THE EFFECT OF INTEREST RATE ON LOAN REPAYMENT IN MICRO FINANCE BANKS IN NIGERIA

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.

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