IMPACT OF CREDIT RISK ON FINANCIAL PERFORMANCE OF MICROFINANCE INSTITUTIONS IN ADDIS ABABA

The main aim of this study attempts to assess the impact of credit risk on the financial performance of selected Microfinance Institutions in Addis Ababa In order to fulfill the stated objective an exploratory research design with a quantitative data approach was used. Hence, based on the findings of the study the researcher suggests that the MFIs management need to be cautious in setting up a credit policy that will not negatively affects profitability and they regulated as credit policy, by improving the loan loss provision ratio, the MFIs should maximize the profit but the size of MFIs should be up to certain limit, and even if micro-finance in Ethiopia is a recent phenomenon the establishment of credit reference bureaus tailored to the operations of the MFIs should be considered.