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on Microfinance |
| By: | Rajashri Chakrabarti; Gabriel Leonard; Donald P. Morgan; Thu Pham; Lee Seltzer |
| Abstract: | Several states have recently capped consumer loan rates with the stated purpose of protecting borrowers. In a recent Staff Report, we study how these interventions have played out in three states. In our first post about that study, we showed that rate caps lead riskier borrowers to face rationing in the credit market. One question that naturally arises is what lenders do with the credit they used to provide to high-risk borrowers before the caps were imposed. Lenders that lend exclusively to high-risk borrowers (at rates above the cap) may decide to stop lending to high-risk borrowers in that state. Others, however, may try to change their “credit box” by lending more to somewhat safer borrowers. In this post, we will try to understand how lenders reallocate credit after usury limits are implemented. |
| Keywords: | usury limit; household debt; consumer finance |
| JEL: | D12 D18 |
| Date: | 2026–06–03 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:103390 |
| By: | Rajashri Chakrabarti; Gabriel Leonard; Donald P. Morgan; Thu Pham; Lee Seltzer |
| Abstract: | In imperial China, 3 percent was the maximum legal monthly loan rate; charging more was punishable by 40 to 100 blows with the “light cane.” (Rockoff 2003) Centuries later, many U.S. states are imposing the same cap (without corporal penalties) on alternative credit providers, such as payday, installment, and auto-title lenders, with the goal of lowering credit costs and delinquency for the high-risk borrowers that rely on these funding sources. A concern, however, is that lenders will simply refuse to lend to these borrowers at lower interest rates. Our recent Staff Report studies how interest rate caps have played out in several states that recently adopted them. Using household-level data from a major credit bureau, we find that loan balances for the riskiest borrowers declined substantially relative to counterparts in states without caps. Despite taking on less debt, these borrowers did not experience an improvement in delinquencies. |
| Keywords: | usury limit; household debt; consumer finance |
| JEL: | D12 D18 |
| Date: | 2026–06–03 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:103389 |
| By: | Kumar, Atul; Nag, Biswajit |
| Abstract: | While India has made significant advancements in financial inclusion, many citizens still hold inactive bank accounts. The study investigates the barriers to financial inclusion, focusing on difficulties in maintaining active bank accounts using insights from the 2021 Global Findex database. Latent Class Analysis (LCA) was applied to classify individuals into three distinct groups based on the barriers to active banking. Results show that some face structural challenges like limited access, low income, and digital illiteracy while others consider banking unnecessary. A third group emerged showing distrust towards banks leading to disengagement. The findings highlight the need for targeted policy interventions tailored to each group’s challenges. This is crucial as we envision a Digital India, with broader use of formal banking, digital payments, promoting financial literacy and inclusion for the underserved. Reviving inactive bank accounts and addressing the root causes of inactivity are keys to reducing gaps in financial inclusion. |
| Keywords: | Financial Inclusion, Inactive Bank Accounts, Latent Class Analysis, Global Findex |
| JEL: | C38 D14 G21 |
| Date: | 2025–06–20 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:129012 |