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2018-11-13 - Colloque/Présentation - communication orale - Anglais - 28 page(s)

Caballero-Montes Tristan , "Microcredit Interest Rate Regulation: The Case of Cambodia" in Third Inclusive and Sustainable Finance Research Conference, Luxembourg, Luxembourg, 2018

  • Codes CREF : Economie des PVD (DI4375)
  • Unités de recherche UMONS : Economie et gestion de l'entreprise (W742)
  • Instituts UMONS : Institut de Recherche en Développement Humain et des Organisations (HumanOrg)
  • Centres UMONS : Microfinance (CERMI)

Abstract(s) :

(Anglais) Microfinance has the double aim to simultaneously alleviate poverty through financial services and to provide those services in a financially sustainable scheme. Following some crises and doubts about microfinance’s ability to combine social and financial goals, the need for an appropriate regulation has been stressed. Especially, in some cases, microfinance institutions (MFIs) tend to charge excessive interest rates, which threatens the achievement of their social mission. Two modes of regulation are commonly highlighted: the legal control and the influence of competition. This master’s thesis studies how they both influence interest rates in order to improve microfinance’s double bottom line. First, regulators generally consider interest rate ceilings. They usually bring more efficiency and might effectively reduce the rates. However, they may also lead to significant issues, such as reducing the access to financial services, diminishing transparency and forcing MFIs to find revenue alternatives or to withdraw from poorer markets. Second, classical economists explain that competition stimulates efficiency, reduces the rates and improves the quality of the services. Competition would also encourage wider choices and innovation in lending practices. Yet, competition may also generate inappropriate business practices, increase information asymmetries, favor borrowers’ overindebtedness, reduce repayment performance and push MFIs to turn to financially healthier clients. It thus seems that a combination of both regulation and competition under appropriate circumstances is required. To understand how interest rate ceilings and competition influence microfinance’s double bottom line, a theoretical framework was established. This framework highlights 8 situations defined thanks to 3 criteria: low/high effective rates; limited/strong competition and constraining/nonconstraining ceiling. Some positive and negative financial and social impacts were highlighted for each situation. This framework was then applied through a case study on the Cambodian microfinance market conducted during an internship at the Cambodia Microfinance Association (CMA) from 5th February to 30th March 2018. The results of our empirical study show that the Cambodian microfinance sector may be considered to be in a situation where effective interest rates are considered as relatively low, with a strong competition and with a constraining ceiling. Our study also highlights other interesting findings. First, Cambodia’s current situation seems to IV favor the commercial side of the double bottom line. Refinancing and unprofessional practices appear on the market and are strengthened by the strong competition as well as the constraining cap. Moreover, MFIs seem to focus more on their profit and competitiveness in such a situation. Second, the interest rate cap policy is not considered as harmful as expected, although significant adjustments and consequences have been observed. Third, Cambodia’s situation is very particular. Theoretically, it should be facing over-indebtedness troubles and lower repayment rates. However, this does not seem to be the case at this moment. Still, interviews and observations revealed that this issue is a fear that the sector has for the future. Finally, the market structure seems about to change, as mergers and acquisitions (M&A) are felt as necessary to consolidate the market.