Zambian
MFIs as they do in other regions of Africa such as east Africa where operating costs, low
retention/client intake and impeded sustainability are high, this being one of the major reasons
that led to the fall of Pride Zambia ( PZ) one of Zambia’s largest MFIs in 2008 ( Siwale , 2011)
.In data obtained from the mix market it was found that African MFIs had a total of the gross
loan portfolio being $ 4.6 billion with a total number of 4.5 million borrowers, Zambia was
ranked low, 26 out of the 32 countries in terms of the gross loan portfolio and 21 out of the 32
countries in terms of the number of borrowers ( MIX 2010).

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1.2 PROBLEM STATEMENT
Zambia is one of the developing countries in the world with GDP per capita though showing
improvement over the years only amounted to $1700 at the end of 2013. In a research carried out by
FinScope Zambia (2010,p30) it was reported that one of Zambia’s major problems is its high poverty
levels with 70% of the population living in poverty and 62.7% of its population financially excluded due
to lack of income and expensive bank products.
For sustainable poverty alleviation, the microfinance institutions themselves should be profitable and
sustainable. A concern was raised in the microfinance transparency report (2011, p8) that microfinance
institutions were not performing according to the set standards, not even according to the African
standards which include: operating cost ratio <19 total cost ratio <30%, operating self-sufficiency >100,
financial self-sufficiency >110 etc. Past studies conducted focused on the social impact neglecting
financial performance, very little is therefore known about the financial performance of MFIs in Zambia
especially in the recent years.
This study therefore sought to assess the performance of Microfinance institutions in Zambia generally.
1.3 OBJECTIVES
1.3.1 GENERAL OBJECTIVE
• The general objective of this research is to assess the financial performance of MFIs in
Zambia.
1.3.2 SPECIFIC OBJECTIVES
• To determine whether microfinance institutions in Zambia are financially sustainable;
• To determine whether MFIs in Zambia are efficient in their operations ;
• To assess the quality of the loan portfolio of MFIs in Zambia ;
• To determine whether MFIs in Zambia have high outreach to the poor.
1.4 STATEMENTS OF HYPOTHESIS
HYPOTHESIS ONE
H0: MFIs in Zambia are not financially sustainability.
H1: MFIs in Zambia are financially sustainable.

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HYPOTHESIS TWO
H0: MFIs in Zambia are not efficient in their operations.
H1: MFIs in Zambia are efficient in their operations.
HYPOTHESIS THREE
H0: the quality of the loan portfolio of MFIs in Zambia is poor
H1: the quality of the loan portfolio of MFIs in Zambia is good
HYPOTHESIS FOUR
H0: the outreach of MFIs to the poor has been low
H1: the outreach of MFIs to the poor has been high
1.5 SIGNIFICANCE OF THE STUDY
The study aims at finding out whether Micro Finance Institutions in Zambia have a strong
positive performance. Furthermore the study is significant to different groups of people such as
MFIs and their managers, clients, donors and the Association of Microfinance Institutions in
Zambia (AMIZ).
It will be significant to MFIs as it will provide necessary tools to have a clear view on their
current performance, to enable decision making by identification of areas that need improvement
and thus enable the institutions to be motivated to better performance. It will also enable MFIs to
follow up its development and assess progress in achieving sustainability.
The research will also be a relevant tool for financial assessment and analysis for the regulators
of MFIs as the recommendations will help them on how best to regulate MFIs and enable sound
financial performance in these institutions so as to enhance their competitiveness in the global
economy. The research will also be useful to the donors as they will better assess if the MFIs are
operating efficiently and the donor funds are put to their intended use. AMIZ will also be able to
ascertain the financial performance of MFIs by the use of this study.

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It will be a useful tool for a donor or a supporting NGO to better understand the performance /
level of sustainability of MFIs in Zambia and thus enable them to better understand the kind of
financial aid MFIs need. It will also be a useful tool for investors to better understand and
identify the MFIs to invest in. This study will also be useful to clients of the MFIs as it will
enable them to know if these institutions will be sustainable in the long run and thus enable them
to know if they will still yield benefits from them.
1.6 SCOPE OF THE STUDY
The research is limited to the study of the financial performance of Microfinance institutions.
Performance will be assessed using the broad performance areas; these include outreach,
sustainability/profitability, efficiency and portfolio quality.

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CHAPTER TWO
LITERATURE REVIEW
2.0 INTRODUCTION
Chapter one was an introduction to the research and gave reasons as to why the research this
research is being carried out. This chapter starts with the definition of terms relevant to the
research according to other researchers; it defines terms such as the definition of an MFI and
Microfinance, financial performance and assessment. Then it reviews literature on the
dimensions and determinants of financial performance of MFIs. It then looks at outreach and the
dimensions of outreach. It then looks at the past studies of financial performance in Africa and
other regions in the world. It also looks at the performance of Zambian MFIs .Based on the
various literature reviewed and the model of evaluation, a conceptual framework was formulated.
2.1 DEFINITION OF TERMS
2.1.1 Definition of an MFI and microfinance
Microfinance institutions have been defined as financial institutions that offer financial services
to the poor (Wrenn, 2005). Microfinance are the financial services such as savings, credit,
insurance , leasing and insurance provided to the poor and vulnerable in societies to empower
them by enabling self-employment in communities (Nelson, 2011).
2.1.2 Definition of financial performance
According to Arthur et al (2013, p4), financial performance of MFIs is the ability of the
institution to operate efficiently in its management of its resources and attaining of objectives,
profitably and survival of growth in quantitative terms. The financial performance analysis
conceptual framework (2012, p49) defines financial performance as the act of performing
financial activities to a degree by which the financial objectives are met in monetary terms.

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2.1.3 Definition of assessment
The oxford dictionary (2003, p20) describes assessment as the evaluation or the estimation of the
value of an asset or property at a specified level while the new English dictionary and thesaurus
(2005, p19) defines assessment as the act of evaluating the value of something.
2.2 DIMENSIONS AND INDICATORS OF FINANCIAL PERFORMANCE
OF MFIs
The financial performance of Microfinance institutions is of paramount importance in the
microfinance sector as well as the countries in which they operate (Befekadu B. Kereta, 2007).
Measuring the financial performance does not only involve the sustainability of MFIs but also
other aspects such as the outreach especially if the MFIs major mission is reaching the poor of a
country (Nelson, 2011, p44). The performance of these institutions can be said to be multi-
dimensional and has been grouped into four perspectives or dimensions by the International
Journal of Management and Strategy (2011, p5) as: portfolio quality; efficiency and productivity;
profitability and sustainability ; And financial management/ risk management.
2.2.1 Portfolio quality
Portfolio quality as defined by Ahlin et al (2010) is the asset level standard that evaluates the
performance of the most important asset i.e. the loan portfolio of the MFI; it measures the quality
of the portfolio whether it is good or bad, increasing or decreasing. Susuana nelson (2011, p54)
in her thesis performance assessment of microfinance institutions in the shaman municipality,
stated that the portfolio quality can be measured by the use of the following indicators:
2.2.1.1 Portfolio at risk
Portfolio at Risk (PaR), which measures that part of the portfolio which is in arrears and is
therefore at risk of not being repaid. PaR = [Outstanding Balance on Arrears over 30 days +
Total Gross Outstanding Refinanced (restructured) Portfolio]/Total Outstanding Gross Portfolio.
The changes in the PaR show changes that occur in the risk of the loan portfolio of the institution
(Seep microfinance guide, 2010)

