THE RELATIONSHIP BETWEEN INTEREST ON LOANS AND PROFITABILITY OF MICROFINANCE INSTITUTIONS IN KASESE DISTRICT. A CROSS-SECTIONAL STUDY.
DOI:
https://doi.org/10.70572/agp.v2i5.94Keywords:
Interest on loans, profitability, Microfinance institutions, Kasese DistrictAbstract
Background
The interest rates charged on loans can influence microfinance institutions' financial performance, income levels, and sustainability. The study aimed to establish the relationship between interest on loans and the profitability of microfinance institutions in Kasese District.
Methodology
The study employed a descriptive, correlational, and cross-sectional survey design. A sample of 103 respondents was selected from a population of 140 employees of the microfinance chosen institutions within Kasese District, both simple random sampling and purposive sampling techniques were employed to select the respondents, and relevant data for this study was collected using questionnaires and interviews. Data was analyzed using the Statistical Package for the Social Sciences (SPSS).
Results
62 respondents (62%) were male and 38 respondents (38%) were female, 40 respondents (40%) were in the loans department, 26 respondents (26%) were in the accounts & finance department, 19 respondents (19%) were in the audit department, 5 respondents were in audit, 5% were in bank assurance and 10 respondents (10%) were in human resource department. There was a strong positive correlation (r=0.832) between loan interest rates and the profitability of microfinance institutions. Loan interest had the strongest relationship with profitability, explaining about 71.1% of the variation in profitability. This suggests that increasing the interest rate charged on loans is likely to have the most significant impact on the profitability of MFIs in Kasese District.
Conclusion
Based on the study's findings, microfinance institutions in Kasese District should carefully set and manage their loan interest rates to optimize profitability while maintaining their social mission of financial inclusion.
Recommendation
MFIs should monitor market conditions and adjust interest rates accordingly to stay competitive within the region.
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