Abstract:
The study examined Influence of cost structure variables and interest rates level on loans
charged by MFBs in Nakuru County, Kenya. Descriptive survey study design was adopted for
the study. The target population comprised 127 respondents where a sample size of 56
respondents was selected through stratified random sampling. Primary data was used which
was collected using structured questionnaires. Data collected was analyzed using both
descriptive and inferential statistics. Financial costs have a significant influence on interest rate
level (β = 0.424, p<0.05), credit administration costs have a significant influence on interest rate
level (β =0.566, p<0.05), loan default costs have a significant influence on interest rate level (β =
0.364, p<0.05) while cash holding costs have a significant influence on interest rate level of
microfinance banks (β = 0.311, p<0.05). It can be concluded that financial costs, credit
administration costs, loan default costs and cash holding costs have a significant influence on
interest rate level of microfinance banks. It was recommended that the microfinance banks in
Nakuru County should take measures to minimize costs in order to keep their interest rates at
the lowest possible level and remain competitive.