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2.2.1.2 Write off ratio
Write Offs Ratio: this ratio is representative of the amount of loans that have been written off
due to high certainty that they will not be recovered. The ratio is calculated as:
WOR = Value of Loans Written Off / Average Portfolio.
2.2.2 Efficiency and productivity
The efficiency and productivity of MFIs is the measure of how the institutions measures its
operating costs in relation to the portfolio yield (MIX, 2005). Efficiency for a microfinance
institution as well as other financial institutions is very important as it implies a rational or good
use of inputs as well as outputs and thus ensures survival of the institution (Nieto, 2006). In other
words an MFIs pursuit of efficiency enables it to develop appropriate products lines, target its
market efficiently and remove obstacles in the supply of MFI products(Abayie et al,2011).The
efficiency and productivity like other dimensions of MFI financial performance is measured by
the use of ratio indicators (The SEEP network and alternative credit technologies, 2005). Seep
network (2011) provides the indicators that measure efficiency with the following ratios;
2.2.2.1 Average deposit account
Average deposit account balance per depositor ratio; Total deposits/Number of deposit Accounts,
is used to provide information on the social-economic base of its clients.
2.2.2.2 Active clients per staff member
Active clients per staff member measures the MFI’s personnel overall productivity management
of clients that includes borrowers, voluntary depositors and other types of clients. The ratio
should be calculated as Number of active clients/ Total number of personnel.
2.2.2.3 Portfolio to assets
This ratio indicates how much an MFI allocates to its primary business of microcredit which is
also most of the time its most profitable business. Low results may be an indication of
inadequate use of assets while high results may indicate inadequate liquidity levels. It is
calculated as follows: Gross loan portfolio/Total assets.

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Katsushi. S. Imani, Raghan Gaiha and Ganesh Thapa (2011) in their discussion paper on the
performance of MFIs (2011, p8) stated that the efficiency of an MFI would be measured or
analysed by both its personnel cost as well as its administration cost with a lower ratio being a
good indicator high efficiency in its operations. This involves minimization of cost and
maximization in income at a certain level of operation, it thus has an impact on financial
sustainability of microfinance institutions (Kinde, 2012).Efficiency in management of expenses
should ensure a maximization of use of MFIs loanable resources, which may in turn enhance
profitability thus a higher ratio of operating expenses to gross loan portfolio indicate a less
efficient management (Muriu, 2011).
According to Barres et al. (2005) and Kipesha (2013), efficiency is important in an institution
including MFIs for various reasons including:
1. Resources are limited and donors of MFIs are usually not willing to fund the MFI with all
the required resources thus the available resources have to be used efficiently.
2. The emergence of MFIs by development expertise as a promising and new tool for
poverty alleviation has increased the need for them to be efficient in the use of public
funds such as deposits of its clients.
3. The potential of microfinance industry to become profitable has led to a large number of
commercial banks and other private investors to engage in microfinance business with
better use of the resources, more efficiency in their operations and reduction of the
amount of resources worsted and lastly most of the donors are now interested in funding
MFIs which indicate efficiency and sustainability.
2.2.3 Sustainability
Arsyad (2005) in his study of the assessment of microfinance institutions performance indicated
that sustainability is very essential in the operation of the MFI, however for this to occur loan
rates need to be sufficient to cover full cost of funding, administration cost as well as operational
costs. In line with this definition, Woldeyes (2012) states that self-sustainability of a MFI is
when the MFI can survive and add to their asset portfolio wholly on the basis of income obtained
from their lending and related operations.

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Though one might make assumptions that MFI sustainability has to do with commercialization,
this is not always the case as two-thirds of sustainable MFIs are either public banks, cooperatives
or NGOs and not for profit organizations (Guntz,2011). Microfinance sustainability is a step
towards profitability , they are both achieved when the institution offers better products , are able
to reduce their transaction costs and provide services that meet the needs of clients , generate
sufficient revenue and able to find new ways to provide finance to unbanked households( CGAP,
2004).
In another study by Tucker and Miller (2004) in which financial performance was measured
across four different regions, the findings indicate that financial sustainability is best measured
by ROA and ROE. Bogan. V, Johnson W, Mhlanga N (2007) stated in their study of 300 of the
biggest MFIs in the world indicated that if the operational self-sufficiency is more than 110%,
then the MFI can be said to be financially sustainable. According to the study by Kipesha and
Zhang(2013) on the sustainability , profitability and outreach tradeoffs, the last stage of
sustainability is profitability where the institutions is not only covering the operating costs but
also the cost of inflation, non-cash costs and cost of funds all entirely without subsidized funds.
According to Arthur et al (2013, p5) Sustainability of MFIs is occurs in two forms which are
operational self-sufficiency and financial self-sufficiency.
2.2.3.1 Operational self sufficiency
Operational self-sufficiency (OSS) which is the ability of the MFI’s operating income to cover
operating such as the cost of salaries and wages, opening branch offices etc. while subsidies may
still be used to cover defaulted loans or issue loans (International Journal of Management and
Strategy,2011).OSS can be calculated as:
(Microfinance Bulletin, 2008)

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2.2.3.2 Financial self sufficiency
Financial self-sufficiency (FFS) also known as a high standard measure that is the ability of the
institution to cover all its costs especially the cost of funds and all other subsidies received at the
market price. Financial self-sufficiency ensures that the institution is profitable in the long run.
This means an institution that is financially sustainable does not require any outside funds or
subsidized inputs in order for it to operate. Instead, an MFI that is FSS raises funds through its
lending and savings operations, therefore achieving OSS is the primary goal and there after FSS
(Jorsgensen, 2011).FSS is calculated as:
Operating income / operating expenses+ financing costs+provision for loan losses+
cost of capital
2.2.4 Profitability
Profitability is a financial benefit that is realized when the expenses are less than the revenues or
the amount of revenue generated from a business activity exceeds the expenses, costs and taxes
needed to sustain the activity, Profitability in MFI is simply the difference between total revenue
and total cost (Arthur et al, 2013). Profitability has become an important priority and a step in
becoming sustainable, and it is therefore important to know the different ways to measure it, seep
network (2011) states that profitability and efficiency like the other dimensions is measured by
different indicators that include:
The ROA also known as the Return on Investment (ROI) measures how the MFI is managing its
assets to maximize its profits. The ROA or ROI should be increasing as a higher ratio indicates
the institutions ability to generate profits from its investments /assets (Iezza, 2010). A mature
MFI should generate positive returns on its assets. The return on assets is a very important ratio
because the ratio measures the institutions ability to measure the investments profit generating
ability, it is calculated as; Net income after taxes and before donations/Average assets (Thomas
W.E, 2013).

