Interest rate caps on microcredit: evidence from a natural experiment in Bolivia

Gutiérrez, María Alejandra Villegas; Roa, María José; Garrón, Ignacio

doi:10.1080/19439342.2021.1968934

Cited by 10 publications

(4 citation statements)

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“…Among the borrowers that are perceived to be riskier include micro-enterprises, rural borrowers and women (Campion et al , 2010), and this may lead to poverty concentration and exclusion of vulnerable groups from financial markets. Other than credit rationing, other negative outcomes caused by interest rate ceilings may lead consumers to adopt less regulated forms of credit outside of the formal banking system (Roa, et al , 2022) and potentially lead to mission drift whereby banks stray from a critical element of their core business (Cozarenco and Szafarz, 2020).…”

Section: Literature Reviewmentioning

confidence: 99%

Regulation and agriculture financing in Kenya

Murungi,

Alhassan,

Zeka

2023

AFR

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PurposeThe agricultural sector remains the backbone of several emerging economies, including Kenya, where it contributes 34% to its gross domestic product (GDP). However, access to financing for agricultural activities appears to be very low compared to developed economies. Following this, governments in a number of countries have sought to introduce banking sector regulations to facilitate increased funding to the agricultural sector. Taking motivation of the interest rate capping regulations by the Central Bank of Kenya (CBK) in 2016, this paper examined the effect of these interest rate ceiling regulations on agri-lending in Kenya.Design/methodology/approachThe paper employs random effects technique to estimate a panel data of 26 commercial banks in Kenya from 2014 to 2018 using the ratio of loans to agricultural sector to gross loans and the natural logarithm of loans to agricultural sector as proxies for agri-lending. Bank size, equity, asset quality, liquidity, revenue concentration and bank concentration are employed as control variables.FindingsThe results of the panel regression estimations show that the introduction of the interest cap resulted in increases in the proportion and growth in agri-lending compared with the pre-interest cap period. In addition, large banks and highly capitalised banks were found to be associated with lower agri-lending, with differences in the effects across pre-cap and post-cap periods.Practical implicationsFrom a policy perspective, the findings highlight the effectiveness of interest rate capping in meeting this objective and supports the calls for strengthening cooperation between the government and key stakeholders in the financial sector. This will allow for the effective enforcement of policies by the regulatory powers in a manner that guarantees sound and dynamic financial systems, particularly within the agricultural sector.Originality/valueAs far as the authors are aware, this the first paper to examine the effect of the interest rate cap regulation on agri-lending in Kenya.

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Section: Literature Reviewmentioning

confidence: 99%

Regulation and agriculture financing in Kenya

Murungi,

Alhassan,

Zeka

2023

AFR

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“…Bhutan National Bank Limited has 25 banking branches to serve rural areas and has a dedicated scheme that provides loans without any collateral requirement for poor people. Roa, Villegas, and Garrón (2019) states that the Bolivian economy has direct access to credit policy to promote financial inclusion. The transaction cost in saving products is quite low while challenges persist in lending due to asymmetric information.…”

Section: Medium Financial Inclusion Countriesmentioning

confidence: 99%

Measuring Financial Inclusion Index for Developing Countries

Ejaz,

Hasan

2023

Pak. J. Humanit. Soc. Sci

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This research focuses on the multifaceted realm of financial inclusion within Developing Countries. It unfolds a meticulous exploration by formulating a financial inclusion index based on data extracted from a sample comprising 75 Developing Countries, spanning the period from 2010 to 2018. The index's creation comprises of two distinct stages. In stage one, a principal component analysis is applied to derive sub-indices encapsulating the dimensions of access, utilization of financial services, technological advancements, and infrastructure, drawing from an array of 24 financial indicators. Subsequently, the second stage normalizes values within each dimension, culminating in an overall index through the application of the Euclidean Formula. The findings of this study emphasized the pivotal role of a National Financial Inclusion Strategy in enhancing financial inclusion in each respective country. Customization of these strategies to align with specific economic goals of each nation is paramount. Central to these objectives are primary priorities, which diverge among countries. Notably, countries like Romania, Serbia, and Mauritius place a premium on fostering financial literacy, while others such as Pakistan, Costa Rica, Rwanda, and Guinea emphasize the growth of Small and Medium Enterprises. In contrast, nations like Guatemala, Mauritania, Thailand, and Ukraine concentrate on expanding their financial networks. Furthermore, countries grappling with low levels of financial inclusion attribute this challenge to factors such as deficient financial literacy, the absence of a well-defined financial inclusion strategy, financial constraints, a preference for traditional financial services, and limited awareness surrounding digital innovations. Conversely, nations boasting moderate levels of financial inclusion, yet not progressing towards higher levels, point to the dearth of technological innovation and restricted prudential measures as pivotal stumbling blocks. This comprehensive analysis underscores the necessity of dynamic strategies tailored to individual countries to achieve robust financial inclusion on a global scale.

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“…As of 2022, over 190 million individuals in India remain unbanked, accounting for approximately 15% of the country's adult population. Geographically, while urban areas exhibit better financial access, rural areas face a stark contrast, with nearly 40% of rural households lacking access to formal banking services (Roa et al, 2021). However, Globally, various countries have implemented initiatives to balance financial inclusion and mitigate risks.…”

Section: Introductionmentioning

confidence: 99%

Balancing Risk and Inclusion: A Holistic Approach to Macro and Microfinance Strategies

2024

European Economic Letters

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This research has analysed the balancing features for macro and microfinance strategies in the Indian financial system, aiming to comprehend their impact on inclusive financial systems. Employing a quantitative approach using RBI feasibility reports from 2017 to 2021, the study integrates key macroeconomic indicators to analyze financial inclusion and risk management. The research aims to understand the risk in financial inclusion strategies and their effectiveness from the macro and micro perspectives of the financial policies of India. By assessing implications on various financial aspects, this research seeks to offer insights into fostering inclusive financial practices and effective risk mitigation within India's financial landscape.

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Interest rate caps on microcredit: evidence from a natural experiment in Bolivia

Cited by 10 publications

References 28 publications

Regulation and agriculture financing in Kenya

Regulation and agriculture financing in Kenya

Measuring Financial Inclusion Index for Developing Countries

Balancing Risk and Inclusion: A Holistic Approach to Macro and Microfinance Strategies

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