The Effect of Lending Rate on the Financial Performance of Deposit Taking Micro Finance Institutions in Kenya

Abstract

The study mainly focused on the relationship between the lending rates and financial performance of the deposit taking microfinance institutions in Kenya. This has been noted that Microfinance institutions had increased from 2011 to May 2016. The main objective of this study was the effect of the lending rate on the financial performance of deposit taking microfinance institutions in Kenya. In data collection and data, analysis the data collection form was used to analysis the ten microfinance institutions out of the thirteen in the CBK registered list as at 21st May 2016. The Microfinance data collection form; were studied as from 2011 to 2016 that is the reference period the research. From the correlation matrix, lending interest rate (p=.571) was found to be significant in explaining DTMs financial performance (ROA) better than management efficiency (p=.262) and operating cost efficiency (p=.490) all the variables led to positive financial performance. From the overview of this study, it is apparent that more light needs to be shed in this area of research by widening the scope of the study to concentrate on microfinance institutions in Kenya. It is essential that the gaps to be filled hence the study set to answer the following question. The study used secondary data from the banking reports and the individual deposit taking MFIS. In summary DTMS, ability to improve informal irregularities between borrowers and lender will highly depend on the three variables that formed the core of this analysis that is better lending rate efficient management and prudent allocation of resources to minimize the cost of resources.