The Impact of Interest Rate Ceilings on Microfinance

Interest rate ceilings are found in many countries throughout the world. With the expansion of microfinance in developing countries, many legislators and the general public have found it difficult to accept that small loans to poor people generally cost more than normal commercial bank rates. (For more information on why microcredit interest rates are higher than bank interest rates and how poor people afford these rates, please refer to Donor Brief 6, Making Sense of Microcredit Interest Rates). Though meant to protect consumers, interest rate ceilings almost always hurt the poor.