Impacts of Interest Rate Cap on Financial Inclusion in Cambodia

Dyna Heng, Serey Chea and Bomakara Heng

No 2021/107, IMF Working Papers from International Monetary Fund

Abstract: Interest rate caps, despite their intended objective of broadening financial inclusion, can have undesirable effects on financial inclusion under certain conditions. This paper examines the effect of microfinance-loan interest rate caps on financial inclusion in Cambodia. Based on a difference-in-difference analysis on bank and microfinance supervisory data, results show some unintended impact on financial inclusion. The cap led to a significant increase in non-interest fees charged on new loans following the introduction of an annual cap. Microfinance borrowers declined immediately, amid an increase in credit growth, as microfinance institutions targeted larger borrowers at the expense of smaller ones. Microfinance institutions, responded differently to the cap, considering their own operation and funding costs, and client base. Two years after the cap, institutions resumed lending to a wider group of borrowers with lower funding and operation costs brought by mobile payment development.

Keywords: Financial Inclusion; Interest Rate Caps; Banking Sector; microfinance borrower; microfinance-loan interest rate caps; operation cost; supervisory data; impact of interest rate cap; Loans; Interest rate ceilings; Microfinance; Financial inclusion; Credit; Global (search for similar items in EconPapers)
Pages: 35
Date: 2021-04-29
New Economics Papers: this item is included in nep-fdg, nep-fle, nep-isf, nep-mfd, nep-pay and nep-sea
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