Effect of Microfinance Banks’ Interest Rate on Loan Repayment Capability of Borrowers

Abstract

This study examined how microfinance banks’ interest rate on loan affects repayment capability of borrowers in Lapo microfinance Bank. This study examined factors affecting loan repayment plan of borrowers; with a view on the impact of promptness of loan repayment on Micro Finance Insittution sMFI loans; and find out measurse put in place by MFsI to improve repayment plan of borrowers. Lapo Bank borrowers in Osun state branch participated in the study. A sum total of 110 customers of Lapo microfinance bank participated in the study. A structured questionnaire adapted from previous studies and grounded literature review was used in collecting data. Findings from the study showed that: there is significant effect of high interest rate of MFI on the repayment plans of borrowers’ loans, the frequency of loan repayment plan significantly has effect on borrowers’ ability to payback loan, there is significant difference in the perception of borrowers on effect of high interest rate of MFI on the repayment plans of borrowers’ loans based on gender and educational level. Also, the descriptive result showed that; Majority of the borrowers agreed that high interest rate affect loan repayment, it implied that Lapo and other microfinance bank interest rate on loan is higher compare to Deposit Money Banks. Majority of the participants believes that a single digit interest rate on loan could easy the paying back of loan. The study recommends that: Since default on loans is linked to high interest rate, MFIs should consider looking into their interest rates to encourage prompt pay menrt. This may be weighed with interest rates of Deposit money banks and made relatively lower to encourage borrowers of MFIs. KEYWORDS: Microfinance, Interestrate, Borrowers, Loan.

Citation:Olufolakemi Oludami Afrogha and Oluwamayowa Iyanuoluwa Oluleye (2021)Effect of Microfinance Banks’ Interest Rate on Loan Repayment Capability of Borrowers, European Journal of Accounting, Auditing and Finance Research, Vol.9, No. 9, pp.18-29

 

 

 

Keywords: Banks’, Interest Rate, Loan, Microfinance, Repayment, borrowers

Article Review Status: Published

Pages: 18-29 (Download PDF)

Creative Commons Licence
This work by European American Journals is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License