Abstract:
Credit rationing equilibrium occurs at the interest rate at which the bank maximizes the expected profit hence determining financial performance .Credit promotes the growth of small businesses by enabling them to make strategic investments as well as adopting the latest technology that increase efficiency. Globally credit usually represents the bulk of the microfinance institution's assets, while interest on the credit represents the major source of income. In this regard the current study had been designed to investigate the influence of credit rationing on financial performance of deposit taking microfinance institutions in Uasin Gishu County, Kenya. The study sought to; establish the influence of interest rate on financial performance of deposit taking microfinance institutions in Uasin Gishu County, Kenya, determine the influence of repayment period on financial performance of deposit taking microfinance institutions in Uasin Gishu County, Kenya and assess the influence of collateral securities on financial performance of deposit taking microfinance institutions in Uasin Gishu County, Kenya. In a bid to effectively achieve these objectives, the study adopted a survey design based on samples drawn from across the deposit taking microfinance institutions in Uasin Gishu County, Kenya. The target population was 68 credit officers from 13 registered deposit taking microfinance institutions sampled by census. The study relied on secondary data for the financial performance and interest rate and primary data on loan repayment period and collateral security. Primary data was collected by use of questionnaires .The instruments was tested for reliability and validity to enhance credibility of data. Collected data was analyzed by use of both inferential and descriptive statistics using SPSS version 20. The study established a significant association between interest rate (P=.010), loan repayment period (p=.036) and collateral securities (p=.002) and financial performances of deposit taking microfinance institutions. It is concluded that interest rate, loan repayment period and collateral securities has a significant association with the financial performances of deposit taking microfinance institutions. The study, hence, recommends a further study to be done on the influence of each variable (interest rate, loan repayment period and collateral securities) on financial performance of deposit taking microfinance institutions. The study findings will be utilized by policy makers at national and county government levels and other agencies in formulating relevant policies for future sustainability of the sector.
