Influence of Market Competition on Lending Rates of Microfinance Institutions in Kenya

This study examined how market competition affects lending rates in microfinance institutions (MFIs) in Kenya, focusing on the 14 regulated deposit taking MFIs listed by the Central Bank of Kenya in 2024. A descriptive research design was used, and data were collected from 75 senior lending officers using a structured 5 point Likert scale questionnaire. The data were analyzed using SPSS. Descriptive results showed mixed views on competition. Many respondents strongly agreed that MFIs actively use strategies to attract clients (77.3 percent agreement, Mean = 3.88), while fewer believed that differences in interest rates influence pricing decisions (Mean = 2.31) or that competition affects service delivery and strategy (Mean = 2.47). Regression results showed that market competition has a significant positive effect on lending rates (β = 0.282, p = 0.000), explaining 38.5 percent of the variation in lending rates. The findings show that increasing competition, especially from digital lenders, pushes MFIs to adjust interest rates, fees, and lending conditions in a developing economy facing high operating costs, weak infrastructure, and high risk. The study recommends improving regulations to support fair competition and strengthening skills within MFIs to enable flexible and affordable pricing, thereby improving access to credit.