EFFECT OF INTEREST RATE ON LOAN REPAYMENT
ABSTRACT
The
study sought to appraise the effect of interest rate on loan repayment in
microfinance institutions. Lapo Micro Finance Bank, a microfinance institution
in Ikot Abasi was used as a case study for the study. The research was
conducted using questionnaires and interviews. In all 100 customers and 20
employees were sampled for the research. A systematic random sampling was used
for the data collection. The findings of the research revealed that though
interest rate plays a major role in loan repayment, other factors such as loan
term and the repayment frequency also influence to a large extent the loan
repayment. Customers indicated that though lower interest rate would enhance
loan repayment, the issue of accessibility and availability of funds was
paramount. To enhance loan repayment, the researcher recommends lower interest
rate to ease loan repayment burden and loans granted should be amounts that
customers can service. Again, micro-insurance could be established to protect
the Institution and customers against any default.
CHAPTER ONE............................................................................................................ 1
GENERAL INTRODUCTION.................................................................................... 1
1.0 Background to
the Study........................................................................................... 1
1.1 Problem
Statement...................................................................................................... 3
1.2 The Objectives
of the Study....................................................................................... 3
1.3 Research
Questions..................................................................................................... 4
1.4 Significance of
the Study........................................................................................... 4
1.5 Scope of the
Study..................................................................................................... 5
1.6 Limitation of
the Study.............................................................................................. 5
1.7 Organization of
the Study.......................................................................................... 6
CHAPTER TWO........................................................................................................... 7
REVIEW OF RELEVANT
LITERATURE.............................................................. 7
2.0 Introduction................................................................................................................ 7
vi
LIST OF TABLES
Table 1 Number
of Years in Employment ………………………………………...………...44
Table 2 Interest
Rate and Loan Repayment ……………………………………………..45
Table 3 Interest
Rate and Default Rate …………………………………………………….46
Table 4 Interest
Rate and Borrower Relationship ………………………………………...…46
Table 5 Interest
Rate Justification ………………………………………………………….48
Table 6
Effect of Other
Factors on MFI
Loan Repa
Table 7
Appropriate Policy Measure to Improve the loan Repayment …………………..51
Table 8 Age
Distribution of Respondents ………………………………………………...53
Table 9 Size of
Business ………………………………………………………………….....54
Table 10 Size of
Working Capital …………………………………………………………..55
Table 11
Justification for Interest Rate …………………………………………………..56
Table
12 Interest Rate and Loan Repayment ……………………………………………….57 Table 13 Interest
Rate, Loan default and Customer Loyalty …………………………….57
Table 14 Other
Factors Influencing Loan Repayment …………………………………….59
Table 15 Policy
Measures To Improve Loan Repayment ………………………………….59
LIST OF FIGURES
Figure 1 Gender
of Respondents ………………………………………………………..…..41
Figure 2 Age
distribution of respondents …………………………………………………..42
Figure 3
Educational Attainments …………………………………………………………..43
Figure 4
Grade/Position of respondents …………………………………………….............43
Figure 5 Effect
of other factors on MFI loan repayment ……………………………………50
|
Figure 6
|
Appropriate Policy measure that
will improve MFIs Loan Repayment …………..52
|
|
Figure 7
|
Gender of Loan Customers
………………………………………………………...53
|
|
Figure 8
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Size of
Respondents?
Working……………………………………………Capital
|
55
|
|
Figure 9
|
The Effect of other factors on
TCP Loan Repayment ……………………............58
|
Figure 10
Appropriate Policy Measures that will Improve Loan Repayment of the
MFI……………………………………………………………………………………….60