The Determinants of Return on Assets: Evidences from Micro Finance Institutions in Sri Lanka

Abstract

This study was undertaken with the objective of asserting the significant determinants of return on assets in Sri Lankan microfinance institutions. This study is based on eleven microfinance institutions in Sri Lanka, within the period of 2005-2010, which are practicing microfinance at present. In this study profitability is measured by return on assets ratio. Efficiency and productivity are measured by operating expense ratio, personal productivity ratio and cost per borrower ratio. Financing structure is measured by debt/equity ratio. Portfolio quality is measured by write-off ratio. The researcher postulated that, Operating Expense Ratio, Cost per Borrower Ratio and Debt/Equity Ratio are statistically significant predictor variables in determining Return on Assets Ratio. Moreover Write off Ratio is also another important predictor variable in determining Return on Assets regardless of the significance.

Keywords: Efficiency, Financing structure, Microfinance, Productivity, Profitability, Return on Assets