Adanech Abeba
The study is undertaken to assess the extremity of the perils that microfinance institutions in Ethiopia come across while doing business focusing on those operating in Ambo area. Both quantitative and qualitative research methods were employed. Primary data was collected through adopted Microfinance Banana skins questionnaires and secondary data was collected through brochures and written materials from the institutions. Statistical package for social sciences (SPSS) was employed to analyze the data gathered via questionnaire and used to show risk levels. The result from the study revealed that microfinance institutions in Ambo area are affected by risks internal and external to the institutions which comprise strategic, financial and operational risks. Credit risk is identified as risk with high severity in affecting the performance of the institutions, followed by weak accounting systems, liquidity risk, staffing and lack of technology management. Competition and over indebtedness risks are also identified as low severe risks that affect the well performance of the institutions. Hence, these risks should be handled by developing appropriate risk management framework so that performance of the institutions is fostered.
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