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

Arvind Ashta (), Laurence Attuel-Mendès () and Zaka Ratsimalahelo ()

European Journal of Law and Economics, 2015, vol. 40, issue 3, 479-509

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

Keywords: Microfinance; Microcredit; Usury; Behavioral finance; Law and economics; Institutional analysis; Interest rate; B52; B59; E4; G21; K00 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/s10657-013-9387-y

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