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Patrick Nyaibande Oseko - School of Business and Economics, Department of Accounting and Finance, Kenya

Dr. Andrew Songoro Nyangau (PhD) - School of Business and Economics, Department of Accounting and Finance, Kenya


Interest rate can be defined as the price that a one pays for utilizing funds borrowed from a creditor or lender. In particular, the interest rate is the fee that is paid on borrowed assets. The primary objective of this research project was to study the influence of interest rates determinants on the financial performance of micro-mortgage based banks in Mombasa County. Interest rates in Kenya for a long time have been on the increasing trend for the better period of 2011-2015 leading to high profitability and expansion of the branch networks in the banking sector in Kenya. The positive performance of the financial institutions, however, have been at the expense of clients majority of whom are low-income earners further pushing them away from the reach of micro-mortgage services offered by this commercial banks. This has made the services expensive in affordability and further increasing the ratio of non-performing loans and loan provisioning in the financial reports of these banks. The of this study is therefore to determine the influence cost of funds have in financial performance of micro-mortgage finance services among the micro-mortgage based financial institutions in Mombasa County, the influence operating expenses on fiscal performance of micro-mortgage based financial institutions in Mombasa County and the influence that credit risk poses on financial standing of micro-mortgage based financial organizations in Kenya. Interest rate determinants were explored including the cost of funds, operating expenses and credit risk on the financial performance of these commercial banks. To help establish the concept of interest rates, several theories were explored such as loanable funds theory, classical theory, and liquidity preference theory. The research employed descriptive research design targeting micro-mortgage based commercial banks operating in Mombasa County. Target population was seven (7) micro-mortgages based commercial banks in Mombasa County. Sample size was seven (7) and a census was used to collect secondary data for the period 2011-2015 period. Data was analyzed using regression and correlation model and presented in tables and figures. From the analysis, we reliably inferred that cost of funds had an inverse relationship with the development micro-mortgaged based commercial banks in Mombasa County. High operating expenses negatively influenced the development of those institutions and high credit risk influenced negatively the development of the micro-mortgage based commercial banks in Mombasa County. To address the cost of funds variable, financial institutions should therefore seek funds from sources that are less expensive. Operating expenses should be optimized to maximize profits. Appraisals to be thoroughly subjected to multi-level screening to reduce the potential of NPLs.

Full Length Research (PDF Format)