Determination of Interest Rate in Nepalese Finance Companies

Abstract

Finance companies are the institutions that are incorporated under company act to perform non-banking
activities arrangements and operation of different schemes. The finance companies survive by making
profit which is the interest spread i.e. difference between interest received and interest charged. The
main aim of this paper was to determine the responsible factors for the interest rate determination
of Nepalese financial companies. The factors affecting interest rate charged and offered by Nepalese
financial companies are analyzed using Regression Analysis. Out of the total financial companies only
two ICFC Finance Company and United Finance Company are taken as samples. Secondary data are
collected from various publications, websites, and annual reports. Interest rate on deposit of ICFC
Finance has significant negative association with inflation rate and significant positive relation with
interest rate on loan and advance of the company. Similarly, interest rate on loan and advance of the
company has significant positive relation with interest rate on deposit and interest rate on loan and
advance also has positive relation with inflation rate. Interest rate on deposit of United Finance has
significant negative association with inflation rate and significant positive relation with interest rate
on loan and advance of the company. Similarly, interest rate on loan and advance of the company has
significant positive relation with both interest rate on deposit and inflation rate.