The Impact of Interest Rate Caps on the Financial Sector : Evidence from Commercial Banks in Kenya

Interest rate caps can have far-reaching consequences on the composition and maturity of commercial bank loans and deposits. This paper carefully documents these impacts on the formal financial sector in Kenya after the recent interest rate caps of...

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Main Authors:	Safavian, Mehnaz, Zia, Bilal
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2018
Subjects:	INTEREST RATE CAPS FINANCIAL INCLUSION COMMERCIAL BANKING LENDING TO THE POOR ACCESS TO FINANCE COST OF CREDIT MICROFINANCE SMALL AND MEDIUM-SIZED ENTERPRISES INTEREST MARGIN
Online Access:	http://documents.worldbank.org/curated/en/681501522684167817/The-impact-of-interest-rate-caps-on-the-financial-sector-evidence-from-commercial-banks-in-Kenya http://hdl.handle.net/10986/29606

id	okr-10986-29606
recordtype	oai_dc
spelling	okr-10986-296062021-06-08T14:42:45Z The Impact of Interest Rate Caps on the Financial Sector : Evidence from Commercial Banks in Kenya Safavian, Mehnaz Zia, Bilal INTEREST RATE CAPS FINANCIAL INCLUSION COMMERCIAL BANKING LENDING TO THE POOR ACCESS TO FINANCE COST OF CREDIT MICROFINANCE SMALL AND MEDIUM-SIZED ENTERPRISES INTEREST MARGIN Interest rate caps can have far-reaching consequences on the composition and maturity of commercial bank loans and deposits. This paper carefully documents these impacts on the formal financial sector in Kenya after the recent interest rate caps of 2016. Using bank-level panel data from before and after the caps, the paper identifies a significant decline in aggregate lending, an increase in nonperforming loans, and a change in composition of lending away from small and medium enterprises and toward safer corporate clients. Banks also shifted away from offering interest on current account deposits to preserve their interest margins. These quantitative findings are supported by qualitative evidence through detailed interviews of commercial bank executives, and have important implications for economic growth and financial inclusion. 2018-04-03T15:25:12Z 2018-04-03T15:25:12Z 2018-04 Working Paper http://documents.worldbank.org/curated/en/681501522684167817/The-impact-of-interest-rate-caps-on-the-financial-sector-evidence-from-commercial-banks-in-Kenya http://hdl.handle.net/10986/29606 English Policy Research Working Paper;No. 8393 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Africa Kenya
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	INTEREST RATE CAPS FINANCIAL INCLUSION COMMERCIAL BANKING LENDING TO THE POOR ACCESS TO FINANCE COST OF CREDIT MICROFINANCE SMALL AND MEDIUM-SIZED ENTERPRISES INTEREST MARGIN
spellingShingle	INTEREST RATE CAPS FINANCIAL INCLUSION COMMERCIAL BANKING LENDING TO THE POOR ACCESS TO FINANCE COST OF CREDIT MICROFINANCE SMALL AND MEDIUM-SIZED ENTERPRISES INTEREST MARGIN Safavian, Mehnaz Zia, Bilal The Impact of Interest Rate Caps on the Financial Sector : Evidence from Commercial Banks in Kenya
geographic_facet	Africa Kenya
relation	Policy Research Working Paper;No. 8393
description	Interest rate caps can have far-reaching consequences on the composition and maturity of commercial bank loans and deposits. This paper carefully documents these impacts on the formal financial sector in Kenya after the recent interest rate caps of 2016. Using bank-level panel data from before and after the caps, the paper identifies a significant decline in aggregate lending, an increase in nonperforming loans, and a change in composition of lending away from small and medium enterprises and toward safer corporate clients. Banks also shifted away from offering interest on current account deposits to preserve their interest margins. These quantitative findings are supported by qualitative evidence through detailed interviews of commercial bank executives, and have important implications for economic growth and financial inclusion.
format	Working Paper
author	Safavian, Mehnaz Zia, Bilal
author_facet	Safavian, Mehnaz Zia, Bilal
author_sort	Safavian, Mehnaz
title	The Impact of Interest Rate Caps on the Financial Sector : Evidence from Commercial Banks in Kenya
title_short	The Impact of Interest Rate Caps on the Financial Sector : Evidence from Commercial Banks in Kenya
title_full	The Impact of Interest Rate Caps on the Financial Sector : Evidence from Commercial Banks in Kenya
title_fullStr	The Impact of Interest Rate Caps on the Financial Sector : Evidence from Commercial Banks in Kenya
title_full_unstemmed	The Impact of Interest Rate Caps on the Financial Sector : Evidence from Commercial Banks in Kenya
title_sort	impact of interest rate caps on the financial sector : evidence from commercial banks in kenya
publisher	World Bank, Washington, DC
publishDate	2018
url	http://documents.worldbank.org/curated/en/681501522684167817/The-impact-of-interest-rate-caps-on-the-financial-sector-evidence-from-commercial-banks-in-Kenya http://hdl.handle.net/10986/29606
_version_	1764469794554249216

The Impact of Interest Rate Caps on the Financial Sector : Evidence from Commercial Banks in Kenya

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