Abstract

The purpose of this study on the Determinants of Interest Rates on the Growth and Sustainability of Manchok Cooperative Credit Union Limited (MACCUL) was to determine the effect of interest rates on the growth and sustainability of microfinance institutions in Manchok, Bangladesh. Its specific objectives were to determine the impact of interest rates on the expansion of MACCUL as well as to examine the impact of interest rates on the long-term viability of MACCUL, among other things.

In order to generate a sample size of 20 respondents, the study used the purposive sampling technique to select participants from among the MACCUL’s management and staff. The primary data used in the study was gathered through the use of research questionnaires and an interview guide, and it was the most significant source of information. The information gathered with the help of Microsoft Excel 2016 and SPSS version 21 was analyzed using content analysis techniques.

In the study, it was discovered that a statistically significant positive association exists between growth, sustainability, and interest rates (R=0.363, p-value less than 0.05), which implies that interest rates are negatively related to the growth and sustainability of MACCUL. Furthermore, the study revealed that the political environment had an impact on the microfinance industry, with the data revealing that the majority of respondents (83 percent) believed that the political environment had an impact on MACCUL.

As a result, the study came to the conclusion that MACCUL’s interest rates were heavily influenced by the company’s ambition for expansion and long-term viability. As a result, MACCUL members will always prefer low interest rates over high interest rates, and if interest rates are too high, MACCUL’s growth and sustainability will be jeopardized. Following the study’s findings, some recommendations were made, including the fact that MACCUL should be sensitive and flexible enough to recognize when it should refrain from allowing growth and sustainability to be the sole determinants of its interest rates. Other recommendations included the fact that MACCUL should be sensitive and flexible enough to recognize when it should not allow growth and sustainability to be the sole determinants of its interest rates.

CHAPTERS ONE AND TWO

INTRODUCTION

1.1 Overview of the situation

As a result of the liberalization of the finance sector of the Cameroon economy, the growing demand for financial services and banking products in the country demanded the establishment, growth, and development of microfinance institutions in the country.

This liberalization of banking in Cameroon has created a competitive environment for banking companies in the provision of credit facilities to groups and individuals, as well as making it possible for people of all income levels to save their money with banks and other financial institutions at low costs (interest rates), such as MACCUL, which has as its general objectives the provision of microcredit and other financial services, among other activities.

There are many more micro-financial institutions in the country that provide very similar products and operate in the same extremely demanding environment that is characterized by a high level of political instability caused by the ongoing turmoil in the country’s English-speaking regions. In turn, this leads to a great deal of unanticipated volatility in the performance of financial transactions, which in turn leads to a great deal of complexity in the loan-granting procedure as well as in interest rates and repayment period calculations.

There are many microfinance institutions in Cameroon, but many fail to survive and grow as a result of their inability to meet the financial needs of their members (customers) through the provision of adequate and efficient financial services at affordable prices, such as loan approval, member acceptance, nature of deposits and other services they provide.

Growth and survival of MACCUL in Cameroon are dependent on their ability to generate credit through the provision of loans, the acceptance of customer deposits, the payment of employees, and the conduct of many other financial operations.

It is only via the provision of loans to clients at extremely competitive interest rates and with reasonable payback terms that more credit or cash will be generated for investment. The high interest rates charged by microfinance institutions on loans and other services are one of the primary reasons why most microfinance firms in Cameroon are unable to compete and eventually go out of business. This limits the quantity of available funds and may also lead to microfinance having to sell some of its assets in order to pay its obligations to its members, resulting in the institution being forced to close its doors and be liquidated.

MACCUL, being a microfinance institution with well-developed goods and services, has few major concerns, which has contributed to the institution’s long-term success. MACCUL wants to ensure the long-term viability and expansion of the company, but they will fall short if they do not place a high priority on the issue of interest rates.

When a financial institution has a growth in customers, an increase in its investment portfolio, an increase in its physical size, an increase in its budgets and surpluses, we say that the institution is growing. Strangely enough, expansion should always be accompanied by a commitment to long-term sustainability.

