Professional Documents
Culture Documents
Chapter 4 and 5
Chapter 4 and 5
4.1 Introduction
The presentation of data and analysis of the study's findings are covered in this
chapter. The chapter opens with a response rate analysis and a presentation of
demographic data, and the second section uses SPSS 20 to analyze primary data to
address the research objectives from the first chapter. The chapter then presents the
study's descriptive statistics, with a focus on the mean and standard deviation as
measures of variation. To demonstrate the relationship between interest rates and
financial performance and to determine its nature and strength, the study offered
regression analysis and Pearson correlation analysis data.
Years of employment (experience) and position within the MFI were included in the
investigation as demographic data to validate its findings.
5%
20%
25%
50%
22
Figure 4.1 shows that 25% of participants have worked in the MFI business for a
period of one to three years (1 to 3), 50% have worked in the industry for a period of
three to seven years (3 to 7), 20% have worked in the industry for more than seven
years, and 5% have worked in the industry for less than a year. The research reveals
that the bulk of respondents and those with an extensive understanding of how the
industry functions are those who have worked in the MFI sector for three to seven
years. After the establishment of the multicurrency system in 2009, the microfinance
sector in Zimbabwe has been operational for 12 years. The majority of those who
responded to the standardized questionnaire on loan rates and MFI sustainability are
thought to be well-versed in the industry and have more than three years of
experience. The knowledge or experience adds additional worth or dependability to
the study's conclusions.
Table 4.2 below shows the position held in the institution by respondents
Frequency Percentage
The number of responders and each person's position within the organization is shown
in the table above. 25.86% of respondents work as branch managers, who are in
charge of making decisions and overseeing day-to-day operations at their particular
branches.
23
40% of those surveyed visit loan officers, who do credit checks and advise the
organization on whether to approve or deny a loan request based on the degree of risk
involved. 20.68% of the total belonged to loan clerks, whose duties include capturing,
processing, and record-keeping for paperwork. The remaining 18.97% goes to
employees who are enrolled in work-related learning. By requesting sources of
information from responders, the degree of information-gathering accuracy will be
less jeopardized.
35%
30.00%
30%
25%
20% 18.50%
15%
15%
11%
10%
10% 9%
7.00% 7%
5%
5%
0%
Lowest rate Average Rate Highest rate
Source: ZIMSTATS
The graph up top shows the current market interest rates for privately held, member-
owned, and affiliated bank microfinance institutions in the area. The lowest interest
rate offered on the market by locally owned and operated microfinance banks is 7%,
while their highest rate is 30%, with an average of 18.5%. The market rates for
subsidiary bank-owned microfinance organizations range from 7% to 11%, with an
average of 9%. 24
With an average interest rate of 10%, membership-owned microfinance has one of the
lowest market interest rates at 5% and the highest at 15%. each month.
The following table displays respondents' views on how interest rate control and
interest income have affected them.
Strongly Agree 15 15
Agree 12 27
Neutral 25 52
Disagree 20 72
Strongly Disagree 28 100
Total 100
MFIs expand facilities primarily to boost interest income and, as a result, the
organization’s ultimate profitability. The purpose of the study was to determine
whether the interest income of MFIs increases as a result of interest rate regulation.
The results showed that 28% strongly disagree, 20% disagree, 25% were indifferent,
and 12% believe that interest income for MFIs has improved as a result of interest rate
control. This suggests that measures taken by the central bank, including interest rate
caps, have a detrimental influence on the profitability of MFIs.
25
4.6.2 Interest Regulation and Profitability of MFIs
5%
15%
30%
50%
The perspectives of respondents regarding how interest rate regulation affects the
profitability of MFIs are depicted in the above diagram. According to the study's
findings, just 5% of respondents agreed, 15% were neutral, 50% disagreed, and 30%
strongly disagreed that interest rate regulation increased the profitability of MFIs.
This means that when interest rates are reduced to the absolute minimum,
microfinance organizations will not be able to generate enough revenue to pay their
bills. The results of the above figure are also consistent with those of other
researchers' studies, such as Donor Brief 18 (2004), which discovered that interest
rate ceilings have an impact on the financial performance of MFIs in the USA.
26
4.6.4 Interest Rate Regulation and Default Rate
45%
45%
40%
35%
30%
25%
25%
20%
20%
15%
10%
10%
5%
0%
Strongly Disagree Disagree Neutral Agree
Loan default increases when the borrower is unable to make payments because of a
disability or unemployment or is unable to fulfill the loan's outstanding balance.
