ABSTRACT
Cambodia introduced an interest rate ceiling of 18% on microfinance loans in April 2017. Although this regulation was intended to protect borrowers, it had other consequences for the country’s microfinance sector. This chapter examines the effects of the interest rate ceiling using data from a household survey and from a credit registry database in Cambodia. The analysis indicates that after the imposition of the ceiling the average interest rate for microfinance loans and overall borrowing costs did decrease, however average loan fees increased. The results also show an increase in the size of loans and the use of informal credit. It is also evident from our analysis that borrowers with larger, collateral-backed, or individual loans are more likely to maintain access to credit, while those with smaller or group loans are more likely to lose it. Overall, this chapter indicates that while the ceiling imposition helped reduce credit costs for borrowers, it also created risks in relation to financial inclusion.
