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Interest rate caps on microcredit: evidence from a natural experiment in Bolivia

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  • María José Roa
  • Alejandra Villegas
  • Ignacio Garrón

Abstract

This paper evaluates the imposition of caps on microcredit lending rates through credit policies for productive sectors. This financial inclusion intervention provides a unique quasi-experiment, allowing to estimate its 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 Small and Medium Enterprises (SMEs) granted by Micro Finance Institutions (MFIs). 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, 2022. "Interest rate caps on microcredit: evidence from a natural experiment in Bolivia," Journal of Development Effectiveness, Taylor & Francis Journals, vol. 14(2), pages 125-142, April.
    • Handle: RePEc:taf:jdevef:v:14:y:2022:i:2:p:125-142
    DOI: 10.1080/19439342.2021.1968934
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