FINANCE FINANCE EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Int r st R t R pr ssion Around th World Pietro Calice, Federico Diaz Kalan, Oliver Masetti Faruk Liriano, Guillermo Rodriguez Ruiz and Nan Zhou provided outstanding research assistance. The authors gratefully acknowledge the financial support of the FIRST Initiative and would like to thank Carlos Piñerúa and Moni Sengupta for their support. We thank Thorsten Beck, Erik Feyen, Alfonso Garcia Mora, Eva Gutierrez, Davide Mare, Yira Mascaro, Fernando Montes, Zafer Mustafaoglu and Valeria Salomao Garcia for their comments on an earlier version of this paper. We are indebted to the country authorities and their staff for participating in the survey on which this paper is based, and to the numerous World Bank colleagues who have contributed to the design and implementation of the survey and helped us verify the information received. Any errors or omissions are only ours. JEL Classification Numbers: G28; H23; H81; K23 Keywords: Financial Repression; Financial Liberalization; Financial Regulations Authors’ E-Mail Addresses: pcalice@worldbank.org; fdiazkalan@worldbank.org; omasetti@worldbank.org  Financial repression resurfaced in the wake of the global financial crisis and might become a common feature in the post Covid-19 world. To advance knowledge and inform policy advice, this paper presents a new database on interest rate controls, a popular form of financial repression, based on a survey with 108 countries representing 88 percent of global GDP. The data cover such aspects of interest rate controls as types of controls, legal basis, intended objectives, methodologies and enforcement rules. In an attempt to provide a meaningful characterization of the data, this paper also provides a preliminarily estimate of the degree of bindingness of the interest rate control regime in a country and presents simple correlations with other financial repression policies. The paper finally discusses general principles of an interest rate management policy that can minimize adverse side effects of binding controls while laying down the basis for a smooth transition or return to market- determined interest rates. © 2020 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved. This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Graphic Designer: Diego Catto / www.diegocatto.com 4 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT >>> Contents Indroduction 7 Overview of the Survey Data 13 Characterizing the Data 23 Policy Discussion 33 Concluding Remarks 37 References 41 Annexes 45 INTEREST RATE REPRESSION AROUND THE WORLD <<< 5 1. >>> Introduction Financial repression is an umbrella term referring to government policies that prevent financial intermediaries from functioning at their full capacity.1 It can take several forms, including de jure or de facto caps or floors on interest rates; directed lending to the government by captive domestic audiences such as banks and pension funds; limits on cross-border capital flows; imposition of lending quotas to financial intermediaries; restrictions on market entry in the financial sector; “excessive” bank reserve and liquidity requirements; and government ownership or control of banks (Reinhart and Sbrancia, 2015). The key rationale for the government to implement financial repression policies is to control fiscal resources to finance public spending; to allocate subsidized credit to priority sectors of the economy; and to maintain financial stability by limiting competition. Most countries around the world have experienced some forms of financial repression at one point in their recent history. These policies were common following World War II, when many advanced economies practiced it on a large scale as a means of “liquidating” their substantive postwar debt via negative real interest rates (Reinhart and Sbrancia, 2015). Financial repression policies became less common in the 1980s, when advanced economies turned decisively towards financial liberalization. During the 1960s and until the 1990s many emerging markets and developing economies (EMDEs) too used financial repression as a part of the policy mix aimed at supporting state-led industrial policies and import substitution strategies. Confronted with the mixed results of these approaches and under pressure from increasingly integrated financial markets, EMDEs largely withdrew from repressive policies and started liberalizing their financial systems in the late 1990s and 2000s. Financial repression forcefully reemerged in the wake of the Global Financial Crisis (GFC), a trend that is likely to strengthen and consolidate in the post Covid-19 world. During the last decade or so and in the aftermath of the Covid-19 pandemic, numerous advanced economies have resorted to unconventional policies, including extensive government and corporate bond purchases, which have contributed to flatten the yield curve, compounding the low, zero or, in some cases, negative interest rate policies.2 Before the outbreak of the Covid-19 crisis, many EMDEs were mostly concerned with resisting currency misalignments and potential overheating arising from the search for yield. Accordingly, they resorted to targeted capital controls, whose legitimacy under certain circumstances has been restored by the IMF (2012), and other financial repression measures, including high reserve requirements. The Covid-19 pandemic coupled with deteriorating terms of trade has dramatically reversed that trend, with EMDEs currently forced to respond to a global retreat from risk and destabilizing market dynamics. While the outlook remains highly uncertain, policies in advanced economies and EMDEs combined with the need to deal with an unprecedented rise in public and private sector debt will likely provide strong incentives for the return to more tightly regulated domestic financial environments, which is the essence of what is commonly referred to as “financial repression”. It is, therefore, a useful exercise to start examining these developments to provide guidance to policymakers who wish to minimize the welfare costs associated with financial repression policies. 