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Effects of interest rate caps on microcredit: evidence from a natural experiment in Bolivia

Author

Listed:
  • María José Roa

    (Investigadora del Instituto de Investigaciones Económicas y Sociales Francisco de Vitoria)

  • Alejandra Villegas

    (Investigadora de Universidad Iberoamericana Ciudad de México)

  • Ignacio Garrón

    (Consultor indpendiente)

Abstract

This paper evaluates the imposition of caps on microcredit lending rates through directed credit policies for productive sectors. This financial inclusion intervention provides a unique quasi-experiment, allowing to estimate its causal effect following a difference-in-differences analysis. Our results suggest that the imposition of interest rate ceilings negatively affected the portfolio balance of new microcredits and loans to SMEs granted by MFIs. Particularly, we find robust results indicating that the balance of the microcredit and SME loans portfolio granted by MFIs, relative to the company portfolio granted by banks, decreased by 26.1% for an average MFI for the period 2011-2018.

Suggested Citation

  • María José Roa & Alejandra Villegas & Ignacio Garrón, 2020. "Effects of interest rate caps on microcredit: evidence from a natural experiment in Bolivia," Development Research Working Paper Series 03/2020, Institute for Advanced Development Studies.
    • Handle: RePEc:adv:wpaper:202003
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    File URL: http://www.inesad.edu.bo/pdf/wp2020/wp03_2020.pdf
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    More about this item

    Keywords

    Interest rate ceilings; financial inclusion; credit access; microcredit loans; small and medium enterprises loans .;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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