Increasing institutional capital through deposit mobilization keeps the cost of capital low, thus leading to financial sustainability. However, little is known about how deposit mobilization affects financial sustainability. Using balanced panel data of 166 rural savings and credit cooperatives (RUSACCOs) from Ethiopia over the period of 2014-2016, we investigated the effect of deposit mobilization on financial sustainability. The results of the panel regression estimates showed that, among the deposits mobilization variables, the deposit to loan ratio, deposit to total asset ratio, the volume of deposits, and demand deposit ratio had a significant direct impact on financial sustainability. The fixed effect regression result for interest rate spread showed that an inverse relationship existed between the interest rate spread and financial sustainability. Furthermore, according to our robust fixed effect regression results, among the control variables, the age of the institution and inflation rate affects financial sustainability. Contrary to our expectations, the number of members and the percentage of woman members were not significant. This may be attributed to the fact that some members were inactive for a long period. We suggest that RUSACCOs should focus on deposit mobilization specifically on demand deposits and keep the interest rate spread narrower to ensure their sustainability.
Rural Savings and Credit Cooperatives (RuSACCOs) are small-scale financial service provider enterprises in rural areas. They foster local economic development by mobilizing deposits and lending these out to individuals, families, farmers, and small businesses in the same area. Using balanced panel data of 457 RuSAC-COs from Ethiopia over the period 2014-17, we show how deposit mobilization affects technical efficiency. Our first stage efficiency estimate by Data Envelopment Analysis (DEA) Window model shows the average efficiency of RuSACCOs gradually increased over time. The second stage Tobit censored estimation and bootstrapped truncated regression results confirms our hypotheses for key and control variables effects on technical efficiency. Focusing on rapid expansion during the early life cycle affects technical efficiency. A high percentage of women membership in cooperative enterprises advances technical efficiency. Furthermore, attracting and including all segments of the local entrepreneurial class as a membership opens the possibilities for mobilizing more deposits to become efficient.
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