product of Ethiopian MFIs are supply driven instead of being demand driven.

The MFIs usually

start by copying the lending methodologies and products from other MFIs. In addition, clients
are forced to fit into the procedures of the MFIs. Therefore, by studying the performances of
MFI and the challenges they the study try to indicate future policy direction and implementation.

1.1. Statement of the Problem

Micro finance institutions play a great role in supporting the economic activities of the rural and
urban poor in developing countries. Studies show that African MFIs are important actors in the
financial sector, and they are well positioned to grow and reach the millions of potential clients
who currently do not have access to mainstream financial services (LAFOURCADE, 2005). It
is found that microfinance institutions are decisive way outs from the vicious circle of poverty
particularly for the rural and urban poor, particularly in a country like Ethiopia where many
people live barely below the absolute poverty line. The micro financing industry of Ethiopia is
escalating in the face of the growing deep concerns for inflation and low interest rate in the
microfinance industry affecting the financial health and viability of MFIs. They contribute a lot
to support the Ethiopian poor who are out of the formal banking system.

The very rational behind for the emergency of MFIs is to help poor people who are financial
constrain and vulnerable, with financial services to enable them to engage in productive
activities or start small businesses as state in Consultative Group to Assist the Poor . MFIs
provide financial services to low-income, economically active, borrowers who look for
relatively small amounts to finance their businesses, manage emergencies, acquire assets, or
smooth consumption. But it is common that Borrowers might lack credit histories, collateral, or
both, and thus, do not have access to financing from mainstream commercial banks. For this
reason, MFIs are seen as playing a role in the creation of economic opportunity, and in poverty
alleviation (CGAP, 2012).Many studies have depicted that Ethiopian microfinance institutions
are faced with numerous problems and challenges, such as low outreach ,fund shortage ,limited
research and innovation and weak internal control system.

Ebisa( 2013) found that microfinance institutions are decisive way outs from the vicious circle
of poverty particularly for the rural and urban poor, particularly in a country like Ethiopia where
many people live barely below the absolute poverty line. The micro financing industry of
Ethiopia