Financial Transparency and Performance of Microfinance Institutions in Ethiopia

The subject of this study is the relationship between financial transparency and the financial performance of microfinance institutions (MFIs) in Ethiopia. The research focuses on four core dimensions of transparency: external auditing, public disclosure, compliance with accounting standards, and timeliness of financial reporting, examined through the theoretical frameworks of agency theory and stakeholder theory. The purpose of the study is to determine how these transparency dimensions influence institutional profitability, measured by return on assets (ROA), in a donor-dependent and regulation-intensive environment. The relevance of the research arises from persistent governance challenges, inconsistent reporting practices, and the strategic importance of MFIs in promoting financial inclusion and socio-economic development in emerging markets. The scientific novelty lies in the development of a hybrid conceptual framework that integrates international theoretical models with Ethiopia-specific institutional conditions and in the application of a mixed-methods approach that combines econometric analysis with qualitative insights from industry executives. The methodology includes fixed-effects regression analysis of a balanced panel of 13 licensed MFIs for the period 2015–2024, supported by thematic analysis of semi-structured interviews. The results demonstrate that external auditing, public disclosure, and compliance with accounting standards significantly enhance ROA, while delays in financial reporting reduce profitability. Qualitative findings confirm that transparency improves institutional credibility, donor trust, and operational efficiency, but its implementation is constrained by capacity limitations, regulatory inconsistencies, and divergent stakeholder expectations. The authors conclude that transparency should be viewed not only as a compliance obligation but also as a strategic driver of resilience, competitiveness, and sustainable growth in Ethiopia’s microfinance sector.

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