Interest Rates Impact on Loan Repayment Performance of MSMEs

Access to finance is an imperative feature in the business operations of MSMEs. The aim of financing MSMEs is to help them develop their business, grow the asset base and compete with other enterprises. Usually, a considerable portion of loan is given against collateral security which requires repayment. However, repayment problems turn into a main hurdle for the financial institutions to continue providing credit services. One of the major factors in funding of MSMEs is the rate of interest at which they are financially supported. The present paper studies the loan repayment behaviour of MSME and its relationship with interest rates. A descriptive analysis was done to permit the study to make use of both quantitative and qualitative data collection techniques and data analysis procedures. In all, 112 enterprises were chosen for the research. The analysis shows that 41 per cent of micro, small and medium enterprises consider that the amount financed was at higher interest rate and only 30 per cent regard it as moderate and low.