1. See Ito (2008). 2. Alternative arguments for the historically low levels of interest rates observed in the US and other advanced economies, largely unrelated to financial repression policies, have been advanced recently (see, for example, Bernanke, 2005; and Summers, 2015). For a discussion on secular trends in interest rates around the world see, for example, Del Negro et al. (2019) and Schmelzing (2020). INTEREST RATE REPRESSION AROUND THE WORLD <<< 7 This paper focuses on one of the most commonly used Interest rate repression provides one of the classic strategies of financial repression: interest rate controls examples of welfare-decreasing government interventions (IRCs). Restrictions on interest rates have been historically in financial markets. The standard argument against IRCs is part of the policy toolkit of many countries and have been that they discourage both savings and investment thus inhibiting largely used in the post GFC environment. For example, economic growth (Mc Kinnon, 1974; Shaw, 1973). It is argued Ferrari et al. (2018) find that since 2011 at least 30 EMDEs that because financial institutions are essential to the efficient have introduced new interest rate regulation or tightened allocation of capital, free competitive markets are needed existing restrictions. This trend seems to be regaining to ensure that resources go to projects with the highest risk- strength in the context of the Covid-19 pandemic, with a adjusted rates of return. If governments restrict interest rates rapidly growing list of countries either modifying existing IRCs and replace efficient market allocation mechanisms with public or introducing new ones. For example, during the first month selection processes, the result is that capital is less efficiently after the declaration of the pandemic by the World Health allocated. However, market-based financial intermediation Organization, countries such as Argentina, China, Finland, Sri involves a certain degree of moral hazard and adverse selection Lanka and Vietnam opted for such measures (Box 1). While problems, and financial institutions may ration credit at less- some measures may turn out to be temporary, others may than-market clearing prices to reduce their risks (Stiglitz and become permanent. It is nonetheless a fair assumption that Weiss, 1981), justifying a government intervention. more countries will consider IRCs as a means to deal with the post Covid-19 consequences. Some countries may choose to These theoretical arguments have been tested by control interest rates closely, and the way these controls are numerous empirical studies. Many studies have confirmed implemented as well as the level at which interest rates are a negative association between interest rate repression and set may differ significantly, with different welfare outcomes. In several macroeconomic outcomes such as savings rates, some countries, interest rates may be administered flexibly, in investment and economic growth (Fry, 1978, 1997; Roubini an attempt to track movements of market rates; other countries and Sala-i-Martin, 1992; Jafarov et al., 2019). Interest rate may decide to waive this flexibility, and large divergences repression has also been found to be harmful to financial between administered rates and market rates may emerge, development. Specifically, caps on lending rates lead to a including negative real rates. reduction in the overall supply of credit, with non-trivial effects on financial inclusion as banks are forced to reallocate credit This paper focuses in particular on de jure IRCs from small, risky borrowers to large commercial borrowers and in lending and deposit markets. In addition to explicit the government (Heng, 2015; Safavian and Zia, 2018; Alper et regulation, governments can and often control interest rates al., 2019; Madeira, 2019) and withdraw services from remote through political pressure, moral suasion, implicit subsidies in areas (Miller, 2013). Transparency is also reduced (Helms various financing support programs, and other interventions. and Reille, 2004), and, to the extent that IRCs affect the For example, in the context of monetary policy strategies and viability of small banks, risks to financial stability can increase tools in the presence of low inflation and policy rates, there via contagion (Safavian and Zia, 2018; Alper et al., 2019). are ongoing discussions around yield curve controls, a tool However, the existing literature usually refers to very severe applied in Japan since 2016, which is ultimately a form of de forms of interest rate repression, often leading to negative real facto interest rate cap (see Bernanke, 2020, for a discussion). interest rates. In milder forms, i.e. when the rate of return to However, given the difficulties to track and measure de facto financial assets is still positive although lower than the market IRCs in a cross-country setting, this paper takes stock only of rate, the impact of interest rate repression on economic and legal or de jure IRCs, that is, administered caps or floors to financial development may not be very significant, other things interest rates via explicit regulation. Specifically, we focus on being equal. IRCs were common in a group of rapidly growing IRCs in lending and deposit markets, acknowledging that de economies in the 1980s, including Chile, China, Japan and jure restrictions can also apply to interbank and bond markets. South Korea (Zahid, 1995). Finally, while this study focuses on interest rate repression, it is important to keep in mind that IRCs are often part of a broader Interest rate liberalization is not unproblematic. While financial repression policy toolkit, as we attempt to document deregulation of interest rates advanced across much of the in this paper. However, the analysis of other dimensions of world during the period from the early 1980s to the years financial repression is beyond the scope of this paper. preceding the GFC (Abiad and Mody, 2005; Abiad et al., 3. In February 2020, Bangladesh also announced the introduction of a restrictive system of IRCs, which became effective April 1, 2020. IRCs in Bangladesh encompass a 9 percent ceiling on lending rates on all products except for credit cards, and a 6 percent cap on deposit rates. The decision, which applies only to private banks, was not motivated by the Covid-19 crisis but rather by longstanding domestic complaints about high borrowing costs and recent upward pressure on bank funding costs. 