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Yield on portfolio indicates the MFI’s ability to generate revenues from interest rates, fees and
commissions in the gross loan portfolio. A decreasing trend means lower earnings in the
portfolio, either from a change in portfolio composition, product pricing, or foregone revenue
due to a rise in the arrears (Sa Dhan, 2003). It is calculated as; Interest, fees, and commissions in
loan portfolio/ Average gross loan portfolio.
Return on equity ROE is a core measure of profitability. It is a very important ratio to investors
as it looks at the return to the investors. It measures an MFI’s ability to build equity through
retained earnings. The generally accepted perspective (the norm) is that the higher the
percentage, the better as it shows that the company is using the investors’ money or donor funds
to generate income (Jorgensen, 2011). A mature MFI should generate a positive ROE. It is
measured / calculated as: Net income after taxes and before donations/Average equity.
2.2.5 liability/asset management
This dimension illustrates the ability of the MFI to meet its obligations when they fall due while
maximizing the use of its assets for profit purposes with its main objective being maximizing
idle resources very profitably while being able to pay its expenses , obligations and debt without
borrowing funds or the use of donor funds ( Micro Save , 2008). The main aspects of asset/
liability management are liquidity risk, foreign exchange risk, and repricing risk.
Liquidity risk Measures the maturities of assets and liabilities on an MFI’s balance sheet. It
therefore helps the MFI to determine where funding gaps exist, and thus allows it to make
adjustments to maturities as possible and plan for liquidity needs. Repricing risk measures any
mismatch when an MFI’s assets and liabilities interest rates change. (Nieto and Cinca, 2006).

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2.2.6 Outreach
Microfinance institutions are challenged with meeting different social and operational objectives
like expanding coverage, reaching out to women, increasing efficiency and earning profits to
attract more capital (Cull et al, 2007). However, one can look at these as representing two broad
objectives: expansion of outreach and stable financial performance, while providing financial
access to a greater number of the poor is the core mission of MFIs, it has to be profitable in order
to be sustainable (Subham Kaitlyn, 2010).Kasenge (2011) defines outreach as the ability and
breadth and depth to achieve economies of scale while profits on loans are kept at a minimal
2.2.6.1 Breadth and Depth of outreach
The breadth of outreach refers to the number of people the MFI serves while the depth of
outreach refers to the quality of the outreach e.g. the size of the loan and how poor clients are
(Kailthya, 2010).The indicators of outreach performance being the percentage of female clients
changes in the number of clients, amount of savings on deposits, total value of assets, value of
outstanding loan portfolio, average credit size, average savings deposits size, and number of
branches (Babandi, 2011).
2.3 MODELS OF FINANCIAL PERFORMANCE EVALUATION
There was growing interest to evaluate the financial performance of MFI since the 1990s, this
prompted the development of different evaluation models that measured the key performance
indicators of MFIs according to managements perspective of different management. This
resulted in a diverse development of models, some were more accepted than others (Rai, 2012).
Agarwal and Sinha (2011) states that most of these models are a combination of the evaluation of
social and financial performance and they include, PEARLS model by WOCCU, GIRAFE
Rating by PlaNet and MicroRate , CAMEL model by ACCION and MIX market model.

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2.3.1 CAMEL model
CAMEL is an acronym that looks at five indicators of financial performance these are the
Capital adequacy, Asset quality, and Management, Earnings, and Liquidity management. It is a
widely used model in Latin America where the ACCION bank mostly operates, it uses this
model to ensure that there is a wide outreach (Tucker and Miller, 2004). The capital adequacy
aspect of CAMEL looks at the firm’s ability to increase its loan portfolio and also its ability
protect deterioration in the asset base.
The asset quality involves examining the quality of the portfolio and the infrastructure. The MFI
management would use portfolio at risk as well as the write off ratio to determine the quality of
the loan portfolio as well as the existence of credit policies that will aid the collection
procedures, write off policies and the classification of the loan portfolio (Nieto and Cinca, 2006).
The management component of CAMEL refers to all management of the firm having an effect
on its performance and thus it was required that the MFI examine this component critically. The
earnings component examines the key measures of revenue, expenses as well the institutions
operational efficiency and the interest rate policy, the overall performance was then examined by
the use of ratios such as the ROA and ROE. The liquidity management component would look at
the firm’s ability to meet its funding needs as well as the credit demand. The MFI’s liability
structure and its productivity are also key components of Liquidity management.
2.3.2 Mix model for performance evaluation
The Mix model was established by the MIX market in June 2002 after its establishment. MIX is
an organization that publishes financial statements of MFIs and accesses its financial and social
performance. It addresses the issue of diversity in the operating environment of MFIs, while
comparing the financial and portfolio data, it has adopted a peer group framework, where
financial performance of MFIs are compared among peer group members on 8 broad parameters.
These parameters include the: Overall financial performance ,Revenues and expenses,
Efficiency, Risk and liquidity, Institutional characteristics, Financing structure, Outreach
indicators, Macroeconomic indicators (Microsave 2008).

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The overall financial performance indicators include: Financial Self-Sufficiency: Adjusted
Financial Revenue / Adjusted (Financial Expense+ Impairment Losses on Loans +Operating
Expense); Return on Assets: (Adjusted Net Operating Income - Taxes) / Adjusted Average Total
Assets; Operational Self-Sufficiency: Financial Revenue / (Financial Expense + Impairment
Losses on Loans + Operating Expense); and Return on Equity: (Adjusted Net Operating Income
- Taxes) / Adjusted Average Total Equity. (Rai, 2012)
Efficiency indicators of the MIX model include the following: Loans per Staff Member:
Adjusted Number of Loans Outstanding / Number of Personnel; Cost per Loan: Adjusted
Operating Expense / Adjusted Average Number of Loan, operating expense ratio; Operating
Expense/Loan Portfolio: Adjusted Operating Expense / Adjusted Average Gross Loan Portfolio;
Average Salary/GNI per Capita: Adjusted Average Personnel Expense / GNI per Capita;
Voluntary Depositors per Staff Member: Number of Voluntary Depositors / Number Of
Personnel ; and Borrowers per Loan Officer: Adjusted Number of Active Borrowers / Number of
Loan Officers. (Agarwal and Sinha,2011)
Risk and liquidity indicators for the model include: Portfolio at Risk > 30 Days: Outstanding
balance, portfolio overdue > 30 days +renegotiated portfolio / Adjusted Gross Loan Portfolio;
Current Ratio: Short Term Assets / Short Term Liabilities; Write-Off Ratio: Adjusted value of
loans written off / Adjusted Average Gross Loan Portfolio; and Portfolio at Risk > 90 Days:
Outreach indicators of this model include:
• Number of Borrowers: Number of Borrowers with outstanding loans that is adjusted for
standardized write- offs
• Gross Loan Portfolio: Gross Loan Portfolio that is adjusted for standardized write-offs
• Number of Voluntary Depositors: Number of Depositors that have time deposit accounts
and Voluntary deposit.

