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Effect of caps on interest rates in Peru

Author

Listed:
  • Walter Cuba

    (Central Reserve Bank of Peru)

  • Eduardo Diaz

    (Central Reserve Bank of Peru)

Abstract

We review the initial effects of the imposition of caps on interest rates in Peru's financial system. We developed a methodology that allows us to quantify the potential exclusion of clients. We found that financial institutions excluded close to 243 thousand clients from the financial system. Regarding consumer loans, the exclusion ratio was higher among debtors outside the capital city, under the age of 25. Additionally, the effect was smaller for married debtors. In the case of small and micro-business loans, the effect was higher for natural persons, the commerce sector, and firms in the capital city. In summary, the effects induced by caps on interest rates are concentrated among people with lower incomes and those with vulnerable firms. Additionally, these debtors typically had the highest interest rates and were the main clients of non-banking financial institutions.

Suggested Citation

  • Walter Cuba & Eduardo Diaz, 2023. "Effect of caps on interest rates in Peru," IHEID Working Papers 02-2023, Economics Section, The Graduate Institute of International Studies.
    • Handle: RePEc:gii:giihei:heidwp02-2023
    as

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    File URL: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIDWP02-2023.pdf
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    References listed on IDEAS

    as
    1. Maimbo, Samuel Munzele & Henriquez Gallegos, Claudia Alejandra, 2014. "Interest rate caps around the world: still popular, but a blunt instrument," Policy Research Working Paper Series 7070, The World Bank.
    2. Madeira, Carlos, 2019. "The impact of interest rate ceilings on households’ credit access: Evidence from a 2013 Chilean legislation," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 166-179.
    3. Calice,Pietro & Diaz Kalan,Federico Alfonso & Masetti,Oliver, 2020. "Interest Rate Repression : A New Database," Policy Research Working Paper Series 9457, The World Bank.
    4. Choy, Marylin & Costa, Eduardo & Churata, Eloy, 2015. "Radiografía del costo del crédito en el Perú," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 30, pages 25-55.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Cap on interest rate; credit market; exclusion;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • K20 - Law and Economics - - Regulation and Business Law - - - General

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