8 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT 2010), it proved to be a double-edged sword. In most cases higher frequency in countries with weak prudential regulation interest rate liberalization led to higher real interest rates, and supervision (Noy, 2004; Angkinand et al., 2010) and shifted surplus from borrowers to savers, and expanded underdeveloped institutional and market infrastructure (Pereira access to credit opportunities. For example, in India many Leite and Sundarajan, 1990; Mehran et al., 1995; Feyzioglu small businesses gained access to credit after liberalization et al., 2009), underlying the crucial importance of this set of (Hanson, 2001). At the same time, interest rate volatility preconditions for the pace and sequencing of deregulation. increased after deregulation, contributing to a rise in the This is because interest rate liberalization is not only about probability of experiencing a banking crises (Kaminsky and price reform; it also needs to involve removing all sources of Reinhart, 1999; Demirguc-Kunt and Detragiache, 2005).4 frictions while building key institutions. However, financial instability episodes occurred with a > > > B O X 1 . IRCs in the Time of Covid-19 ARGENTINA has had a ceiling on credit card interest rates since 1999. In February 2020, the restriction on credit card interest rates was hardened by the imposition of a fixed cap at 55 percent. In April 2020, the central bank reduced the fixed cap on credit card interest rates to 43 percent and set a minimum rate for retail term deposits of up to US$ 1 million, later expanded to all deposits. The floor was established at 70 percent of the monetary policy rate, which translated into a term deposit rate of 26.6 percent. CHINA formally ended its 20-year long journey towards interest rate liberalization in October 2015, with the removal of the last ceiling restriction on deposit rates. Since then, it has further strengthened the interest rate regime with the introduction in 2019 of a new market-based system for determining lending rates, which among others is expected to improve the transmission of monetary policy and lower borrowing costs. However, in an attempt to prevent unhealthy competition in the funding markets in the context of the Covid-19 liquidity squeeze, the central bank in March 2020 imposed a cap on some structured deposit rates, which were trading higher than those on term deposits. FINLAND modified its Consumer Protection Act in September 2019 in an effort to reign in double digit growth in payday loans that was accompanied by increasing bad credit records. The authorities cited the need for consumer protection with more transparent pricing and significantly reduced the cap on all unsecured loans from 50 percentage points above the Finnish Interest Act reference rate (then at 7 percent) to a fixed ceiling of 20 percent. In addition, other than interest-related costs were capped at 0.01 percent per day and € 150 per year. The Consumer Protection Act was revisited in April 2020, when the government introduced changes to the law due to the Covid-19 outbreak. The amendment temporarily reduced the cap on unsecured consumer loans from 20 percent to 10 percent until the end of 2020. SRI LANKA announced a set of relief measures against Covid-19 in March 2020, which included a directive to the central bank to set a 15 percent cap on domestic credit card transactions up to LKR 50,000 and a 50 percent reduction in monthly charges. The authorities also instructed all financial institutions to provide working capital loans at an interest rate of 4 percent. In April 2020, the central bank introduced a 12 percent cap on pawning advances of licensed banks. VIETNAM has interest rate ceilings both on lending and on deposit transactions. Limits on deposit interest rates were introduced in 2010 as a response to the prevailing volatility in liquidity constrained financial institutions. The ceiling on deposit rates initially covered all deposits and was gradually narrowed to cover short term deposits (with maturities of one- to less than six- months), while its level was reduced from 15 to 5 percent in 2019. On the other hand, the cap on lending interest rates had the purpose of directing credit to a number of industries and sectors (agriculture, high-tech industries and exporters). The regulation focused on short term loans, imposing a maximum rate of 15 percent, which was gradually reduced to 6 percent in 2019. In March 2020, the central bank announced a set of measures to contain the effects of Covid-19, including a reduction in its interest rate cap for deposits in local currency from 5 to 4.75 percent. Short term lending rates on loans denominated in local currency for priority sectors were also reduced from 6 to 5.5 percent. 