The Effect of Interest Rates on Demand for Credit By Small and Medium Enterprises in Masaka Municipality: a Case Study of Selected Smes in Katwe-Butego Division in Masaka Municipality.

Abstract

Small and medium enterprises are worldwide seen as a driving force for the promotion of an economy. The study focused on the effect of interest rates on demand for credit by small and medium enterprises in Masaka municipality with Katwe – Butego division as the case study; The specific objectives of the study were; To identify challenges faced by SMEs in accessing credit from the lending financial institution, to determine the relationship between interest rate and demand for credit by SMEs and to find out solutions to the challenges addressed by the borrowers.

The research design to be used in correlation in order to ascertain reliability of data collected. The population of the study is to be employees of small and medium businesses and the sample size will be 50 respondents. Yet the sampling technique to use is both purposive and convenience sampling. Data is to be collected by administering questionnaires and interviewing the respondents. Tables and Solven’s formula are to be used to analyze data, collect and interpreter and make conclusions. The study further will reveal both positive and negative effects on the effect of interest rate and demand for credit by SMEs.

The study recommends monitoring and managing of the interest rates by the central bank, training or sensitization of small and medium enterprises on how to access and use a credit efficiently. It is concluded that easy accessibility of credit from financial institution to the borrowers encourage their borrowing power and improve their business performance.

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