Determinants of Profitability and Financial Sustainability of Saving and Credit Cooperatives in Eastern Ethiopia

This study investigated the determinants affecting financial sustainability and profitability of saving and credit cooperatives (SACCOs) in Eastern Ethiopia using unbalanced panel data of 43 SACCOs from 2015 to 2019. To realise the stated objective, a quantitative approach and an explanatory design were employed using secondary data sources mainly from audited financial statements of the SACCOs during the study period. The analysis revealed that SACCOs in Eastern Ethiopia are not profitable but financially sustainable. The robust random effect model result shows that deposit mobilisation, loan-to-deposit ratio and managerial efficiency have a statistically significant and positive effect on the profitability of SACCOs, while operational efficiency has a statistically significant and negative effect. Likewise, the leverage ratio and the number of active borrowers (a proxy of breadth outreach) have a statistically significant and positive effect on the financial sustainability of SACCOs in Eastern Ethiopia. However, operational efficiency and size have a statistically significant but negative effect on SACCOs’ financial sustainability. Finally, the study suggests that SACCOs in Eastern Ethiopia should perform their conventional activities such as saving mobilisation and credit provision properly to be financially healthy.