4. Recent literature finds that the relationship between financial liberalization and financial instability is more complicated and that non-linearities may be at play. See, for example, Loayza and Ranciere (2006); Ranciere et al. (2006); Kaminsky and Schmukler (2008); Angkinand et al. (2010). INTEREST RATE REPRESSION AROUND THE WORLD <<< 9 To contribute to a better understanding of IRCs, this paper presents a new dataset based upon a survey with • Caps on lending rates and floors on deposit rates World Bank Group members and discusses general are the most frequent types of IRCs. Most of the principles of an interest rate management policy. A countries imposing IRCs have ceiling on lending questionnaire was submitted to financial sector authorities and rates, regardless of the level of income. Lending rate bankers’ associations in more than 150 jurisdictions during ceilings typically apply to commercial banks and often 2019 to investigate the legal framework associated with the to microfinance institutions. Floors on deposit interest implementation of de jure IRCs, document their application, rates are also commonplace, especially within low and and provide details on their functioning. We received middle income countries. responses from 108 countries at all levels of income and in all parts of the world. To the best of our knowledge, this paper is • Limits on lending rates are usually imposed across the first to provide “stylized facts” on IRCs on a global basis. In all business and retail lending products in both high an attempt to provide a potentially meaningful characterization income and low and middle income economies. In of a country’s interest rate control regime, the data collected retail markets, IRCs typically focus on consumer loans through the survey are then used to attempt to provide a and microcredit, though high income countries have preliminary estimate of the degree of bindingness of IRCs in more breadth in terms of specific products, including a country and explore whether the degree of bindingness of credit cards and residential real estate loans. In the IRCs is associated with other forms of financial repression. In case of deposit rate regulation, we observe almost countries where level and structure of interest rates are out of as many countries with product-specific regulation as equilibrium, an interest rate management may be necessary. those with all-encompassing restrictions. To that end, this paper finally discusses the general contours of such a policy, which could contribute to minimize the adverse • Consumer protection concerns are the main stated side-effects of interest rate repression while preparing for a reason for the introduction of IRCs, especially by smooth transition or return to market-determined rates. those countries that imposed a ceiling on loan rates. Financial stability is also a driving factor for many countries, especially among those setting a The key findings of this paper are the following: ceiling on deposits interest rates. Less cited reasons for introducing IRCs relate to resource allocation and • IRCs are common in countries across different competition, especially by countries with deposit income levels and legal systems though some rate caps. Other reasons such as financial inclusion regional differences emerge. A total of 63 countries or strengthening the monetary policy transmission out of 108 surveyed responded that they have IRCs channels are reported by countries setting a floor for in place. Both high income countries and low and deposit interest rates. middle income countries show a similar prevalence of IRCs. The share of countries with de jure IRCs also • Fixed limits are the typical methodology employed remains roughly unaltered when countries are divided for setting IRCs, which generally apply only to according to their law system, though we observe a domestic currency denominated transactions and relatively higher prevalence of IRCs in common law are accompanied by limits on fees. However, some countries. Geographically, IRCs tend to be more countries opt for flexibility when imposing caps on rates. popular in regions such as South Asia, the Americas, IRCs are typically applied to transactions denominated and Sub Saharan Africa. 10 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT in local currency, especially deposit rate floors. Half This paper builds on and extends recent efforts to take of the countries with IRCs also impose limits on fees. stock of IRCs around the world. There have been various Restrictions on administrative and servicing fees aim to attempts in recent years to classify IRCs internationally. curtail the ability of financial intermediaries to increase However, existing studies either take a narrow geographical the effective lending rate beyond the established perspective, focusing on EMDEs (Helms and Reille, 2004) ceiling or to decrease the effective deposit rate below or advanced economies (see Reifner et al., 2010, for the EU; the established floor. We find that limits on fees are and Dasgupta and Mason, 2019, for the US), or, when taking mostly imposed in the context of lending rate ceilings. a global perspective, they focus on lending interest rate caps Finally, almost half of the countries with IRCs sanction only (Maimbo and Gallegos, 2014; Ferrari et al., 2018). In a breaches to IRCs through administrative penalties, paper similar to ours, Jafarov et al. (2019) attempt to compile a which are typically enforced by the banking supervisor. database on all types of IRCs and construct a basic index (i.e. based on binary variables) of IRCs across economies. However, • IRC bindingness in 2019 presented a diverse like in previous studies except for Reifner et al. (2010), it is based landscape. Gaps between legal limits and actual on data and information from secondary sources. To the best lending rates in real terms, used as a proxy to preliminary of our knowledge, our paper is the first to take stock of IRCs estimate the degree of bindingness of IRCs, portray around the world based on a survey involving a large number of a very heterogenous map, with the large majority economies and covering several aspects of the countries’ interest of countries showing a relatively large gap between rate regime. Our paper also complements recent literature aimed the cap and the actual rates and only five countries to assess the welfare impact of IRCs at the country level (e.g. exhibiting a gap of zero. Real gaps for commercial Safavian and Zia, 2018, and Alper et al., 2019, for Kenya; or bank deposit rates are generally narrow in countries Madeira, 2019, and Schmukler et al., 2018, for Chile). that reported the presence