{
  "title": "Impacts of Interest Rate Cap on Financial Inclusion in Cambodia",
  "publication": "IMF Working Papers, April 29, 2021",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2021/04/29/impacts-of-interest-rate-cap-on-financial-inclusion-in-cambodia-50349",
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  "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.",
  "sections": [
    {
      "heading": "Summary findings",
      "content": "- Interest rate caps, despite their intended objective of broadening financial inclusion, can have undesirable effects on financial inclusion under certain conditions.\n- The paper examines the effect of microfinance-loan interest rate caps on financial inclusion in Cambodia using supervisory data.\n- Results show some unintended impacts on financial inclusion following the introduction of an annual cap."
    },
    {
      "heading": "Empirical approach",
      "content": "- Analysis based on a difference-in-difference methodology applied to bank and microfinance supervisory data."
    },
    {
      "heading": "Key empirical results",
      "content": "- The cap led to a significant increase in non-interest fees charged on new loans following the introduction of an annual cap.\n- Microfinance borrowers declined immediately after the cap was introduced, amid an increase in credit growth.\n- Microfinance institutions targeted larger borrowers at the expense of smaller ones following the cap.\n- Microfinance institutions responded differently to the cap depending on their own operation and funding costs, and client base.\n- Two years after the cap, institutions resumed lending to a wider group of borrowers as lower funding and operation costs brought by mobile payment development reduced constraints."
    },
    {
      "heading": "Policy-relevant implications",
      "content": "- Interest rate caps can trigger offsetting adjustments by lenders (for example, increasing non-interest fees) that undermine the caps' financial inclusion goals.\n- Differential responses across institutions imply that a one-size-fits-all cap can have heterogeneous and potentially regressive effects on borrower segments, particularly smaller microfinance borrowers.\n- Technological developments (mobile payment development) that lower funding and operation costs can help restore broader lending after initial contractionary effects from caps.\n\nSource: Dyna Heng, Serey Chea, and Bomakara Heng, \"Impacts of Interest Rate Cap on Financial Inclusion in Cambodia\", IMF Working Papers, April 29, 2021.\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2021/04/29/impacts-of-interest-rate-cap-on-financial-inclusion-in-cambodia-50349"
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    "Authors: Dyna Heng, Serey Chea, Bomakara Heng",
    "Published: April 29, 2021",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513582634.001",
    "Interest rate caps, despite their intended objective of broadening financial inclusion, can have undesirable effects on financial inclusion under certain conditions.",
    "The paper examines the effect of microfinance-loan interest rate caps on financial inclusion in Cambodia using supervisory data.",
    "Results show some unintended impacts on financial inclusion following the introduction of an annual cap.",
    "Analysis based on a difference-in-difference methodology applied to bank and microfinance supervisory data.",
    "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 after the cap was introduced, amid an increase in credit growth.",
    "Microfinance institutions targeted larger borrowers at the expense of smaller ones following the cap.",
    "Microfinance institutions responded differently to the cap depending on their own operation and funding costs, and client base.",
    "Two years after the cap, institutions resumed lending to a wider group of borrowers as lower funding and operation costs brought by mobile payment development reduced constraints.",
    "Interest rate caps can trigger offsetting adjustments by lenders (for example, increasing non-interest fees) that undermine the caps' financial inclusion goals.",
    "Differential responses across institutions imply that a one-size-fits-all cap can have heterogeneous and potentially regressive effects on borrower segments, particularly smaller microfinance borrowers.",
    "Technological developments (mobile payment development) that lower funding and operation costs can help restore broader lending after initial contractionary effects from caps.",
    "**Working Paper**"
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