Competitiveness of interest rates charged by microfinanace institution in Migori county-Kenya

Abstract

Microfinance is touted as the solution to the wide spread poverty in most developing countries, however, some people have been wondering how MFIs can fulfill their social obligations while charging their clients interest rates that are higher than those offered by non-microfinance institutions such as traditional commercial banks. This study tries to establish the interest rates charged by microfinance institutions in Migori County and to identify the impact of interest rate differences on borrowing by small scale traders. Questionnaires were distributed to be filled in by branch managers or credit officers in respective financial institutions, the content of the questionnaires were analyzed and presented in relation to the objectives of the study. The findings show that the interest rates charged by MFIs vary with a range of almost 20% and that on average MFIs charge higher interest rates than mainstream commercial banks. It was also found that MFIs that charge lower interest rates have a bigger customer base going by their branch network and patronage.