of IRCs in these markets, with only three countries showing a gap of zero. Actual The remainder of the paper proceeds as follows. The deposit rates are negative in a few economies with next section describes the data and how they were obtained. deposit rate ceilings. Finally, actual deposit rates paid It also draws upon our new and comprehensive database to by commercial banks unsurprisingly show a general provide a selective overview of key aspects of IRCs collected convergence towards floors, with a few economies through the survey. The third section uses the data to provide showing negative real floors and actual rates. a preliminary estimation of the degree of bindingness of IRCs by calculating the gap, expressed in real terms, between legal • The degree of bindingness of lending IRCs is restrictions and actual interest rates. This section also presents associated with other financial repression policies. pairwise correlations between the degree of IRC bindingness Pairwise correlations suggest that the relative and other dimensions of financial repression. The fourth section bindingness of real lending ceilings is associated with discusses general principles of an interest rate management a higher share of state-owned commercial banks, policy that in cases where IRCs are binding could contribute which governments can use to direct credit, and more to minimize the adverse side-effects of interest rate repression stringent de jure capital controls, which can be used while laying down the basis for a smooth transition or return to to influence size and composition of capital flows. market-determined interest rates. The final section concludes. Correlations become stronger, including for other proxies of financial repression, when lending ceilings that are determined relative to a market benchmark are excluded from the sample. INTEREST RATE REPRESSION AROUND THE WORLD <<< 11 2. >>> Overview of the Survey Data We designed and implemented a survey to collect key features of de jure IRCs on lending and deposit markets around the world. The formulation and completion of the survey entailed a number of inter-related steps. Leveraging existing contacts at central banks and financial supervisory authorities, the initial outreach effort targeted the pertinent staff within local regulators and supervisors. However, given the sometimes-elusive nature of IRCs, with implementing authorities varying from central banks to different ministries, we also decided to contact the local banking associations, as these are in a prime position to provide specific references to the domestic or regional institutional arrangements. With the aim to cover as many countries as possible, the outreach effort included more than 150 jurisdictions. Despite our best efforts, our survey faced several challenges. Not every country responded to the survey. Also, officials from the same country or even the same agency sometimes provided conflicting answers. Therefore, we had a second outreach effort to non-respondent local authorities relying on the contacts of World Bank Group financial sector experts, while we also followed-up with the authorities that had provided inconsistent or incomplete responses. In a few countries where we still faced difficulties getting a response from the local authorities, we relied on the answers of World Bank Group financial sector experts.5 In addition, in an attempt to reconcile any inconsistencies, we checked our responses with Ferrari et al. (2018), who recently took stock of lending interest rates caps collecting data from private and public sources; with the 2017 Global Financial Inclusion and Consumer Protection Survey, which included one question on interest rate caps and pricing limits on loans (GFICPS 2017);6 and with Reifner et al. (2010), who collected comprehensive data on interest rate caps in the EU. We gave preeminence to citations to laws and regulations, creating a repository for these as a complement to our survey. In total, we received responses from 108 countries, which were provided by 91 central banks and financial supervisory authorities, 20 local banking associations and 9 World Bank financial sector experts. These 108 countries represent 88 percent of the global GDP and the sample is balanced in terms of levels of income and geographical representation. The information from the responses refers to 2019. The full list of surveyed countries along with the details of the IRC framework of countries that reported the presence of IRCs are presented in the annexes. 5. These countries are Algeria, Argentina, Bangladesh, China, Ethiopia, Ghana, Kenya, South Africa and the United States. 6. Question D.13 in the GFICPS 2017 was: “Are financial institutions subject to explicit caps on interest rates or other methods that limit loan pricing, e.g. maximum profit margins or maximum spread?” INTEREST RATE REPRESSION AROUND THE WORLD <<< 13 The survey comprised five separate parts, with 276 IRCs are common in countries across different fields to be completed, covering the following key aspects income levels and legal systems though some regional of a country’s IRC framework: differences emerge. Table 1 presents a general overview of IRCs in 108 countries grouped by region, income level and legal system.7 A total of 63 countries responded that they • Year of introduction of IRCs; have IRCs in place. Both high income countries and low and • Types of IRCs (e.g. ceilings and/or floors). middle income countries show a similar prevalence of IRCs • Financial products impacted by IRCs (e.g. lending and/ at about 60 percent of their respective surveyed samples.8 or deposit products); This even distribution across income levels is also reflected in a GDP-weighted average of 66 percent of the sample with • Financial institutions affected by the IRCs; IRCs, though this hinges on the fact that China had unwound • Reasons for introduction of IRCs; its IRCs by 2019 and our survey does not consider the recent policy response to Covid-19.9 The share of countries