Determinants Of Lending Interest Rate And Loan Recovery Rates Of Microfinance Institutions In Ghana: A Case Study Of The Accra Metropolis

ABSTRACT

The study focused critically on issues of determinants of interest rates and loan recovery rate of Microfinance institutions in Accra Metropolis. With a sample size of twenty (20), Microfinance institutions were examined. Random and purposive sampling techniques were used. Sampling was done by selecting microfinance institutions that give credit to only the informal sector or both the informal and the formal sector. The heart of this research was pairwise correlation. Pairwise correlation was done by determining the correlation between the loan recovery rate and some explanatory variable. To do this, a paired sample test and a paired correlational tables were extracted from the data with the use of SPSS.

From the results, a correlation exits between liquidity and interest rate but at no significant level. This indicates that liquidity risk has no relationship with interest rate of the MFIs. Credit risk and operational risk both had a strong positive correlation on loan recovery rates. There is a relationship between credit risk and loan recovery of MFI’s at a level of significance = 0.05. This means contribution of credit risk to loan recovery increases with just an increase in the proportion credit risk covers. Operational cost affect loan recovery rate. A correlation of r= 0.588 shows the extent of relationship which indicates a strong positive correlation between operational cost and loan recovery rate.

Loan recovery rates does not depend on Interest rate premiums. Thus the way interest rate premiums are set does not affect the loan recovery of microfinance institutions. Also, there is a fairly strong relationship between minimum rate and loan recovery rate. This was shown with a periodic review and a mark-up way of pricing which was majorly accepted by respondents.