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2.4 PAST STUDIES ON THE FINANCIAL PERFORAMNCE OF MFIs.
2.4.1 Financial performance of African MFIs
MFIs in Africa include a wide range of services and geographical dispersed institutions such as
NGOs, an increasing number of commercial banks, NBFI, cooperatives, rural banks, savings and
postal services (Daher LeSaout, 2012). According to the overview of the African Transparency
report (2010), the net operating margin of MFIs varies according to the institutions. Cooperatives
and NGOs in Africa have lower cost of funds in comparison to that of NBFI due to donor funds
and their reliability on savings mobilization. Banks and NBFI had operating costs exceeding
30% of the average gross portfolio which was more than the recommended 14% and 19% for
MFIs.
MFIs in Africa report the lowest average ROA: 2%, one explanation for lower profitability of
MFIs in Africa than other regions is that the African MFIs earn lower average financial revenues
which do not cover operating costs, throughout the region, weak infrastructure, low average
population density combined with predominantly rural markets and high labour costs contribute
to high operating cost (MIX, 2005). A study by Tucker and Miller (2004) on the financial
performance of MFIs indicated that African MFIs are the weakest on profit margin, with
considerable losses that would make them clearly unsustainable without subsidies while Asian
MFIs are the strongest on profit margin, though still losing money.
According to the CGAP (2012, p19) the sub Saharan Africa (SSA) had higher operating
expenses than other regions of Africa, the implication of this was a reversal of the OSS which
was attained by the average MFI in 2007 and thus the reduction in revenues from 27% to 24% in
2009 and therefore causing a reduction in the ROA. The sub Saharan region has also recorded
the highest portfolio risk over the years with a slight decrease in 2010 (MIX and CGAP, 2012)
In another survey carried out by the African transparency forum in 2012 over a sample of 44
different MFIs located in different countries, the net operating margin was decreasing in 2009 as
compared to 2008, in the same vein, the provision costs increased while the portfolio yield
decreased in order to attract more clients and thus increase the outreach, the operating cost

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decreased as MFIs became cautious in their management of costs (Africa microfinance
transparency, 2012).
2.4.1.1 Financial performance of MFIs in different African countries
In research carried out by Aemiro and Mekonnen (2012) on the performance of microfinance
institutions in Ethiopia during the financial crisis, it was found that the return on the assets and
return on equity had decreased in the year 2009 and the risk had increased due to the clients’
hardship in repaying due to the global economic crisis of 2009.In the same vein an earlier
research carried out by Befekadu B. Kereta (2007) on the performance of MFIs in Ethiopia, it
was found Ethiopian MFIs had a PAR at 3.2% for the period 2005 to 2007 which was according
to him, in comfort zone. In comparison to Ethiopia, studies in Tanzania indicate poor
performance of Tanzanian MFIs performing better socially than they did financially.
Nyamsogoro (2010) in his study of the financial sustainability of MFIs in rural Tanzania found
that MFIs were not financially robust as the indicators of financial performance showed a poor
trend. His finding indicated a decrease in the yield on the gross loan portfolio over the years from
2004-2007 at a rate of about 5.6% per year, from 56% in 2004 to 39% in 2007.
Kipesha (2013, p101) in his study of the performance of MFIs in Tanzania concluded that the
financial performance of MFIs was poor with low relative profitability and productivity and very
poor efficiency. While Microfinance institutions whose performance was assessed in Uganda by
the use of regression model were found to perform relatively well as the average mean was 3.09
which implied that most of the MFIs in Uganda have a sound performance (Sunday A,
Turyahebwa A, Novembrieta S and Byamukama E, 2013).

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In a survey carried out by Ghana Microfinance Institution Network (2008), it was indicated that
the financial performance of MFIs in Ghana in the year 2007 in which the capital asset ratio was
15% was lower than the benchmark for both Africa and West Africa. It was also indicated that
Ghana MFIs had reached the benchmark in the return on assets and most of the MFIs having
attained operational sustainability. According to a survey conducted by the Microfinance
transparency report Ghana (2012) indicted findings that Ghana had a portfolio of $71.7 million
and ranked 11th by the gross loan portfolio and 7th by the number of borrowers out of 33
African countries. In comparison to a research carried out in Nigeria, According to a survey
carried out by Micro rate it was indicated that performance in terms of ROE, portfolio yield and
portfolio at risk in the years 2009, 2010,2011 as 89.1%, 36.5%, 51.1: 49.7%, 53.7% ,45.5%:
2.3% ,0.4% ,0.1% respectively which according to the report was good.
According to the study conducted by Abraham, H. and Balogun, I.O (2012) in Nigeria in which
performance was measured based on the productivity and efficiency indicators, it was indicated
that there was an increase in the assets, deposits and gross loan portfolio, including an increase in
the outreach of about 40% of the MFIs in the years in the years 2006-2010, this was mainly due
to new entrants in the market. Their findings also indicate that the operating expense ratio for
most MFIs was below 30% which meant that these MFIs were performing relatively well.
In a research done by Nelson (2011, p 68), the PaR of the microfinance institutions in Ghana had
a rising trend from the 2007- 2010 showing that there was a rise in clients default rate, the Par
did not exceed 10%. In her research nelson (2011, p77) concludes that the financial performance
of MFIs in Ghana is generally good as it recorded good profitability and efficiency ratios in the
dimensions of profitability and sustainability. In the same vein, Banbandi (2011) in his study of
microfinance institutions in Nigeria and sustainability reports in his findings that the MFIs had
reached a significant level of outreach and sustainability.

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2.4.2 Financial performance of MFIs in other regions of the world
Awaworyi(2014) and Mar (2014) in their study on the sustainability and outreach of MFIs
indicated that MFIs in South Asia(SA) have to issue larger amounts of loans than those in Latin
American Countries(LAC) for one unit increase in profit margin and one unit increase in OSS.
Their study also showed that MFIs in LAC experienced a reduction in the outreach compared to
those of SA. In another study by Daher and LeSaout (2012), they showed that while African
MFIs were low in profitability, South Asia MFIs had low yield on portfolio in comparison. In
another study by Agarwal (2010), Revenue, Expenses, Financial Structure, Efficiency, Risk and
Productivity were the parameters used to measure to measure the financial performance. His
findings indicated that Indian MFIs were following sound risk management practices and thus
maintaining a good capital to asset ratio, the efficiency was also recorded to be good. However
productivity was poor as the man power was not fully utilized by the MFIs. MFIs in India,
Pakistan and Bangladesh were found to be efficient with Bangladesh MFIs being more efficient,
however the inefficiencies faced in these countries were mainly due to technical faults such as
unqualified managers etc. (Tahir and Tahrim, 2013). Bangladesh also leads the Asia in its
profitability performance.
Tucker and Miles (2004) indicate that African MFIs had poor profit margins in comparison to
other regions such as Eastern Europe, LA and Asia, Asian MFIs had strong on profit margins.
The findings of the study showed that, MFIs that had attained OSS had higher performance in
terms of return on Equity (ROE) and return on asset (ROA) though a large number of MFIs
under review were found to be weak in financial sustainability. African MFIs perform better than
their counter parts in portfolio at risk being 4.0 percent, while South Asia PaR is 5.1 percent,
LAC is 5.6 percent, and East Asia recorded a PaR at 5.9 percent in 2005 (Lafourcade, Isern,
Mwangi, and Brown, 2006) however the study by Imani et al (2011) indicated an increase in the
PaR and write off ratio in 2005 through 2009 indicating a decreasing loan portfolio quality in
Africa.

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2.5 PERFORMANCE OF ZAMBIAN MFIs
The MFI sector in Zambia has grown over the years from 25 regulated MFIs in 2006 to 33 in
2013(www.boz.com). However despite the increase in the number of MFIs, there have been
raised concerns on their financial performance (microfinance transparency report, 2011). A study
by Siwale (2011) and Ritchie (2011) indicated an increase in the dependency of MFIs on donor
aid and thus impending financial and operational self-sustainability for most MFIs. In Zambia, a
lack of skilled and competent human resource has been identified as a major contributing factor
causing failure of MFIs in financial performance (Microfinance Africa, 2010). A study by
Kingombe (2004) in which he assessed the performance of the MFI sector in Zambia indicated
that because most MFIs in Zambia began as NGOs, the outreach was poor in the year 2004 and
those prior to 2004, he further indicated poor financial performance of the then registered MFIs
in Zambia.
Dixon et al (2007) indicated that the portfolio quality of MFIs in Zambia has been deteriorating
because of increased delinquency and default rates. Zambia is no exception to high operating
costs and low financial performance. Poor performance of Zambian MFIs has led to the failure of
institutions such as PRIDE Zambia in 2008 (Siwale, 2011). However very little studies have
been carried out in Zambia in relation to the financial performance of MFIs.

