The Role of Interest Rates on Financial Performance of Micro and Small-scale Enterprises in Kajiado North Constituency

Abstract

Interest rate and the financial performance depicts multifaceted relationship. In periods of elevated interest rates, firms often find themselves grappling with increased borrowing costs, creating a ripple effect across their financial landscape. The heightened cost of borrowing not only amplifies the financial burden on companies but also translates into higher expenses incurred in servicing existing debts. Conversely, when interest rates take a downturn, an entirely different dynamic unfolds for businesses. The study thus sought to explore the role of interest rates on financial performance of MSEs in Kajiado North Constituency. The study adopted descriptive research design. The target population was the 46100 licensed MSEs in Kajiado County. Primary data gathered using questionnaires. As a consequence, quantitative data was subjected to analysis using both descriptive on top of inferential statistical methods. Descriptive statistics, including percentage changes, mean, and mode, was employed to summarize the data effectively using key indices. Additionally, inferential statistics including regression analysis. From the results, research found that the interest rate exhibits a favorable and substantial association with the performance of MSEs. Similarly, borrowing expenses show a favorable and considerable connection with the effectiveness of MSEs. Access to financing demonstrates a positive and significant link with the performance of MSEs. Meanwhile, loan repayment conditions present a positive yet insignificant relationship with the performance of MSEs. Additionally, credit rating reflects a positive and noteworthy correlation with the performance of MSEs. Finally, operational efficiency has a positive and significant relationship with the performance of MSEs in Kajiado North Constituency. The study recommended that the commercial banks in Kenya together with other financial institutions ought to develop a framework which can enable the MSEs access credit easily. Enabling MSEs access credit catalyzes the growth of the sector and spurs economic progression. The study further recommended that the MSEs in Kajiado North constituency ought to strive to be credit compliant. This is through ensuring that they repay their loans on time. This enhance their loan eligibility in future and also enables increments on their loan limits and hence their financial performance in the long run.