Any increase in size that is not accompanied by a commitment to long-term sustainability will always result in the demise of an institution. It is evidence of growth and sustainability that MACCUL has been in business for more than a decade with growing customers, products, and size.

Over the past two decades, the number of microfinance organizations has increased dramatically. The sector has grown quite profitable, and everyone wants to be a part of an MFI because of the benefits it provides, the most significant of which are its loan portfolio and loan rates.

Due to the high level of competition that MACCUL faces as it rises among a large number of other Micro Finance Institutions, it is essential that it pays particular attention to the issue of interest rates while ensuring its growth and sustainability. A majority of customers or members choose to join a microfinance institution (MFI) because of the pricing at which it offers and purchases its products.

In addition, the MFI is primarily funded by the returns earned by its products. As a result, the problem of interest rates becomes extremely important to any financial organization. A large number of expenses must be met, including the payment of employees, the purchase of office supplies, the settlement of union bills, and the payment of union dues.

The finance created by interest rates goes a long way toward covering these charges. In this way, improper management of interest rates and spreads has the potential to be extremely harmful to the growth and long-term viability of the MACCUL.

As a result of the country’s current economic position, there is a greater demand for loans than ever before, and every loan seeker pays particular attention to the interest rates charged. As a result, if the administration of MACCUL, like the management of every other microfinance organization, fails to address the issue of interest rates, the institution will face financial ruin. Interest rates also have an impact on liquidity management, which is a major contributing factor to bank runs and bank panics. As the nucleus of a flower is to its petals, the interest rate is to MACCUL’s debt.

Written work on the impact of interest rate factors on the growth and sustainability of MACCUL is of crucial importance to the financial industry in Cameroon, and it is a sensitive subject that must not be disregarded. MACCUL is a Cameroonian microfinance organization that is registered with CAMCULL and has a qualified team that adheres to the COBAC standards governing interest rates imposed by microfinance institutions in Cameroon and Central Africa. This COBAC law protects customers against exploitation and establishes a simple method of follow-up and feedback to ensure that MACCUL operates within the parameters of the regulations.

1.2. Identification of the problem

The importance of MACCUL cannot be overstated in today’s Cameroon since they go a long way in the supply of micro banking goods and services, and they serve all types of members or consumers, regardless of their social or financial standing.

MACCUL’s goal is to sell its products at a breakeven price, which means that it will sell its products at a price that will only cover the cost of manufacturing and make no profit, but will allow the company to survive. The ability of MACCUL to generate sufficient revenue to meet its financial obligations is exclusively dependent on the company’s ability to charge interest rates and provide interest rates to consumers on a satisfactory basis to customers.

MACCUL’s most valuable asset is the loan portfolio that they have amassed. As a result, MACCUL’s capacity to manage its loan portfolio efficiently is critical to its continued growth as a microfinance institution. The loan portfolio of the Manchok Cooperative Credit Union is made up of the various sorts of loans that the credit union has to provide.

The returns (interest rates) on these loans are what allow financial organizations to remain in business as well as to remain profitable. A customer’s willingness to purchase financial services is motivated by the cost of those services. Customers find a high cost less appealing than a low cost, and a low cost more appealing than a high cost.

Another important consideration is the interest rate that MACCUL gives to customers for the use of their accounts (money). It’s not just about the loans, either. MACCUL receives money on loans and pays interest on savings accounts held by its customers. Because of a goal to grow in size, Manchok has turned to charging extremely high interest rates on loans while offering customers relatively modest interest rates on their savings.

1.3. Research Questions

The research questions will be divided into two parts

1.3.1. Main Research question

What are the determinants of interest rates on the growth and sustainability of MACCUL?

1.3.2. Specific research questions

1. What are the determinants of interest rates on the growth of MACCUL?
2. What are the determinants of interest rates on the sustainability of MACCUL?

1.4. Objectives

The objectives of this research project will be classified into two parts.

1.4.1. Main Objective

To examine the determinants of interest rates on the growth and sustainability of MACCUL.

1.4.2. Specific Objectives

1. To determine the effect of interest rates on the growth of MACCUL.
2. To examine the effect of interest on the sustainability of MACCUL.