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2.6 CONCEPTUAL FRAMEWORK
The figure below outlines the conceptual framework of the study from the literature reviewed as
well as the MIX market model of assessment.
Figure 2.1: Conceptual framework
Source: Author (2014)
FINANCIAL
PERFORMANCE
Efficiency
(Operating expense
ratio)
Sustainability
(ROA)
Outreach
(Number of
borrowers)
Portfolio quality
(Par at 90 days)

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CHAPTER THREE
RESEARCH METHODOLOGY
3.0 INTRODUCTION
The Research methodology is an outline of the methods that were used to collect data relevant to
the study. The methodology comprises of the research design that was used, the population of
study, research instruments, data collection and tools and data analysis.
3.2 RESEARCH DESIGN
The research was directed by a set of objectives and hypothesis statements which are the basis
for all data that has been collected and analyzed. The research design used was descriptive as
used in the discussion paper by Imani et al (2011) and Aemiro (2012) and Mekonnen (2012) in
their research on the financial performance of MFIs in Ethiopia. This is because the major
purpose the research is to investigate the state of the financial performance of MFIs and how it is
affected by different dimensions of performance, therefore descriptive was used so as to find out
the nature of the existing variables and how they change overtime structured around the specific
objectives for the specific objectives. The nature of the research is such that the independent
variables are also the dependent variables to a large extent and thus to confer validity to the
study, the research used the MIX market model to define its variables and descriptive research
designs as the research design.

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3.3 DEFINITION OF THE POPULATION
The target population for this research are all 33 Microfinance institutions regulated by the banks
of Zambia as at 6th September 2013 by a census, four of which are developmental MFIs as
shown.
Table 3.1 Table of MFIs in Zambia
Code Institution Code institution code Institution
1 Bayport Zambia 12 Izwe Loans Zambia
Limited
23 Microfinance
Zambia Limited
2 FINCA Zambia 13 Elpe Finance Limited 24 ,D-Finance Africa
Limited
3 pulse financial services 14 Letshego Financial
Services Limited
25 Gobena
Microfinance
Limited
4 CETZAM financial
services
15 Agora Microfinance
Zambia Limited
26 Zampost
Microfinance
Zambia Limited
5 Meanwood Finance
Corporation
16 Sigma Financial
Solutions Limited
27 Betternow
Finance Company
Limited
6 Prime Circle
Microfinance Limited
17 Christian Empowerment
Microfinance Zambia
Limited
28 Micro Bankers
Trust
7 blue financial services 18 Chibuyu Financing
Company Limited
29 Microcredit
Foundation
Limited
8 genesis finance ltd 19 VisionFund Zambia
Limited
30 ,Metropolitan
Finance

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Corporation
Limited
9 microfin Africa ltd 20 Graypages Financial
Solutions Limited
31 Kungoma
Financial Services
Limited
10 unity finance ltd 21 Nu-Bridge Financial
Services Limited
32 Madison Finance
Company Limited
11 Blue Cash Xpress
Limited
22 Faroncredit Limited 33 Yakabutala Musa
Limited
Source: author, 2014
3.4 DATA COLLECTION AND TECHINQUES
The research required mostly the use of secondary sources of data and some primary data.
3.4.1 Primary data
Primary data was collected by the use of questionnaires. The questionnaires were answered by
operations managers of the different MFIs. Data on the outreach such as the number of
borrowers, the type of clients’ served, the qualification of their staff members and also more
insight on the other objectives as to know the reasons behind the good or poor performance of
the MFIs was also obtained from the questionnaires.

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3.4.2 Secondary data
This data was collected mainly by the use of financial statements from the Association of
Microfinance Institutions of Zambia, consolidated financial statements from the bank of Zambia
and MIX market website for the period 2010-2013. This period has been chosen because the
number of MFIs in this period increased and it is during this period that concerns on the
performance of MFIs was raised. Journals, annual reports and works of other researchers,
speakers and authors were also reviewed from the internet. Newspapers, magazines, dissertations
from the copper belt university library were also used. The information obtained from the
secondary data included the profitability, efficiency, outreach and portfolio at risk.
3.5 DATA ANALYSIS
The data is quantitative by nature and it was quantitatively and qualitatively analysed using ratio
analyses and percentages.
3.6 DATA ANALYSIS TOOLS
To analyse the data, the researcher used internationally accepted ratios for measuring the
performance of MFIs as a benchmark (ratio analysis) for comparison as well as a trend analysis
and a t- test. Trend analysis is the use of data from different period to assess the movements in
the performance, it was used to ensure that data from different periods is compared and a trend
established. A t- test is a statiscal method of determining if an institution has reached a good
level of performance or not. The t-test was used to test the null hypothesis. Descriptive methods
such as the use of factor rating, percentages, graphs and tables were also used.

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Return on Assets (ROA) = , and is significant at 5%
and should have a mean of greater than 1%
Portfolio at risk= , and is significant at 5%
and a mean less than 10%
Operating expense ratio= and should be significant at 5%, should be less
than 19% per annum as per MIX market standards and have a mean less 14% as per sub Saharan
standards.
Outreach should also be significant at 5%
3.8 LIMITATIONS OF THE STUDY
A number of problems were encountered during data collection. These included: the
unavailability of immediate secondary data from the MFIs due to poor record keeping and the
unwillingness of some of the MFI managers to fill in the questioners as some of them perceived
this as an action to unveil their operational weaknesses. Finances as well as time were also a
major limiting factor. Another limitation of the research was that data was difficult to
differentiate and disseminate.
3.8 ETHICAL CONSIDERATIONS
The nature of information being dealt with in this research is very confidential and thus the data
was handled with much care to protect the image of MFIs. Individual MFIs that do not publish
their statements will not be singled out unless it is inevitable that they be mentioned.

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3.9 CHAPTER SUMMARY
This chapter discussed the research methodology used in conducting the study. It highlighted the
research design used as descriptive as it will confer validity and confidence to the study. The
main sources of data were secondary. Financial statements from MFIs were collected as well as
journals and reports from the internet and school library. In the next chapter data that was
collected was interpreted and analyzed in line with the underlying objectives and methodology.

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CHAPTER FOUR
REASEARCH FINDINGS, INTERPRETATION AND ANALYSIS
4.0 INTRODUCTION
Chapter three looked at the methodology used in carrying out the research. This chapter gives a
comprehensive analysis of information based on the findings of the researchers ‘collected data.
The chapter looks at data that has been collected through the use of questionnaires and financial
statements of MFIs. The chapter begins with a distribution and responsiveness analysis, it then
looks at the descriptive data from the concerning efficiency, portfolio quality, outreach and the
sustainability for both the industry and developmental MFIs. It further looks at the factors
affecting the overall financial performance. It finally looks at the hypothesis testing and gives a
summary of hypothesis testing findings.
4.1 DISTRIBUTION AND RESPONSIVE RATE
For the purpose of collecting primary data, 33 questionnaires were issued to Microfinance
institutions. Of the 33 MFIs only 4 MFIs were developmental MFIs; these comprise FINCA,
EFC, CETZAM, Vision fund and Micro bankers trust while 28 were non developmental MFIs.
12 of the non-developmental MFIs were unreachable as they had either moved operations or
were located outside the Copperbelt and/or Lusaka provinces and thus unreachable during the
time of the research. While 3 of them had closed operations during the cause of 2014.However of
the issued questionnaires only 14 of the 28 non developmental MFIs and 3 of the 4
developmental MFIs responded to the questionnaires thus a total of 18 MFIs responded as
depicted in table 4.1 below.

