Impacts of Interest Rate Cap on Financial Inclusion in Cambodia

April 29, 2021

Preview Citation

Format: Chicago

Dyna Heng, Serey Chea, and Bomakara Heng. Impacts of Interest Rate Cap on Financial Inclusion in Cambodia, (USA: International Monetary Fund, 2021) accessed November 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Credit, Financial inclusion, Financial institutions, Financial markets, Financial services, Interest rate ceilings, Loans, Microfinance, Money

Keywords: Banking Sector, Credit, Financial inclusion, Financial Inclusion, Global, Impact of interest rate cap, Interest Rate Caps, Interest rate ceilings, Loans, Microfinance, Microfinance borrower, Microfinance-loan interest rate caps, Operation cost, Supervisory data

Publication Details

Pages:

35
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/107
Stock No:

WPIEA2021107
ISBN:

9781513582634
ISSN:

1018-5941

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