Abstract:
Financial sustainability of MFIs has become an issue of discussion since 2008’s microfinance
crisis. Further, commercial source of capital, expansion of financial services and the emergence
of cooperative financial institutions and SACCOs have also attracted the attention towards
financial sustainability in microfinance sector. The aim of this study was to investigate the effect
of capital structure on financial sustainability of MFIs in Rwanda; research data was obtained
from Audited financial statements of 3 MFIs and 8 SACCOs, quantitative approach was
employed to identify the factors that affect the financial sustainability of MFIs in Rwanda and
multiple linear regression was used to analyze and test the relationship between dependent and
dependent variables of the study. Data was analyzed using multiple regression models and SPSS
version 20 as the data analysis tool. Based on the findings the analysis of variance (ANOVA) the
independent predictor variables influenced the dependent variable insignificantly at 5%
significance level. Among the four independent variables; debt, deposits, retained earnings and
ordinary share capital were statistically insignificant variable at 5% but at different magnitude in
MFIs Ltd and SACCOs.
Findings in this study revealed that debt has not uniformly affected financial sustainability
variables among MFIs Ltd and SACCOs between 2013 and 2017. In MFIs, debt negatively
affected OSS, and ROA. However, it has been positively affected FSS. In SACCOs, debt has
positively affected OSS and ROA while negatively affected FSS. The study found that between
2013 and 2017 In MFIs Ltd, deposits, insignificantly affected all indicators of financial
sustainability i.e. OSS, FSS and ROA. In contrast however, in SACCOs, deposits have
negatively affected OSS, FSS and ROA. Further, retained earnings significantly affected all
indicators of financial sustainability i.e. OSS, FSS and ROA in MFIs; equally important, by the
same period in SACCOs, retained earnings also negatively affected OSS, FSS and ROA. Thus
the study concluded that the effect of debt, retained earnings, deposits and ordinary share capital
on financial sustainability indicators, differ between MFIs Ltd and SACCOs and recommends
that SACCOs should utilize any borrowing opportunity, are encouraged to employ