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Table 4.1 QUESTIONNAIRES RESPONSE RATE
Respondents Response rate
Non developmental MFIs 50%
Developmental MFIs 75%
Source: Field data, 2014
4.2 MFI SUSTAINABILITY
Sustainability is an important measure of a successful industry and MFI. In order to assess the
sustainability of the industry ROA was used. For an industry to be sustainable both ratios should
be positive and increasing. Negative ratio shows negative returns in the industry or losses.
Figure 4.2 indicates the trend in the ROA of the MFI industry as whole and developmental MFIs.
From the figure below, the return on assets was 5.3% and 2.8% for the industry and
developmental MFIs in 2010, while the figure shows an increase in 2011 in the industry and a
decrease in 2011 for the developmental MFIs. The figure also indicates an increase of the
developmental MFIs while a decrease was indicated for the industry. In 2013, both the industry
and developmental MFIs experienced a negative return and thus a negative ROA. The industry
as a whole shows better performance than that of developmental MFIs alone.

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Figure 4.2 RETURN ON ASSETS RATIO
Source: Author, 2014
These changes are clearly depicted in the table4.3 below. The table indicates that there was an
increase in both the ROA from 2010 – 2011 for the industry and a decrease in the ratio for
developmental MFIs of 1.5 % and -1.2% respectively. In 2011 -2012 there was a decrease and an
increase in the industry as a whole and ROA of developmental MFIs by -11.8% and 1.8 %
respectively to 6% and 5.9% accordingly, this means that the industry as a whole and the
developmental MFIs was sustainable as the return on assets was greater than 1% and positive.
However the table also indicates a further fall in the ROA of the industry and the developmental
MFIs in 2013 by -6.1% and -25.9 % accordingly to -0.1% and -20% respectively. This means
that the sustainability of the industry at large and the developmental MFIs was highly
questionable as the net margins were negative. The industry as a whole shows a better ROA than
developmental MFIs.

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Table 4.3 summary of changes in the return on assets
year ROA %
(industry)
ROA%
(developmental)
Change
in
industry
ratio
Change in
developmental
MFIs
Indication
of change
in
industry
Indication of
change in
developmental
MFI
2010 2.8 5.3 _ _ _ _
2011 17.8 4.1 1.5 -1.2 increase decrease
2012 6 5.9 -11.8 1.8 Decrease increase
2013 -0.1 20 -6.1 -25.9 decrease decrease
4.3 ZAMBIAN MFI EFFICIENCY
In measuring the efficiency of the industry, a broad view was used of both administrative and
personnel cost termed as operating costs of the MFIs as they are incurred during its course of
operation i.e. issuing loans, collecting savings , offering insurance , micro leasing etc. a lower
operating ratio shows that the industry is performing efficiently. Efficiency is also influenced by
the qualifications of staff.
4.3.1 Operating expense ratio
Figure 4.5 shows the operating expense ratio for both the industry and the developmental MFIs.
The figure shows that the ratio has 55%, 58%, 62% and 61% in 2010, 2011, 2012 and 2013 in
developmental MFIs, showing a continually high ratio over the periods 2010-2013 meaning that
expenses generated by the loan portfolio was high and thus the efficiency of developmental MFIs
was poor. The figure shows an increasing trend in 2010 through to 2012 and a decrease in 2013.
The figure also shows that the industry ratio shows an increasing and then decreasing trend
meaning that expenses generated by the loan portfolio was increasing and then decreasing in
2010-2011 and 2012-2013 respectively. From the figure below, the industry as a whole has better
efficiency than developmental MFIs.

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Figure 4.4 OPERATING EXPENSE RATIO
The table 4.4 clearly shows the changes in the ratio over the years. The table shows that in 2011
an increase in the operating expense ratio occurred from 0.40 to 0.50, which was a 25%
increment in the ratio indicating that the efficiency of MFIs was poor. The table also indicates
that from 2011- 2012 the ratio was seen to significantly reduce from 0.50 to 0.37 a 54% decrease
from that experienced in 2011 indicating that 37% of the expenses were generated from the loan
portfolio meaning the efficiency had improved. In 2013, the operating expense ratio reduced to
0.36 (36%), a 2.7% decrease from that of 2012The ratios of both the developmental MFIs and
the industry is higher than the recommended 19% , indicating that the operating expense ratio
though decreasing is still high and thus MFIs in Zambia are inefficient in operations.
Table 4.5 Summary of changes in the operating expense ratio
Year Industry ratio Changes Percentage change indication
2010 0.40 _ _ _
2011 0.50 0.10 25% Increase
2012 0.37 -0.13 26% Decrease
2013 0.36 -0.01 2.7% Decrease

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4.3.2 Qualification of staff
Figure 4.6 indicates that the loan officers have received some kind of formal training with 14%
indicating that there loan officers highest qualification was a grade 12 certificate. While 36%
indicated that the highest qualification their loan officers had is a diploma. The figure also shows
that 26% have a college certificate as their highest qualification while only 24% have a degree as
their highest qualification. This indicates that the efficiency of the MFIs should be good.
However despite the qualification of loan officers as indicated by the table, MFIs still have high
operating expenses as indicated by figure 4.4.
Figure 4.6 Response on the qualification of loan officers
Source: field data, 2014
Figure 4.7 indicates that managers have received formal training in the way to manage these
institutions efficiently 21.1% have a diploma as their highest qualification, while 29.8% have a
degree 29.8 have a professional qualification while 15.8% have other qualifications such as
master’s degree, PhD etc. This means that it should be reflective in the efficiency of the
institutions, however as the results of figure 4.4indicate poor efficiency performance not in line
with the management skills.

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Page 36
Figure 4.7 Response of the management qualification
4.4 ZAMBIAN MFI PORTFOLIO QUALITY
Portfolio at risk at 90 days was used for both the industry and the developmental MFIs to
measure of industry and developmental portfolio quality. A low or decreasing PaR is an
indication of good portfolio quality while an increasing or high ratio is an indication of poor
portfolio quality.
Figure 4.8 shows the trend in the portfolio at risk ratio for the industry as a whole and
developmental MFIs respectively. The figure shows a decreasing trend in the industry loan loss
provision ratio indicating an improvement in the MFI portfolio quality from 2010-2012 and an
increase in the ratio in 2013 indicating a deterioration in the portfolio quality of the industry. The
figure also indicates an increase in the portfolio at risk for the developmental MFIs from 2010-
2013 meaning the portfolio quality was not good.

