INFLUENCE OF COST STRUCTURE ON INTEREST RATE LEVEL OF MICROFINANCE BANKS IN NAKURU COUNTY, KENYA

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.