EFFECTS OF INTEREST RATE ON ORGANIZATIONS PERFORMANCE IN THE COOPERATIVE SECTOR IN MOMBASA COUNTY
Abstract
Interest rate is an important measuring tool in the organizations to establish effective profitability of investments. The purpose of all organization is to maximize its earnings and wealth of its investors an efficient interest rate is the solution. In Mombasa county cooperative organizations had been experiencing fluctuations of interest rate as a result of mainly demand and supply of the credit markets. The shortfall of these loanable funds had forced depositors to shift their demands to other financial institutions rather than cooperative organizations. Sometimes members of the cooperative withdrew from these cooperative and deposits their investment to other financial markets forcing the cooperative to borrow external in order to lend at high interest rate. This study aimed at analyzing the effect of interest rate on organizations performance in the cooperative sector. This was elaborated by investigating the three components which included an investigation on interest rate on deposits, short term and long term loans disbursed to borrowers. This further explored theoretical, empirical literature and conceptual framework of interest rate and the organization performance. It consequently reviewed analytical theories and empirical studies on the three variables to investigate the relationship between the interest rate on deposits, short term and long term loans. The study showed increase of interest rate on short term and long term loans had reduced performance on organizations in the cooperative sector. This in contrast to interest on deposits which had positive performance on the organizations. It further concluded that for short term and long term loan, increase in interest rate had a negative performance in the organizations. Therefore it recommended that high interest rate on loans had a negative performance in the organization performance.
Key Words Profitability, Interest rate on deposit; interest on short term loans; interest on long term loans, cooperative sector, credit markets.
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DOI: http://dx.doi.org/10.61426/sjbcm.v3i4.388
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