Effects of Interest Rate Caps on Financial Inclusion

Produced by: 
Banco de la República de Colombia
Available from: 
December 2018
Paper author(s): 
Juan Sebastián Cubillos-Rocha
Luis Fernando Melo-Velandia
María José Roa-García
Juliana Gamboa-Arbeláez
Sara Restrepo-Tamayo
Mauricio Villamizar-Villegas
Topic: 
Financial Economics
Year: 
2019

In this paper we study the liberalization of the microcredit usury rate in Colombia and its effects on loan expansion. Namely, 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). Additionally, we narrow in on similar levels of both loan size and debtor’s risk in order to make microcredit and corporate portfolios more comparable. Our results indicate that this policy encouraged and facilitated financial access to entrepreneurs. Specifically, we find that, on average, the amount lent by credit establishments increased between 21.5% and 42.4%, and the number of new loans increased between 25.1% and 47.8%.

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