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This study examines the effects of the imposition of an interest rate ceiling in April 2017 on credit cost, loan size, and informal credit in Cambodia’s rapidly growing microfinance sector, based on a household survey conducted in August and September 2019. From our analyses, we confirm past evidence that indicates that the average interest rate was reduced, but the average loan assessment and processing fee increased after the ceiling imposition. However, our results confirm the decline in the average effective interest rate (interest rate plus loan assessment and processing fee) after the ceiling imposition. The results also show an increase in the average size of loans from formal sources at a relatively small loan level, and an increase in the percentage of loans from informal sources. Monitoring of informal credit activities is important to mitigate the adverse consequences of the ceiling imposition.

The article provides the empirical framework and steps toward the evaluation of the spatial consequence of the 17% interest rate ceiling in Arkansas using a new database from the trade association for installment lenders, the American Financial Services Association. The specific contribution of this study is to build and apply the installment loan accessibility index within the context of the spatial regime models. Results suggest strong evidence of spatial clustering of counties with similar (low or high) installment loan usage rates across the study area and two spatial regimes at work. The loan accessibility index is a strong predictor of the installment loan usage in the study area. That is, an increase in the loan acquisition costs due to the 17% interest rate cap puts interior counties’ residents at disadvantage compared with residents of border counties who can cross the borders to get small dollar loans.

Interest-rate ceilings are often proposed as a protection for lower-income consumers in the credit market. Economists are generally sceptical of the protective role of ceilings, arguing that they often have undesirable substitution and exclusionary effects, may be circumvented, and hurt most those whom they are intended to protect. More competition, better information, and financial literacy are proposed as alternative policies, together with more effective redistribution through the social system. This was the conclusion of David Cayne and Michael Trebilcock in 1973 in their examination of the problem that ‘the poor pay more.’ Notwithstanding these economic critiques of ceilings, many European countries retain ceilings, and Japan recently lowered its existing ceiling. There does not seem to be an ‘end of history’ as nations converge on a ‘modern’ understanding of ceilings. This article sketches recent debates in the United Kingdom (no ceilings) and France (ceilings) where both countries view their policies as protection against financial exclusion. The author outlines the role of empirical knowledge and the value assumptions in these debates, raises the question of whether the differences represent distinct national cultural preferences, and suggests that explanations of consumer credit regulation should be sought in the dynamics of political interest-group influence and its institutional setting in both countries.

The paper analyzes the determinants of banking spreads in Barbados, with a view to identifying the role of the monetary policy regime in explaining high spreads. The paper finds that interest rate spreads for Barbados are higher than would be suggested by its macroeconomic performance. Banking concentration and bank-specific variables, including bank size and provisions for nonperforming loans, do not have an important role in explaining variations in bank spreads. Rather, it appears that monetary policy variables, such as reserve requirements and capital controls, are the most important determinants of spreads.

Chinese banks generate large profits and have relatively low nonperforming loans. However, good financial performance does not, in itself, guarantee that banks efficiently intermediate the economy's financial resources. This paper first examines how efficient Chinese banks are in financial intermediation, using the stochastic production frontier approach. Quality of loans are controlled for by focusing on net loans and correcting for nonperforming loans; Hong Kong SAR banks are included in the sample to have a more universally representative production frontier. The results suggest that Chinese banks indeed became more efficient during 2001-07. Nevertheless, a majority of banks remain quite inefficient, including several large state owned banks and many city banks. Large banks tend to hoard deposits and operate beyond the point of diminishing returns to scale, while smaller banks operate at increasing returns to scale. This suggests that reallocating deposits from large to smaller banks would increase overall efficiency. The paper finds no significant correlation between bank efficiency and profitability. Possible factors leading to large profits in the banking system, despite wide-spread inefficiencies, are low deposit interest rates, large interest margins, and high market concentration. Moving to indirect monetary policy and deepening capital markets to channel some of the savings to productive investment would help improve the efficiency of financial intermediation. This may spur loan growth, however, which will need to be handled with monetary policy and regulatory/supervisory tools.

This book's prime audience is government policy-makers. It provides a policy framework for governments to increase micro, small and medium enterprises' access to financial services?one which is based on empirical evidence from around the world. Financial sector policies in many developing countries often work against the ability of commercial financial institutions to serve this market segment, albeit, often unintentionally. The framework guides governments on how to best focus scarce resources on three things: ? developing an inclusive financial sector policy; ? building healthy financial institutions; and ? investing in information infrastructure such as credit bureaus and accounting standards. The book provides examples and case studies of how such a strategy has helped to build more inclusive financial institutions and systems in many countries.