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Another “French paradox”: explaining why interest rates to microenterprises did not increase with the change in French usury legislation

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  • Arvind Ashta
  • Laurence Attuel-Mendès
  • Zaka Ratsimalahelo

Abstract

Conventional wisdom indicates that the growth of credit may not materialize if credit rates remain capped by usury laws, as had long been the case in France. France therefore abolished usury ceilings on loans to microenterprise in an effort to increase financing for microentrepreneurs. This should have led to an increase in interest rates and increase in microcredit. However, we do not find any increase in interest rates and this is therefore a paradox. The paper provides a brief literature review and the salient features of the legislative changes in France. It follows this up with a presentation of interest rate movements. The discussion of possible explanations of the paradox includes classical market analysis (global interest rates, money supply, and competition), behavioral and institutional analysis (guarantees, Basel II and risk taking, legal concept of abusive support, protection for over-indebtedness, information asymmetry and limited liability) and softer institutional reasons (religion, risk-taking culture). Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Arvind Ashta & Laurence Attuel-Mendès & Zaka Ratsimalahelo, 2015. "Another “French paradox”: explaining why interest rates to microenterprises did not increase with the change in French usury legislation," European Journal of Law and Economics, Springer, vol. 40(3), pages 479-509, December.
    • Handle: RePEc:kap:ejlwec:v:40:y:2015:i:3:p:479-509
    DOI: 10.1007/s10657-013-9387-y
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    Cited by:

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    2. Raffaella Barone & Donato Masciandaro, 2019. "Cryptocurrency or usury? Crime and alternative money laundering techniques," European Journal of Law and Economics, Springer, vol. 47(2), pages 233-254, April.

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    More about this item

    Keywords

    Microfinance; Microcredit; Usury; Behavioral finance; Law and economics; Institutional analysis; Interest rate; B52; B59; E4; G21; K00;
    All these keywords.

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • B59 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Other
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)

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