Effect Of Interest Rate Capping On The Financial Performance Of Saccos In Kenya: Case Study Of Saccos Operating Fosa In Kenya

Abstract

Background of the Study A capped rate is a rate of interest fluctuates but can not exceed a specified interest cap. Capping interest rates is a type of economic industry public control. Over the past few years, the number of nations using this type of control has declined primarily because most nations aim to have liberal financial policies, particularly for SACCOs. There are several factors that may make government choose to use interest rate caps, most of which are economic and political. One of them may be to assist a sector or industry where there is a market failure or a need for higher economic capacity (Pandey, 2012). Globally, interest rate caps are probably the longest. The earliest usury law proponents favored zero interest rates. Aristotle claimed cash was sterile and no interest should be earned. Governments from ancient Egypt through contemporary times have for a multitude of purposes enforced interest rate ceilings. (Ahuja,2016). The Swedish economist Wicksell (1926), who developed the Loanable Funds concept, claims that the interest rate is established by supply and demand from loanable credit which is affected by: investment, dissaving and, hoarding. However, there are four factors that determine the accessibility of loanable resources: bank money, savings, disinvestment, dishoarding. According to the hypothesis, the prevailing interest rate is the equilibrium between demand and money supply. The MOCD has indicated that more than 22,000 cooperatives with more than 12 million members have savings of about 640 billion dollars (MOCD, 2018). By end Of December 2018, 178 SACCOs were registered by SASRA out of which 164 are licensed by SASRA to operate as deposit taking SACCOs, 12 SACCOs have restricted licences ending 30th June, 2018, one(1) SACCO working under statutory management of the authority while the remaining one the licenced was revoked.