The Impact of Interest Rate Caps on the Financial Sector¶
Safavian, M., Zia, & Bilal. (2018). The Impact of Interest Rate Caps on the Financial Sector: Evidence from Commercial Banks in Kenya. World Bank Policy Research Working Paper.
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Mechanisms¶
- Interest Cap
- Its central failure mode is credit rationing: a cap set below what covers a lender's risk simply removes that credit rather than making it cheaper, and the marginal borrower is pushed toward unregulated or illegal lenders where no cap reaches.
This sourceFinds that binding interest-rate caps can cause formal lenders to ration riskier borrowers and shift excluded demand toward informal or illegal lenders.
- Its central failure mode is credit rationing: a cap set below what covers a lender's risk simply removes that credit rather than making it cheaper, and the marginal borrower is pushed toward unregulated or illegal lenders where no cap reaches.
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