with de • Basis of regulation; jure IRCs also remains roughly unaltered when countries are • Methodology for determining IRCs (e.g. fixed and/or divided according to their legal system, though we observe relative rate limits); a relatively higher prevalence of IRCs in common law countries.10 Differences appear when the regional dimension • Currency denomination of lending and deposit is introduced, with a bigger fraction of high income relative transactions where IRCs apply; to low and middle income countries in Europe & Central Asia • Limits on fees associated with IRCs; reporting IRCs, while the opposite is observed in East Asia & • Sanctions and enforcement mechanisms. Pacific. In general, IRCs are more popular in regions such as South Asia, the Americas, and Sub Saharan Africa. > > > T A B L E 1 - Number of Countries with IRCs (total countries surveyed in parentheses) HIGH LOW & MIDDLE CIVIL COMMON MIXED REGION TOTAL IN-COME INCOME LAW LAW SYSTEMS East Asia & Pacific 2 (6) 4 (7) 2 (3) 2 (3) 2 (7) 6 (13) Europe & Central Asia 15 (23) 7 (15) 20 (34) 2 (3) 0 (1) 22 (38) Middle East & North Af-rica 1 (3) 1 (5) - - 2 (8) 2 (8) North & South America 8 (11) 11 (17) 9 (15) 9 (11) 1 (2) 19 (28) South Asia - 3 (4) - - 3 (4) 3 (4) Sub-Saharan Africa 0 (1) 11 (16) 1 (1) - 10 (16) 11 (17) Total 26 (44) 37 (64) 32 (53) 13 (17) 18 (38) 63 (108) The introduction of IRCs has been more recent in low and the beginning of the twentieth century such as those in Germany, middle income countries. Due to the difficulty to find out the introduced in 1900, and Spain, in 1908. On the other hand, a evolution of local regulation over the past few decades, our survey larger share of low and middle income countries introduced IRCs only inquired about the regulation currently in effect. Nonetheless, in recent years, and this trend seems to be accentuating with the we did collect the date of introduction of IRCs, which were either unravelling of the Covid-19 crisis (Figure 1). Of particular interest provided by the regulators or could be obtained from the citations are the experiences of Zambia, which introduced lending rate of laws and regulations. When looking at the earliest time of caps in 2012 but removed them in 2015, and of Kenya, which introduction of IRCs by country, there is a clear contrast between established IRCs in 2016 only to abolish them three years later high income and low and middle income economies, with a much (Box 2). In both cases, the reversal followed the realization of the larger share of IRCs introduced more than three decades ago in tangible unintended consequences of IRCs for financial sector high income economies, including usury laws that date back to and real outcomes. 7. Regional and income level classifications are consistent with the World Bank classification while legal origins are based on JuriGLOBE database of the University of Ottawa. 8. We conducted a two-sample t test for equality of means by income group and found no statistically significant difference between high income and low and middle income economies. 9. China’s influence is even greater if the sample is weighted by deposit money banks’ assets: these stand at 175 percent of the Chinese GDP and 29 percent of our full country sample (source: Global Financial Development Database). 10. 76 percent of the countries under common law in our sample have IRCs. That is significantly higher (at 5%, one-tail) than countries with civil codes or mixed legal systems. 14 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT > > > F I G U R E 1 - Date of Introduction of IRC Number of Countries 14 13 12 12 12 10 8 7 6 6 6 4 4 3 2 0 HI* LMI* HI* LMI* HI* LMI* HI* LMI* Pre-1990 1990s 2000s 2010s High Income low & Middle Income > > > F I G U R E 2 - Reasons for Introducing IRC (or not) Share of countries with/without IRC* 90% 83% 80% 70% 60% 50% 37% 40% 40% 30% 24% 22% 24% 22% 16% 20% 10% 10% 5% 0% HI* LMI* HI* LMI* HI* LMI* HI* LMI* HI* LMI* Consumer Financial Other Resource Competition Protection Stability Reasons Allocation *Countries were allowed to select multiple reasons, so totals exceed 100% With IRC Without IRC INTEREST RATE REPRESSION AROUND THE WORLD <<< 15 > > > B O X 2 . IRCS IN KENYA Kenya has become a posterchild case as of late for the pervasive effects that IRCs can create for financial access. In September 2016, lawmakers passed a law that introduced draconian IRCs on both lending and deposit markets. Specifically, the law imposed ceilings on more than half of all existing loans and these caps were accompanied by a floor on all time deposits. Caps on lending rates were determined applying a spread over the central bank policy rate. The immediate effect of the law on interest rate controls was a strong contraction in bank credit to MSMEs, as the sector became credit rationed. Smaller banks’ balance sheets were disproportionally affected as their business model relied on higher-risk/higher-return borrowers. Not only riskier borrowers but lending to the private sector in general was affected, as banks redirected their lending to the public sector, which, at a given ceiling rate, could provide higher creditworthiness with no screening costs and looser prudential requirements. Moreover, the breadth of IRCs appeared to affect monetary policy as well, as the Central Bank of Kenya’s ability to lower the policy rate in the face of lower growth and lower inflation was constrained due to the side effect of exacerbating the credit rationing for higher risk borrowers (Alper et al., 2019). The Kenyan authorities eventually repealed the IRCs in November 2019, blaming them for reducing credit to the private sector, damaging economic growth and weakening the effectiveness of monetary policy. Caps on lending rates and floors on deposit rates are often to microfinance institutions. Floors on deposit interest the most frequent types of IRCs. Most of the countries rates are also commonplace, especially within low and middle imposing IRCs have ceilings on lending rates (Table 2). This income countries, where 