The primary objective of microfinance institutions (MFIs) is to provide financial services to the poor that don't have access to commercial banks in order to release financial constraints and helps to alleviate poverty. In microfinance industry Sustainability and outreach are the twin targets for poverty alleviation. But still it is a great challenge to build MFIs that reach the poor and simultaneously achieve financial sustainability. The general objective of this study is to determine the factors that influence financial sustainability of Ethiopian microfinance institutions. The study employed Explanatory type of research and followed a quantitative research approach using a balanced panel data set of 90 observations from 18 MFIs over the period 2008-2012. As a result the study found that breadth of outreach, liquidity ratio, yield on gross loan portfolio, age of MFIs, portfolio at risk and cost per borrower affects the financial sustainability of Ethiopian microfinance institutions.
