Effects of lending interest rates on profitability of savings, credit and co-operative societies in Kenya
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Date
2006Author
Bett, Julius Kiprop
Type
ThesisLanguage
enMetadata
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The study sought to investigate the relationship between the lending interest rate and
profitability of Credit Savings and Cooperative Societies in Kenya. The study randomly
sampled 20 Saccos whose net profits and lending interest rates formed a fundamental
component of analysis.
The study set a singular objective of establishing the relationship between the lending
interest rate and profitability of the Saccos.
In an attempt to meet the research objective, the researcher developed a negated
hypothesis that, there is no significant relationship between lending interest rates and
profitability. From data analysis procedures that involved correlation and regression
analysis and especially the analysis of the variance (ANOVA), the negated hypothesis
was rejected hence the alternate hypothesis was accepted by the researcher that there is a
significant relationship between lending interest rates and profitability of Saccos. From
this study, the lending interest rate Saccos is positively correlated with profitability. This
implies that they move together. It is therefore imperative that lending interest rates of
Saccos cannot conform to economic theory, such'that they are left to be determined by
forces of demand and supply of loanable funds.
From Keynes (1937) theories of preference and loanable funds, it postulates that interest
rates depend on the demand and supply for money. This position is consistent with
classical theory (Marshall 1990) that the equilibrium price of lending money should be
determined by market forces of demand and supply.
It would be worthwhile for Sacco management in Kenya to slightly increase the lending
rate as this will increase profitability without impacting negatively the demand side of the
loanable funds. This is fundamental if the Saccos in Kenya will pursue profitability as a
key variable in their overall objectives.
This study finding as a complete departure from conventional economic theory
supporters like, Mwega et a1 (1990) and Macharia (1995), who argue for lowering
lending interest rates as a means of positively impacting profitability, through increased
investments hence increased present consumption.
Citation
MBASponsorhip
University of NairobiPublisher
University of Nairobi School of Business, College of Humanities and Social Sciences