28 percent of the countries in our is because this category includes both usury laws as well as sample have such limits (in contrast to only 16 percent of more stringent limits on lending such as hard caps on loans high income countries).12 As expected, floors on deposit rates to a particular sector. Roughly half of both high income and apply typically to commercial banks. As for other restriction low and middle income countries surveyed provided a positive types, some countries placed caps on deposit rates, while one answer to the question of whether lending caps were in place.11 country (Mauritania) reported to have a floor on lending rates. Lending rate ceilings typically apply to commercial banks and > > > T A B L E 2 - Number of Countries with IRCs by Regulated Institution and Restriction Type CONTRACTUAL LENDING RATES CONTRACTUAL DEPOSIT RATES INSTITUTION TYPE / LEVEL OF INCOME CEILING FLOOR CEILING FLOOR Commercial banks 47 1 9 25 Cooperative banks 29 - 7 5 Savings banks 20 - 5 4 Financing companies 29 - 6 2 Microfinance institutions 36 1 3 12 High Income Countries 22 - 3 7 Low & Middle Income Countries 29 1 8 18 11. While 50 percent of high-income countries have caps on lending rates, 45 percent of low and middle income have similar schemes. There is no statically significant difference between these two groups. 12. The difference is statistically different at 10 percent (one-tail). 16 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Limits on lending rates are usually imposed across key reason to regulate interest rates (Figure 2). The typical all business and retail lending products in both high case of such a country involved regulations that put a ceiling income and low and middle income economies. While on loan rates (92 percent of those that invoked consumer there are countries such as Ecuador that impose ceilings protection) while, though also prevalent, it was less common on lending rates on all loan categories (Box 3), it is very in countries that implemented floors on deposit rates (64 common for countries to regulate only all business or all retail percent of these opted for this reason). Financial stability was loan products (Table 3). Among retail products, regulation also a driving factor for many countries, with one-third of those typically focuses on consumer loans and microcredit, though with IRCs appealing to it. This reason was especially popular high income countries have more breadth in terms of specific (64 percent) among those economies that set a ceiling on products, including credit cards and residential real estate deposits interest rates, including France, Brazil and Sri Lanka, loans. In the case of deposit rate regulation, we observe among others, with some invoking moral hazard of weaker almost as many countries with product-specific regulation (15) institutions and others pointing to the instability of interbank as those with all-encompassing restrictions (17). This is due markets ultimately affecting retail rates and hindering the to the relative importance of floors on savings deposit rates, transmission of monetary policy. As for the less cited reasons while other product types such as checking accounts and term of resource allocation (9 percent) and competition (5 percent), deposits receive less attention from regulators. An interesting these were more invoked by countries with deposit rate caps experience is that of the United States, which have an IRC (at 36 and 18 percent, respectively). Other reasons, such as system in place where most of the states regulate a maximum financial inclusion (members of the West African Economic lending rate on payday loans while at the federal level the and Monetary Union, WAEMU) or strengthening the monetary Federal Deposit Insurance Corporation enforces a ceiling on policy transmission channels (Pakistan) were cited by a deposit rates for supervised institutions that are “less than well significant share (40 percent) of countries setting a floor on capitalized” (Box 4). deposit interest rates. Countries with no IRCs were asked to provide reasons for not using this tool, and their answers Consumer protection concerns were cited as the main highlighted mainly the need to maintain competition in the intended reason for the introduction of IRCs. Four out of banking markets, followed by preserving financial stability and five countries with IRCs pointed to consumer protection as a efficiency of resource allocation. > > > T A B L E 3 - Number of Countries with IRC by Product Type ALL SOME ALL SOME ALL SOME BUSINESS BUSINESS RETAIL RETAIL DEPOSITS DEPOSITS LOANS LOANS LOANS LOANS East Asia & Pacific 1 1 1 3 0 2 Europe & Central Asia 12 0 15 7 3 1 Middle East & N. Africa 2 0 2 0 1 0 North & South America 6 2 6 5 3 9 South Asia 0 0 0 1 1 2 Sub-Saharan Africa 9 0 10 0 9 1 High Income 12 0 14 8 3 5 Low & Middle Income 18 3 20 8 14 10 INTEREST RATE REPRESSION AROUND THE WORLD <<< 17 > > > B O X 3 . IRCS IN ECUADOR IRCs in Ecuador were introduced in 2000, when the country adopted the US dollar as legal tender. First, there were limits to the maximum lending rates based on the London Interbank Offered Rate (LIBOR), augmented by a spread considering country risk and a 4 percent operating margin. Subsequently, in 2007 the authorities introduced absolute interest rate ceilings on four credit portfolios while prohibiting the charging of fees and commissions. Since then, the number of credit segments affected by the caps has increased to the current 19, with 22 administered interest rates ceilings. Interest rates caps vary by sub-segment yet it is not clear whether variation by credit grouping reflects appropriately the underlying risk and the transaction costs involved in each segment. For three microcredit segments there is a differentiation in the ceilings depending on the type of credit institution providing the loan. Finally, except for microcredits and priority consumer loans, which have seen their interest rate caps revised in 2018, lending rate ceilings have not changed