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Figure 4.8 portfolio at risk at 90 days
Table 4.9 clearly shows the changes that occurred in the portfolio at risk for both the
developmental MFIs and industry as a whole. The table shows that the PAR in 2010 was 12.7 %
indicating 12.7% of the loan portfolio was at risk of lost. The ratio slightly decreased in 2011
remaining quite high as compared to the recommended 10%, the ratio was 12.5 % a 1.6%
decrease in the PAR. The table also shows a significant drop of 48% in the loan loss ratio from
12.5% in 2011 to 6.5 % in 2012 indicating a reduction in the amount of the loan portfolio to be
lost, meaning the quality of the portfolio had improved. The table also shows this trend did not
continue in 2013 as the ratio increased by 103% from 6.5% in 2012 to 13.2 % in 2013 indicating
poor portfolio quality of the industry. The table also shows that 4.4% of the loan portfolio at risk
of developmental MFIs being lost over a period of 90 days in 2010 indicating good portfolio
quality as it was below the recommended 5%. The percentage of anticipated loss increased in
2011 to 5% of the loan portfolio at 90 days still indicating fairly good portfolio quality. A slight
increase was further indicated in 2012 to 5.30% in 2012 showing that the portfolio at risk of
being lost had increased and hence a deterioration in the portfolio quality. However, a
tremendous increase was experienced in 2013 where the portfolio at risk of being lost was 16%
of the loan portfolio meaning the portfolio quality was poor as it was more than the

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Page 38
recommended 10%. From the table below, developmental MFIs have a better portfolio quality
than the industry as a whole.
Table 4.9 Summary of changes in portfolio at risk from 2010-2013
YEAR PaR %
(developmental)
Change
in PaR
Percentage
change in
PaR
PaR %
( industry)
Change in
provision
ratio
Percentage
change in
provision
ratio
2010 4.0 - - 12.7 - -
2011 5.0 1 25% 12.5 -0.2 -1.6%
2012 5.3 0.3 6% 6.5 -6 -48%
2013 16 10.7 202% 13.2 6.7 103%
4.5 ZAMBIAN MFI OUTREACH
Outreach of the MFIs was measured using the breadth and the specific indicator used was the
number of borrowers. An MFI industry is said to have good performance in outreach if its
outreach increases from year to year and it is said to have poor outreach if its client base
decreases from year to year. The outreach of an MFI can also be said to be good if it serves a
diverse clientele.
4.5.1 Types of clients
Table 4.10 indicates that the majority of clients served by MFIs in Zambia are the salaried
workers with highest response and thus was ranked 1 as compared to others such as farmers,
petty traders, artisans who had a ranking of 2 and 4 respectively. Others include SMEs and MSEs
that had a response rate of 3 and artisans had the lowest response and thus ranked 5.This shows
that the MFI sector largely serves the salaried workers e.g. GRZ workers meaning that the
diversity in clients is not much and thus outreach to the poor is not good.

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Table 4.10 response on the type of clients served
The category with the highest response begins with 1
Category Ranking
Farmers 4
Petty traders 2
Artisans 5
Salaried workers 1
Others 3
4.5.2 The number of borrowers
Figure4.11 shows the number of borrowers of both developmental MFIs and the industry at
large. The figure shows an increase in the number of borrowers from 2010-2012 and a decrease
in 2013 for the industry meaning that the outreach in that year was deteriorating. Figure 4.11 also
shows the developmental MFIs whose main aim is outreach had an increasing trend throughout
the years. This is a good indicator of outreach in the developmental MFIs.
Figure 4.11 trend in number of borrowers over the period 2010-2013

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4.6 FACTORS THAT AFFECT OVERALL FINANCIAL PERFORMANCE
OF THE MFIS
Figure 4.18 shows the factors that affect the overall financial performance of MFIs. The figure
indicates that government regulation has the highest percentage of 78%.Increase in lending rates
has a percentage of 56%. Inflation rates third factor that affect the performance of MFIs as they
deter economic activity received a score of 32%. The staff quality (18%) is the second from the
last factor that affects the performance. Lastly the lack of donor funds received the least score
with a percentage of 11%. From the figure below, it can be concluded that government
regulation and increased lending rates from banks are the main factors that affect the financial
performance of MFIs
Figure 4.12 Factors affecting overall financial performance
Each factor is rated out of 100%

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4.7 HYPOTHESIS TESTING
This section tests the hypothesis based on the industry data for the four performance areas which
are sustainability, efficiency, portfolio quality and outreach.
4.7.1 H1: Hypothesis testing on sustainability
H10 states that MFIs in Zambia are not sustainable and only have a mean return of 0.001 while
the alternative hypothesis (H11) states that MFIs Zambia are sustainable. ROA was used to test
the null hypothesis over a period of 16 quarters (4years) as a longer period will validate the data.
A two tailed t-test was used to test the hypothesis at a level of significance of 5% in which the
mean was 0.033. The test statistic falls in the rejection region of figure 4.13 as the test statistic is
2.24, a bigger figure than 2.131, therefore rejecting the null hypothesis the industry is not
sustainable as indicated and accepting the alternative hypothesis that the industry is sustainable
as clearly shown in table 4.13below.
Table 4.13 Hypothesis testing summary table of sustainability
Financial
Performance
Indicator
Mean
( x )
Test
statistic (tc)
Degrees of
freedom (n – 1)
Significance
level (α)
Decision on
Ho
Return on Assets 0.033 2.24 15 0.05 Reject H1o
4.7.2 H2: Hypothesis testing on efficiency
To determine whether the Microfinance sector in Zambia is performing efficiently or poorly, the
null hypothesis (H20) i.e. MFIs in Zambia are not efficient in their operations was tested with a
mean of operating expense ratio being greater or equal to 0.14. The alternative hypothesis (H21)
that the mean is less than or equal to 0.14 and Zambian MFIs are efficient in their operations. A
significant level of 5% was used to carry out a one tailed t-test over 16 quarters. The results in
table 4.14 show that there is sufficient evidence to accept the null hypothesis as the calculated t-
value falls in the acceptance region.

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Table 4.14 Hypothesis testing summary of efficiency
Financial
Performance
Indicator
Mean
( x )
Test
statistic (tc)
Degrees of
freedom (n – 1)
Significance
level (α)
Decision on
Ho
Operating Expense
Ratio
0.163 0.502 15 0.05 Accept H2o
4.7.3 H3: Hypothesis testing on portfolio quality
To test the null hypothesis that the Microfinance industry in Zambia has poor portfolio quality, a
hypothesis test was carried out with a significant level of 5%. H30is that the mean 0f the PAR is
greater or equal to 0.10 over the quarters of the 2010-2013 while the alternative (H31) is that the
mean is less than or equal to 0.10 . Table 4.15indicates that the null hypothesis was accepted as
the calculated t-statistic fell in the acceptance area that is as it was 0.693. There was therefore
sufficient evidence to accept the null hypothesis that the portfolio quality was poor.
Table 4.15 hypothesis testing summary table of portfolio quality
Financial
Performance
Indicator
Mean
( x )
Test
statistic (tc)
Degrees of
freedom (n – 1)
Significance
level (α)
Decision on
Ho
Loan Loss Provision
Ratio
0.11 0.293 15 0.05 Accept H3o
Source: author (2014)
4.7.4 H4: Hypothesis testing on outreach
To test the null hypothesis that the outreach to the poor is high in Zambia, the number of
borrowers was used.H40stating that the mean number of borrowers was less than 230000 people
while alternative ( H41) states that the outreach is good with a mean greater than 230000 for an
industry like Zambia and according to the African standards.The level of significance was 5%

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Page 43
was used to test the hypothesis using a one tailed t-test. The results as indicated in table 4.16
show that there is sufficient evidence to accept the null hypothesis that the outreach is poor as the
test statistic of -1.586 falls in the acceptance region.
Table 4.16 Hypothesis: testing summary table of outreach
Financial
Performance
Indicator
Mean
( x )
Test
statistic (tc)
Degrees of
freedom (n – 1)
Significance
level (α)
Decision on
Ho
Number of borrowers 205,707 -1.586 3 0.05 Accept H4o
Source author, 2014
4.9 SUMMARY OF HYPOTHESIS TESTING FINDINGS
H10that states that MFIs in Zambia are not sustainable in Zambia were rejected thus accepting
H11 that the industry is sustainable. However, H20 that MFIs in Zambia are inefficient in their
operations was accepted. Furthermore H30 that MFIs in Zambia have poor portfolio quality was
accepted. Finally, H40 outreach is not sufficient to the poor was accepted.

