An examination of interest rate adjustment impacts on credit demand in banking: a case study of Fortis Microfinance Bank
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Background of the Study
Interest rate adjustments are a critical tool for influencing credit demand in banking. Fortis Microfinance Bank has implemented dynamic interest rate policies that adjust in response to market conditions and economic indicators, aiming to balance profitability with customer affordability (Igbinedion, 2023). These adjustments are designed to stimulate credit demand by offering competitive borrowing rates during favorable economic periods while safeguarding the bank’s margins during downturns. The bank employs sophisticated financial models to predict market trends and adjust interest rates in real time, thereby providing borrowers with a transparent and responsive pricing structure (Akinola, 2024).
Dynamic interest rate adjustments not only affect individual loan products but also influence overall credit market behavior by affecting consumer confidence and borrowing capacity. Fortis Microfinance Bank’s strategy involves regular communication with customers regarding rate changes and the underlying economic rationale, which helps in managing expectations and fostering trust. Moreover, the integration of digital platforms enables the bank to disseminate rate information quickly and accurately across various channels, thus enhancing transparency (Chinwe, 2025).
Despite these efforts, the effectiveness of interest rate adjustments in driving credit demand is subject to various external factors such as economic volatility and regulatory changes. This study examines the impact of interest rate adjustments on credit demand at Fortis Microfinance Bank, exploring how these policies influence borrowing behavior and contribute to overall financial performance.
Statement of the Problem
Although Fortis Microfinance Bank actively adjusts its interest rates to manage credit demand, challenges persist that affect the desired outcomes. One key issue is the lag in communicating rate adjustments effectively to customers, which can result in misinterpretation and delayed borrowing decisions (Ibrahim, 2023). Inconsistent messaging across digital and physical channels may create confusion, thereby dampening the intended stimulative effect on credit demand.
Additionally, rapid economic fluctuations often necessitate frequent rate changes, which can overwhelm customers and lead to uncertainty about the cost of borrowing. This uncertainty can discourage potential borrowers from taking loans even when rates are favorable. Furthermore, external regulatory pressures and market competition add layers of complexity to the interest rate adjustment process, making it difficult to maintain a stable and predictable lending environment (Nwankwo, 2024). The misalignment between anticipated and actual customer responses to rate changes further complicates the bank’s ability to stimulate credit demand consistently. This study seeks to analyze these challenges and propose strategic measures to improve the effectiveness of interest rate adjustments on credit demand.
Objectives of the Study
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To assess the impact of interest rate adjustments on credit demand at Fortis Microfinance Bank.
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To identify communication and market challenges affecting borrower response.
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To recommend strategies for optimizing interest rate policies to stimulate credit demand.
Research Questions
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How do interest rate adjustments influence credit demand at Fortis Microfinance Bank?
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What challenges affect the communication and effectiveness of rate changes?
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What strategic measures can enhance the impact of interest rate adjustments on credit demand?
Research Hypotheses
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H1: Interest rate adjustments significantly affect credit demand at Fortis Microfinance Bank.
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H2: Ineffective communication of rate changes negatively impacts borrowing behavior.
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H3: Clear, consistent interest rate policies are positively correlated with increased credit uptake.
Scope and Limitations of the Study
This study focuses on Fortis Microfinance Bank’s interest rate policies and their impact on credit demand, using customer surveys, transaction data, and market analyses. Limitations include external economic influences and variations in customer financial literacy.
Definitions of Terms
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Interest Rate Adjustments: Changes made to the rates charged on loans and offered on deposits.
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Credit Demand: The level of borrowing activity by customers.
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Dynamic Pricing: The ability to adjust prices in real time based on market conditions.
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Borrower Confidence: The trust that customers have in the stability and fairness of lending practices.
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