INFLUENCE OF INTEREST RATE CAPPING ON GROWTH OF SMALL AND MEDIUM ENTERPRISES NAIROBI COUNTY, KENYA

Abstract

The study sought to investigate the influence of interest rate capping in Small and Medium Enterprises. The research design was descriptive. The target population of interest for the study was from the Nairobi County. The study was based on a target population of 4560 SMEs. Statistical Package for Social Science (SPSS) was used to analyse the data. Based on the study results of the ANOVA Test or F-test in obtained F-count (calculated) value was 33.370. This was greater than the F-critical (table) value (23.418) with significance of 0.000. Since the significance level of 0.001< 0.05 we concluded that the set of independent variables influence the growth of SMEs in the study area.The study revealed that interest rate capping statistically, strongly and significantly correlated to growth of the SMEs as they had a positive relationship with the dependent variable. Therefore, from these quantitative results it was deduced that the study which sought to establish the influence of interest rate capping on growth of SMEs was achieved because it established that it influenced growth of SMEs. The role of credit is basically to bridge the gap between business owner's financial assets and the required financial assets of the business/enterprise. There is need to remove that imbalance between the two hence creating the demand for credit. From the perspective of borrowers, lower rates can increase the potential demand for loans and financial inclusion, while excessive rates can push borrowers into over-indebtedness. The bank credit and bank deposits are very closely related with each other that they represent, roughly speaking, two sides of the same coin, the balance sheets of banks. The lending activity is made possible only if the banks can mobilize enough funds from their customers. The banks face repricing risk if either the average yield on its assets or that on its liabilities is more sensitive to changes in market interest rates. Such a difference in sensitivity could reflect a number of possible mismatches in the characteristics of assets and liabilities. The interest rates ceiling is a key economic aspects that impact the economic growth in the SMEs. The need to regulate the interest charged on credit or any other financial instrument should be founded on the necessity to control economic patterns that has great influence to the SMEs. Controlling and setting of interest rates has huge fiscal implication to the economic development hence the need for rational decision making process within the banking industry to enhance growth of SMES.