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CHAPTER FIVE
GENERAL CONCLUSIONS AND RECCOMMENDATIONS
5.0 INTRODUCTION
Chapter five (5) looks at the general conclusions to the research and the recommendations based
on the assessment of the financial performance of MFIs in Zambia. The main aim of the study
was to assess the financial performance based on the sustainability, portfolio quality, the
efficiency and the outreach of MFIs in Zambia. The study was mainly focused on industry data
on all 33 MFIS and developmental MFIs obtained from secondary sources such as financial
statements, annual reports, and AMIZ reports and MIX market website however some primary
data was collected by the use of questionnaires. The conclusions made were based on the
findings of the study.
5.1 Summary of findings
This section summarizes the findings of the research based on the research objectives.
5.1.1 Sustainability of MFIs in Zambia
The first objective was to find out if the MFIs in Zambia are sustainable. The sustainability of the
MFIs was measured by the use of ROA. The ratio was positive and more than 0.01 for both the
industry as a whole and developmental MFI for the years 2010, 2011 and 2012 this was a good
indication of sustainability and also of financial performance. However the ratio was negative for
both the industry and developmental MFIs in the year 2013 which was an indication of poor and
questionable sustainability and poor financial performance for that period. H10 testing over a
period of 16 quarters that the industry is not sustainable was rejected as the test statistic which
was 2.24 fell in the rejection region. Therefore, the industry is sustainable. These findings are
similar to those of Aemiro and Mekonnen (2012) on the performance of microfinance
institutions in Ethiopia and Arthur et al (2013) in Uganda.

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5.1.2 Zambian MFI efficiency
The second objective was to find out if MFIs in Zambia are efficient in their operations. The
efficiency of MFIs was measured by the operating expense ratio. The trend over the years for
that of developmental MFI was one that was constantly increasing and a slight decrease in
2013.furthermore the ratio was higher than the recommended 19% and 14%, this showed that the
efficiency of developmental MFIs was poor and financial performance in this aspect was not
good. The industrial as a whole had an increasing trend in 2010-2011 of 0.40 and 0.50
respectively and a decrease in 2012 and 2013 of 0.37 and 0.36 respectively indicating an
improvement in the efficiency of MFIs. However like the developmental MFIs the industry’s
operating ratio is higher than the recommended 19% and 14%. Furthermore, H20 testing that the
industry was not efficient in its operations was accepted as the test statistic of 0.502 fell in the
acceptance region. MFIs in Zambia are therefore not efficient in their operations as were the
findings in the sub-Saharan Africa (CGAP, 2012) and also the study conducted by Siwale and
Ritchie in Zambia (2011).
5.1.3 Zambian MFIs portfolio quality
The third objective was to find out if the MFIs in Zambia have good portfolio quality. To
measure this objective, the portfolio at risk at 90days was used. The industry PAR was showing a
decreasing trend in 2010-2012 indicating an improved loan portfolio quality, however the ratio
increased in 2013 indicating a deterioration in the portfolio quality furthermore the ratio was
above the MIX market and SEEP recommended 10%.The developmental MFI had an increasing
ratio throughout the years 2010-2013 indicating a deteriorating loan portfolio, however, the ratio
was within the internationally recommended 5% for the years 2010 -2012. The null hypothesis
(H30) testing on the industry that portfolio quality was poor was accepted as the t-test statistic
was 0.293 and it fell in the acceptance region. Therefore MFIs in Zambia have a poor portfolio
quality and thus poor financial performance in this aspect as was stated by Dixon et al (2007).

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5.1.4 Zambian MFI outreach
The fourth objective was to find out if MFIs in Zambia have good outreach. The number of
borrowers was the indicator used to measure outreach for both the developmental MFIs and the
industry as a whole. The trend established was an increase in the number of borrowers from
2010-2012 and a decrease in 2013 for the industry while developmental MFIs showed a
continuous increase in the number of borrowers. The increase is a good indicator of improved
outreach. However when tested, H40 that the outreach was poor and had a mean less than 230000
was accepted as the t-test statistic of -1.586 fell in the acceptance region. Therefore, even though
the trend may be increasing, the outreach is still insufficient thus MFIs in Zambia have poor
outreach. These findings are similar to those found by Kingombe (2004) in Zambia in his study
of the Performance of the Zambian Microfinance Industry in which it was stated that the
outreach was poor.
5.2 CONCLUSION
The financial performance was measured on 4 broad parameters of sustainability, efficiency,
portfolio quality and outreach by the use of ROA, operating expense ratio, PAR and outreach
respectively. The financial performance of MFIs in terms of sustainability of the industry is
sound as affirmed by the rejection of H10. However efficiency of MFIs which is a measure of
financial performance is poor as it is more than the recommended 19% and affirmed by the
hypothesis testing in which the H20 was accepted. Furthermore, the outreach and the portfolio
quality of MFIs is poor as both H30 and H40 were accepted. Furthermore though poor efficiency
may to a large extent be caused unskilled staff, this was not the case in the period 2010-2013 as
the findings show that the MFIs staff have some formal training. The financial performance of
MFIs is also affected to a large extent by the regulations imposed on them by the regulator e.g.
interest rate ceilings and high lending rates from banks from which they get most of their funds
for on lending to clients. Financial performance is therefore poor even though the industry is
sustainable.

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5.3 RECOMMENDATIONS
This section looks at the recommendations for the research and recommendations of topics for
further study.
5.3.1 Recommendations for the research
Due to the findings of the study the following measures have been recommended to help MFIs
achieve better financial performance:
• MFIs should train their staff on delinquency management to improve their portfolio
quality as well as their efficiency and thus improving their overall financial performance.
• MFIs should also diversify their client base in that they should increase provision of
microfinance to non-salaried clients such as the farmers; artisans etc. so as to improve
outreach and thus improving profit margins.
• MFIs should also improve their management information system so as to improve their
efficiency and in so doing their profitability.
• The regulator i.e. BoZ should remove regulation such as the interest rate ceiling that
threaten the sustainability of the industry as a whole and developmental MFIs and thus
prevent MFIs from achieving their objectives of poverty alleviation.
5.3.2 Recommendations for further study
Recommended further studies should be done on the portfolio quality of MFIs in Zambia with
the indicator in use being the write off ratio. Further, other researchers can also look at the
dimension of financial performance not covered in this study which is Asset liability
management of MFIs in Zambia.

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Page 48
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An Assessment Of The Financial Performance Of Microfinance Institutions In Zambia

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