The Relationship Between Interest Rate and Financial Perfomance of Microfinance Institutions in Nairobi County
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Date
2014Author
Lupia, Catherine L
Type
ThesisLanguage
enMetadata
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This research investigates the relationship between interest rates and financial
performance of Microfinance Institutions in Kenya. These high interest rates charged by
MFIs has attracted a lot of concern from all over the world and hence the need for this
study. The literature review provides the reader with an explanation of the theoretical
rationale of the problem being studied as well as what research has already been done and
how the findings relate to the problem at hand. Secondary data was collected from the
published reports to aid in this research work. Regression analysis was used in this in this
study because it is widely used for prediction and forecasting. The study derived the
lending interest rate from the T bill rate. The study targeted 43 MFIs but due to
incompleteness on data available or some scenarios where the MFIs have only existed for
less than half the study period, the data used in this study was for 24 MFIs giving a
response rate of 55.81%. Three independent variables including interest rates, Inflation
and 91-Day Treasury bill rate were taken into account. From the analysis, the study
concludes that interest rates positively influence the performance of MFIs. As interest
rates increase, the ability of many low income earners in society to apply for loans
decrease. However, the case may not be the same for MFIs as they rely heavily on
relationship banking. Because of the high level of relationship banking, they end up
attracting more loan applicants and hence the increase in financial performance as interest
rates increase.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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