According to the study, 10% agree, 25% were neutral, 45% opposed, and 20%
strongly disagreed that interest rate regulation increased the rate of loan default. This
implies that lending rate regulation will reduce default rates since loans will be more
affordable.
If lending interest rates are low, it is anticipated that MFI will raise other fees to make
up for the loss caused by the decline in interest income. The purpose of the study was
to determine whether other MFIs' fees had grown since bank regulations took effect.
According to the graph below, out of 40 respondents, 5% disagree, 53% agree, 12%
strongly disagree, and 30% strongly agree that additional MFI fees have increased as
a result of interest rate control.
27
According to a study, this is accurate Strongly agree Disagree Strongly disagree with
Esipisu's 2003 study, which claims that ceilings can lead to less transparency
regarding borrowing prices since MFIs deal with interest rate caps by charging
additional fees for their services.
53%
12%
30%
5%
Table 4.6 below shows the views of respondents on interest rate regulation and
liquidity of MFIs.
Strongly Agree 20 20
Agree 30 50
Neutral 20 70
Disagree 15 85
Strongly Disagree 15 100
Total 100
Source: primary data 28
The essential for MFIs is liquidity, which ensures that they can discharge any number
of loans to raise their return on assets, which is durability, and so boost their interest
revenue. According to the results of an investigation, 30% of people agree, 20%
disagree, 15% strongly disagree, and 20% strongly agree that interest rate control has
reduced the amount of liquidity or cash available for lending. According to the
findings in the table above, interest rate regulation and liquidity are positively
correlated.
4.8 Effect of Lending Interest Rate Regulation on Supply and Demand for
Credit.
The purpose of the study was to ascertain how interest rates affected both the supply
and demand for loans. To get respondents' perspectives on this point of perspective,
the author designed 4 distinct questions. The results are shown in the tables and charts
below.
Table 4.6 show respondents’ opinions on several clients and interest rate
regulation.
15%
5%
30%
50%
Disagree 45%
Agree 25%
Sales
30
4.7.4 Number of New Borrowers and Interest Rate Regulation
Strongly agree 5 5
Agree 20 25
Neutral 15 40
Disagree 50 90
Strongly disagree 10 100
Total 100
The research also aims to determine regardless of whether interest rate control has an
impact on the proportion of incoming clients and borrowers. It was established that
20% agreed, 50% disagreed, 10% strongly disagreed, 15% were neutral, and 10%
strongly agreed that the number of new clients has expanded after interest rate
regulation. The findings in the table ahead demonstrate that the control of interest
rates has a direct impact on the volume of new debtors.
The report's goal was to identify the factors that influence micro financiers' financial
performance, and the findings showed that there are several ways to quantify financial
performance. The study's participants were questioned about the factors that they
believed affected the Gweru micro financiers' financial performance.
31
Figure 4.8 Micro financiers' financial performance factors
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Portfolio quality Capital asset ratio Gearing Ratio Size of Mfis Market concetration
According to all interviewees, portfolio quality is one of the key factors influencing
performance. They claim that this is because portfolio quality affects an organization's
ability to distribute new or additional loans, which has an impact on its primary
objective.
32
They continued by stating that portfolio quality displays non-performing loans
(NPLs), also known as loans with a principal amortization period (PAR) of more than
30 days, which have an immediate negative impact on the institution's capacity to
remain solvent and profitable. Four of the interviewees raise the problem of interest
rate constraints, which were implemented in 2021 by the RBZ and stipulated that
interest per month must not exceed 30%. If the portfolio composition is poor, micro-
enterprises would not be capable to meet their operational costs.
According to the study, 45% highly agree, 80% agree, 10% disagree, 35% are
indifferent, and 30% strongly disagree that the capital asset ratio decides the
profitability of MFIs since it gauges the stability of the MFIs which affects the
financial performance if unanticipated losses rise. Five interviewees in all indicated
that capital asset ratios gauge a microfinance institution's success based on its capacity
to meet all of its responsibilities and debts as well as absorb unforeseen setbacks.
They claimed that when unanticipated losses occur, the capital asset ratio provides a
guarantee of Financial Performance. In support of this claim, Dietrich and WanZried
(2009) showed how the capital asset ratio affects the performance of credit
intermediaries. Additionally, Muriu (2011) provided evidence that well-capitalized
micro financiers are more adaptable in buffering possible shocks, lowering funding
costs.
When asked whether the gearing ratio has any bearing on the financial success of
microfinance organizations, 90% of respondents strongly agreed and 70% agree that it
does. The remaining 50% were undecided, while 30% disagreed and 15% strongly
disagreed. The majority of interviewees emphasized that the gearing ratio is often
alluded to as a predictor of financial performance since it reveals the microfinance
organization’s entire exposure, which in turn reveals its level of financial viability.
