Interest rate policy and financial sustainability of Umurenge Sacco as a microfinance institution in Rusizi District, Rwanda

Abstract

The study focused on “Interest Rate Policy and Financial Sustainability of Umurenge Sacco as Microfinance Institution in Rwanda”. The purpose of the study was to establish the relationship between interest rate policy and financial sustainability of UMURENGE SACCO. It was guided by the following objectives: to establish relationship of interest rate determination on sustainability of Umurenge Sacco, to analyze the relationship of interest rate application methods on sustainability of Umurenge Sacco, to establish relationship between interest rate income collection methods and sustainability of Umurenge Sacco, and to establish the influence of clients’ response to interest rate policy on the relationship between interest rate policy and sustainability of Umurenge Sacco. Methodology of the study was the descriptive co-relational research design where Pearson’s linear correlation analysis and linear regression analysis were applied to determine the relationship between interest rate policy and financial sustainability. However, the researcher found out that interest rate determination policy, Interest rate application methods, and the interest income collection methods improved financial sustainability of Umurenge Sacco in Rwanda. The researcher recommended that Umurenge Sacco should document the interest rate determination policy which specifies interest rate composition to comprise the administration expense rate, loan loss provision rate, cost of funds rate and capitalization rate to enable charge a sustainable interest rate on MFIs loans for financial sustainability. The researcher also recommended that Umurenge Sacco should establish the interest rate that meets both Umurenge Sacco sustainability and clients’ micro enterprise sustainability