An Investigation On The Impact Of Interest Rates On Financial Sustainability Of Microfinance Institutions In Kenya

Abstract

The high interest rates charged by many MFIs have attracted the attention of concerned policymakers throughout the world. The main objective of the research study was therefore to establish the impact of interest rates on financial sustainability of MFIs. 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. The study applied a descriptive research design and the target population was 129 respondents. The study applied a sampling technique to obtain a sample size of 65 respondents. Questionnaires were the major data collection instruments and the gathered findings were analyzed through the use of quantitative and qualitative analysis, tables were used to present the findings. The descriptive and inferential statistics was used in analysis of relationships, differences, trends and comparisons. The study found out that majority of respondents who were 50% indicated 5 years and below. The study findings found indirect relationship between cost and financial sustainability of MFIs; however the degree of relationship is weak. There was a direct relationship between interest rates and financial sustainability, the degree of relationship is strong. There is direct relationship between profitability and financial sustainability of MFIs, the degree of relationship is strong. The study recommended that the government should come up with better interest rates policies that will make MFIs more financial sustainable. Interest rates policies that are detrimental towards MFIs financial sustainability should be abolished. Interest rates policies in place should make the cost of borrowing loans from MFIs more affordable to most borrowers. Microfinance institutions should be able to meet its operational cost to be sustainable. MFI should be able to recruit, induct, train and maintain well-qualified staff who are capable of delivering the services as required.