33
In support, Nelson (2011) said that the gearing ratio is a factor of financial
performance since it measures monetary strength, which improves the ability to fund
corporate activities.
70% highly agree, 60% agree that the size of the firm determines financial
performance, 25% are neutral, 10% are against this, and 25% strongly disagree that
the business's size causes business results. Cull et al (2007) argue that economies of
scale have a beneficial impact on the relationship between the size and monetary
efficiency of microfinanciers reinforced this. Most of the participants agreed that one
of the huge advantages of economies of scale and scope is lower costs, which help
microfinance firms increase their price competitiveness in international markets. In
addition, economies of scale produce higher returns on capital invested and give
micro financiers a foundation to expand. As a corporation expands in size, it hardens
and develops less subject to outside threats like acquisition attempt attempts. This is
one of the main advantages of economies of scale for industries because it helps the
firm's stock price and capacity to acquire further capital.
4.8.5Market concentration
34
This was backed up by Sindani (2012), who emphasized that when credit risk
management systems are completely adopted, they can help microfinance
organizations prevent or limit the negative effects of credit risk and lower their rates
of non-performing loans.
Additionally, they all emphasized how crucial cost control management is because it
would have a direct influence on the proportion of operational efficiency. The
expense of an organization’s operations can be reduced over time by simplifying
them, which increases organizational revenues and ultimately increases financial
performance. They said that exorbitant expenditures could cause the microfinancier
to fail, so it was necessary to cut them to make money. Five participants mentioned
that using the right plan of action when a crisis arises, management expertise, and
competency also help financial success.
4.9 Summary
Tables and graphs were used to display the investigation project conclusions on the
variables and factors influencing their financial performance that were examined. In
the following chapter, the study's executive summary, research findings, and
recommendations are presented.
35
CHAPTER 5: SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS
5.1 Introduction
The goal of the research was to determine how interest rate regulation affected the
financial performance of microfinance firms in Zimbabwe. This study sought to
identify elements of lending interest rates that influence the financial performance of
MFIs. The chapter before this one examined study findings and how they related to
the literature review. This chapter summarizes the project by examining the overall
study and providing a summary of the findings, recommendations, and research from
the subject area.
36
The study found a favorable and scientifically significant association between cost
leadership strategy and MFI sustainability. The rejection of the null hypothesis
implies that cost leadership affects the viability of MFIs in Murang'a County. The
MFIs had a flexible loan payback schedule, utilized technologies like mobile banking,
and provide goods and services to a wide range of customers. Using the cost
leadership method, MFIs can gain a comparative edge by charging a reasonable price
for their goods, eventually achieving sustainability thanks to more customers.
Chapter 3 covers the methodology used to design and validate the qualitative survey
that served as the basis for the research project. The research design, research
population, sampling strategies, and research sample were all covered, along with data
collection methodologies, research instruments, data gathering methods, data analysis,
and data presentation and summary whereas, section 4 focused on presenting,
analyzing, and discussing the research's findings, which were collected through data
collecting using questionnaires and interviews. Data presentation and analysis were
aided by the use of tables, graphs, and explanatory comments.
5.3 Conclusion
Following are the conclusions reached using the data from the questionnaires and
regression analysis model:
The analysis found that changes in lending rates made by the monetary
authorities had a significant impact on financial performance and that interest
rate control had an effect on how sustainable Zimbabwean MFIs were.
According to the report, higher interest rates deter potential borrowers, who
turn to alternative formal or informal players, decreasing the MFI return on
asset and ultimately its viability.
Central banks have the power to adjust lending interest rates, which has an
impact on the interest rates that everyone seeking to borrow money for
business investments must pay. MFIs can respond quickly to changes in
interest rate regulation and overall production.
According to the investigation's findings, loan rates must be kept under
supervision for viable MFIs.
37
5.4 Recommendations
5.4.1 Establishment of Interest Rate Policies
Better lending rate policies should be developed by the monetary authority and other
policymakers to allow MFIs to be sustainable. Policies governing lending interest
rates that are detrimental to the sustainability of MFIs must be changed. Codified
interest rate rules should make sure that the cost of obtaining a loan from MFIs is
accessible for the majority of lenders. The government must take steps to oversee and
manage an inflation level because it tends to raise interest rates. The government must
also devise strategies to make our currency stronger in comparison to other
currencies. To stay viable, MFIs should be urged to reinvest in capital reserves and
refrain from needless borrowing. Financiers ought to be useful tools for reducing
poverty among the less fortunate.
38