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

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This study explores the impact of implementing an interest rate ceiling in Cambodia’s microfinance sector. We deepened our understanding of these effects by continuing to conduct a comprehensive review of the literature in FY2022, covering both developed and developing countries.The implementation of a legal interest rate ceiling can significantly influence various aspects of the financial sector. Numerous studies have pointed towards potential negative consequences for financial inclusion, particularly for borrowers who require smaller loans. However, the role of this legal ceiling in protecting borrowers is also widely acknowledged. In relation to Cambodia, some prior studies suggested that the average effective interest rate might not decrease, as lower rates imposed by the legal ceiling could be offset by increased loan assessment and processing fees. Nevertheless, our sophisticated analysis of data from a household survey indicated a decrease in the average effective interest rate of microfinance loans following the introduction of the ceiling.To disseminate our findings and engage in intellectual exchange with other researchers, we presented our research at an international academic conference in Singapore on August 2, 2022. The presentation was conducted face-to-face.