Effects of interest rate caps on credit access
Juan Sebastian Cubillos-Rocha (),
Juliana Gamboa-Arbelaez (),
Luis Melo-Velandia (),
Sara Restrepo-Tamayo (),
Maria Jose Roa-Garcia () and
Mauricio Villamizar-Villegas ()
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Juan Sebastian Cubillos-Rocha: Universidad Nacional de Colombia
Sara Restrepo-Tamayo: Universidad del Rosario
Maria Jose Roa-Garcia: Instituto de Investigaciones Económicas y Sociales Francisco de Vitoria
Authors registered in the RePEc Author Service: María José Roa García ()
Journal of Regulatory Economics, 2021, vol. 60, issue 2, No 2, 117-139
Abstract We study the liberalization of the microcredit usury rate in Colombia and its effects on loan expansion. In February 2007 the interest rate ceiling for microcredit loans was lifted and fixed to 33%, while the ceiling of all other loans remained unchanged and close to 20%. We perform a Difference-in-Difference analysis by comparing the expansion of microcredit loans (treatment group) with that of corporate loans (control group). While both credit portfolios target the same type of clients, namely entrepreneurs, we nonetheless control for loan size and debtor’s riskiness to make both loan portfolios more comparable. We employ highly granular data (using the entire credit registry, with roughly one million observations during 2005–2008) both at the loan and bank-level. Our results indicate that this policy encouraged and facilitated credit access. On average, we find that for every percentage point lift in the microcredit lending rate, the number of new loans increases by 4.5% and the total loan portfolio increases by 3.7%. Further, the size of each microcredit loan decreases, on average, by 8%, and the loan term maturity is reduced by approximately 3 months.
Keywords: Usury rate; Interest rate caps; Credit access; Microcredit; Corporate loans; Natural experiment (search for similar items in EconPapers)
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Working Paper: Effects of Interest Rate Caps on Financial Inclusion (2018)
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