2023 Fiscal Year Annual Research Report
Research on the Factors Driving Financial Over-Indebtedness and the Impacts of the Interest Rate Ceiling on the Microfinance Sector: The Cambodian Case and International Comparison Analysis
| Project/Area Number |
18K01604
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| Research Institution | Saitama University |
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Principal Investigator |
サムレト ソワンルン 埼玉大学, 人文社会科学研究科, 教授 (90614371)
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| Project Period (FY) |
2018-04-01 – 2024-03-31
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| Keywords | Interest rate ceiling, / Microfinance |
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| Outline of Annual Research Achievements |
The current study investigates the effects of implementing a legally mandated interest rate ceiling on microfinance loans in Cambodia. We conducted a comprehensive literature review and discussions with other researchers in FY2023 to examine the effects. According to our analysis, the implementation of the interest rate ceiling on microfinance loans in Cambodia has had various consequences for the sector.
The analysis, which used data and information from a household survey in five provinces of Cambodia, showed that microfinance institutions (MFIs) are becoming more competitive in their pursuit of lower interest rate loans, as evidenced by the decline in effective interest rates and the rise in average loan size. We also observed a negative correlation between the level of financial literacy and debt burden among borrower households. Our analysis on the MFI side indicated that this interest rate ceiling policy had an indirect effect on commercial bank loan rates and reduced outreach, particularly for non-deposit-taking MFIs. In an international comparison, our review revealed prevalent issues across countries that implement interest rate ceilings, including a reduction in credit availability and adverse effects on financial inclusion, especially for lower-income and smaller borrowers.
This research highlights the difficulty of setting a legal ceiling on interest rates and emphasizes the need for a careful balance between borrower protection and financial inclusion when considering such a policy.
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