An Appraisal of Interest Rate Policy Adjustments on Loan Affordability in Banking: A Case Study of Fortis Microfinance Bank
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Background of the Study
Interest rate policy adjustments play a critical role in determining loan affordability, which directly influences customer borrowing behavior and overall financial inclusion. Fortis Microfinance Bank has recently revised its interest rate policies to offer more competitive and predictable loan terms. These adjustments aim to lower the cost of borrowing for customers while maintaining the bank’s profitability and risk management standards. By aligning interest rates more closely with market conditions and customer expectations, the bank intends to make loans more affordable, thereby encouraging higher loan uptake and stimulating economic growth. Research indicates that transparent and stable interest rate policies can boost consumer confidence and enhance loan affordability, leading to increased lending volumes and improved asset quality (Ibrahim, 2023; Adeyemi, 2024). However, challenges such as market volatility, regulatory constraints, and communication gaps regarding policy changes may affect the effectiveness of these adjustments. This study will appraise the impact of interest rate policy adjustments on loan affordability at Fortis Microfinance Bank by analyzing loan uptake data, customer affordability metrics, and feedback from borrowers. The findings will offer insights into whether the current policy adjustments have effectively improved loan affordability and will provide recommendations for further refining interest rate strategies to better meet customer needs.
Statement of the Problem
Despite recent interest rate policy adjustments aimed at enhancing loan affordability, Fortis Microfinance Bank still faces challenges in achieving the desired increase in loan uptake. Customers report that while lower rates are attractive, inconsistencies in policy communication and occasional rate fluctuations due to market volatility have created uncertainty regarding the long-term cost of borrowing (Ibrahim, 2023). Moreover, the lack of a standardized framework to monitor the direct impact of these adjustments on loan affordability makes it difficult for the bank to assess their effectiveness. As a result, the anticipated improvements in loan uptake and customer satisfaction have not been fully realized. Operational challenges such as delayed rate updates and variations in how different branches implement the new policies further contribute to the problem. This study seeks to investigate these issues by examining the relationship between interest rate policy adjustments and loan affordability, with the goal of identifying factors that hinder consistent loan uptake and proposing strategies to optimize policy implementation.
Objectives of the Study:
1. To evaluate the impact of interest rate policy adjustments on loan affordability at Fortis Microfinance Bank.
2. To identify factors that hinder effective implementation of these adjustments.
3. To recommend strategies for improving policy communication and consistency.
Research Questions:
1. How do interest rate policy adjustments affect loan affordability?
2. What operational challenges hinder the consistent application of new rate policies?
3. What measures can improve customer confidence in borrowing terms?
Research Hypotheses:
1. Interest rate policy adjustments significantly enhance loan affordability.
2. Inconsistent policy communication negatively affects loan uptake.
3. Standardized implementation improves customer borrowing confidence.
Scope and Limitations of the Study:
This study focuses on Fortis Microfinance Bank’s loan products and interest rate policies, using borrower surveys, loan uptake data, and internal reports. Limitations include market volatility and external economic factors.
Definitions of Terms:
• Interest Rate Policy Adjustments: Modifications made to the interest rates offered on loans.
• Loan Affordability: The ease with which customers can access and repay loans based on current rates.
• Customer Borrowing Confidence: The trust customers have in the predictability of loan costs.
• Rate Stability: The consistency of interest rate offerings over time.
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