Interest Rate, Corporate Membership and Loan Repayment by Borrowers from Micro-Financial Institutions in Nakuru County

Abstract

The purpose of this study was to determine the relationship between interest rate, corporate membership and loan repayment in MFIs in Nakuru County. The study was guided by two objectives; to investigate the role of interest rate in loan repayment in MFIs in Nakuru County and to analyze the role of corporate membership in loan repayment in MFIs in Nakuru County. The study adopted correlation design and was guided by multiple regression models. The study collected data through structured questionnaires that had adequate research items on every research indicator. Collected data was analyzed using STATA and results were presented using tables. The findings of the study revealed that interest rate is not a determinant of loan repayment in Micro Financial Institutions in Nakuru County and it was concluded that interest rate charged on a loan does not impact on repayment. Similarly, it was evident that corporate membership is not significant determinant of loan Repayment in micro financial institutions in Nakuru County. The study recommends that institutions should establish a close relationship between the lenders and the borrower through monitoring, business advice and regular meetings. The institution can also develop a reward system to those borrowers who repay their loans on time through discounts on subsequent loans and savings. Further studies should be conducted to examine if the following determinants are associated with loan repayment in MFIs period of membership, security given, utmost good faith, consistency of payment during previous loan and social problems.