EFFECT OF INTEREST RATES ON LOAN REPAYMENT; A CASE STUDY ...

[Pages:49]EFFECT OF INTEREST RATES ON LOAN REPAYMENT; A CASE STUDY OF EQUITY BANK MASINDI BRANCH BY

EDAKASI S APUNYO BENARD REG. NO. 04/U/13307/EXT

SUPERVISOR: MR. NUWAGABA GEOFFREY

A RESEARCH REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF BACHELOR OF COMMERCE OF MAKERERE UNIVERSITY

JUNE 2011

TABLE OF CONTENTS

DECLARATION .......................................................................................................................iv APPROVAL ...............................................................................................................................v DEDICATION ..........................................................................................................................vi ACKNOWLEDGEMENT ......................................................................................................... vii ABSTRACT ................................................................................................................................x CHAPTER ONE ........................................................................................................................1 INTRODUCTION ......................................................................................................................1

1.0 Background to the Study......................................................................................................... 1 1.1 Statement of the Problem........................................................................................................ 2 1.2 The main Objective ................................................................................................................. 2 1.3 Specific Objectives................................................................................................................... 2 1.4 Research Questions ................................................................................................................. 3 1.5 Scope of the study .................................................................................................................... 3 1.6 Significance of the Study ......................................................................................................... 3 CHAPTER TWO ........................................................................................................................5 LITERATURE REVIEW ...........................................................................................................5 2.0 Introduction............................................................................................................................. 5 2.1 The concept of the interest rates ............................................................................................. 5 2.1.1 Types of the interest ................................................................................................................ 5 2.1.2 Factors that determine changes in the general level of interest rates .................................... 6 2.2 Overview of Uganda's Financial Sector.................................................................................. 6 2.3 Regulatory Framework ........................................................................................................... 7 2.4 Effects of rising and falling interest rates ............................................................................... 8 2.5 Effect of interest rates on loan repayment .............................................................................. 8 2.6 The Effects of an Interest Rate on the Supply of loans .......................................................... 8 CHAPTER THREE..................................................................................................................10 RESEARCH METHODOLOGY ..............................................................................................10 3.1 Introduction........................................................................................................................... 10 3.2 Research Design .................................................................................................................... 10 3.3 Study population ................................................................................................................... 10 3.4. Sampling method................................................................................................................... 10 3.4.1 Sampling design ....................................................................................................................... 11

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3.4.2 Sample size ............................................................................................................................... 11 3.4.3 Sampling procedure................................................................................................................. 11 3.5.0 Data sources........................................................................................................................... 11 3.5.1 Primary data.......................................................................................................................... 11 3.5.2 Secondary data ...................................................................................................................... 11 3.6.1 Interview guide ........................................................................................................................ 12 3.6.2 Questionnaires ......................................................................................................................... 12 3.7 Data Analysis ......................................................................................................................... 13 3.8 Limitations of the study......................................................................................................... 13 CHAPTER FOUR....................................................................................................................14 DATA PRESENTATION AND DISCUSSION OF FINDINGS..............................................14 4.0 Introduction........................................................................................................................... 14 4.1 Sample Characteristics.......................................................................................................... 14 4.2 Time spent using loans (micro-credit schemes) .................................................................... 16 4.3 The role of Micro-Credit loans enterprise development with reference to Equity Bank loans 17 CHAPTER FIVE .....................................................................................................................24 SUMMARY, CONCLUSION AND RECOMMENDATIONS..................................................24 5.1 Summary .............................................................................................................................. 24 5.2 Major Findings ...................................................................................................................... 26 5.3 Recommendations ................................................................................................................. 27 5.4 Areas for Further Research .................................................................................................. 29 References ................................................................................................................................30 APPENDIX I: ............................................................................................................................ I PARTICIPANT QUESTIONNAIRE ................................................................................................ I PART I (EQUITY BANK CUSTOMERS)........................................................................................ I APPENDIX II ........................................................................................................................... V PARTICIPANT QUESTIONNAIRE ............................................................................................... V PART II (EQUITY BANK OFFICIALS)......................................................................................... V INTERVIEW GUIDE ...................................................................................................... VIII

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LIST OF TABLES Table 4. 1: Respondents' Age.......................................................................................14 Table 4. 2: Respondents' Gender (entrepreneurs) .....................................................................15 Table 4. 3: Shows the time spent while using micro-credits .......................................................16 Table 4. 4: The extent to which micro credits have helped improve business performance.........17 Table 4. 5: Analysis of the impact of Interest rate on loan and business performance in Masindi

District ...................................................................................................................18 Table 4. 6: Equity Bank staffs' response on the effect of interest rate on loan repayment...........19 Table 4. 7: Analysis of the relation between the variables associated with loan repayment in

Masindi District. ....................................................................................................20

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DECLARATION

I Edakasi S Apunyo Benard declare to the best of my knowledge that the work presented in this report is my original work. It has never been presented to any Institution of higher learning before for the award of any degree or diploma.

Signature:.......................... EDAKASI S APUNYO BENARD

Date:................................

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APPROVAL

Following my supervision of Edakasi S Apunyo Benards study on the topic ,,,,INTEREST RATES AND LOAN REPAYMENT, Iam satisfied as a lecturer of Makerere University that it is worth submitting for the award of the degree of Bachelor of Commerce.

Supervisor:

Signature:.......................... NUWAGABA GEOFFREY

Date:............................

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DEDICATION

I dedicate this research to my family who have been supportive to me financially and especially in funding my education all through. Their toil, support and care have given me a positive transformation in life and may the almighty God bless them abundantly.

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ACKNOWLEDGEMENT

Most sincere appreciation goes to my supervisor, Mr. Nuwagaba Geoffrey for his direction and guidance towards the completion of this report. His tireless effort has made my research successful. Indisputable humble thanks go to my family who spared their little resources to pay my school fees and take care of me; you have been a big blessing and source of happiness to me. Am thankful to the entire staff of Faculty of Economics Makerere University and all my Lecturers who have significantly contributed to my knowledge base, without which I would have no foundation for the accomplishment of this research. May Almighty God bless you all.

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