Impact of interest rate on loan repayment a comparative study between pride Tanzania and Seda

The study's main objective was to identify the impact of interest rates charges on loan repayment to MFIs in Tanzania. The study based on the comparative study approach between PRIDE Tanzania and SEDA. Simple random, stratified and purposive techniques were used to select respondents from both clients and staffs. Administered questionnaires and personal interviews were conducted with both clients and staffs. Data were analyzed and presented using cross-tabs, frequency distribution tables and clustered bar charts. The study results envelope the following: high interest rate charged by MFIs has negative impact on loan repayments, multiple loans contributes to hardship on loan repayments and increases default risks; higher loan levels than clients' business capacity leads to loan default. Lack of clients' knowledge about business evaluations, channel of loan to non-business activities, lack of detailed loan appraisals and transparency between clients and MFIs was also found to have negative impact on loan repayments. The study recommended that MFIs need to reduce the number of clients served per credit officer, employ qualified personnel for clients' business visitation, provide business training to their clients and reduce amount of interest rate as a result to reduce default risk. MFI clients need to consider the value of interest amount and measure the capacity of their businesses to repay the loan before applying for the specific loan amount and avoid use of multiple loans as it increases the burden of interest amount.