during the past five years. While the majority of legal limits on lending rates are Fixed or absolute limits are the typical methodology based on primary legislation, the basis for restrictions employed for setting IRCs, regardless of the restriction on deposit rates, both floors and ceilings, are evenly type. The methodology for determining the level at which split between primary legislation and administrative interest rates are limited is a critical feature of the interest rate regulation. Three out of four countries imposing ceilings regime. Countries that set a fixed maximum (or minimum) on lending rates, including all high income economies, did rate introduce an additional rigidity that makes them less it through a law, with many of these being statutory laws or responsive to changes in the macroeconomic environment. special legislation. In some cases, such as Paraguay, the However, relative rate limits come in different flavors, ranging authority to regulate interest rates beyond the conduct of from those set relative to a benchmark market rate to others monetary policy is incorporated into the central bank articles. set as a spread over an administrative rate, with discretion for Other countries have special laws, which can take the form the government to determine the latter (turning many of these of specific anti-usury laws, such as those in El Salvador, Italy into quasi-fixed frameworks). Rates set relative to central or Uruguay, or could be part of a more general consumer banks’ policy rates deserve a separate mention, as they protection act, such as the ones enacted in Finland, Korea introduce some flexibility at the cost of distorting the monetary (Republic of) or San Marino. Restrictions on deposit rates transmission channels, as it became manifest in Kenya’s additionally rely on administrative regulation, which typically failed attempt to control interest rates (Box 2). Figure 3 shows takes the form of central bank directives. For example, the that countries that decide to impose IRCs often choose a hard deposit rate floor prevalent in WAEMU countries is based on a ceiling (or floor). However, some countries opt for flexibility decree of the Council of Ministers and the Board of the Central when imposing caps on rates. Surprisingly, data on lending Bank of West African States. Finally, one notable exception rate ceilings show that low and middle income economies are where the basis of IRC regulation is a court ruling is the British as likely as their high income peers to choose a benchmark dependency of Guernsey, where part of the legal system is market rate (both at 27 percent of those with IRCs). As far as based on customary law. caps on deposit rates are concerned, only Sri Lanka and the United States have set their maximum rate relative to a market 18 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT rate, while Belgium and Morocco set theirs in relation to their loans, credit cards and microcredit in Australia is applicable central bank policy rate. regardless of the currency denomination. IRCs are typically applied to deposits and loans Almost half of the countries sanction breaches to IRCs denominated in local currency. In the case of deposit rate through administrative penalties, which are typically floors, all but one country (Belgium, where a floor is set for enforced by the banking supervisor. There are differences rates on deposits denominated in any currency) have their at the income level though, with 57 percent of low and middle regulation applying to deposits in local currency, which may income economies opting for this option, while high income resonates with the (often implicit) objective of ensuring a economies show split results among administrative sanctions minimum return to the domestic retail depositor (Figure 4). On (35 percent), criminal sanctions, normally associated with the other hand, one third of countries with lending rate caps usury laws (35 percent), and automatic substitution of impose these on loans denominated in all currencies, though contractual provisions (27 percent). Interestingly, the majority differences appear across income levels: while 45 percent of common law countries (69 percent) resort to criminal of the high income economies that impose lending ceilings law, mainly due to the Eastern Caribbean Currency Union are in this group, only 24 percent of low and middle income members (ECCU) members enforcing the Eastern Caribbean countries do so. As an example of the former, the lending rate Central Bank Agreement, which sets a floor on deposit rates. ceiling imposed by the National Credit Code on consumer > > > B O X 3 . IRCS IN THE UNITED STATES OF AMERICA The US administer a system of interest rate caps on payday loans and on all kind of deposits under certain circumstances. Payday loans are unsecured short-term loans, typically carrying a high interest rate with a maturity of about two weeks. The prospective borrower writes a check for the full amount (principal plus interest and fees) and post-dated for the maturity date of the loan. The lender cashes the check on the loan due date, unless the borrower rolls over the loan for an additional fee. Approximately twelve million US residents use payday loans at least once per year (Dasgupta and Mason, 2019). With the exponential growth of payday lenders since the mid-90s and the detected predatory behavior in some cases, a number of state legislatures (but not all) have responded by enacting various restrictions on payday lending, ranging from limiting the number of rollovers to capping the annual percentage rate, typically at 36 percent. At the federal level, unsecured loans to military members are also capped. The US also have an interesting IRC regime that applies to all deposit products under exceptional circumstances. The Federal Deposit Insurance Act, Section 29, enacted in 1950 provides for interest rate restrictions on deposits applicable to regulated intermediaries based on their capital adequacy. The rule, which is grounded in safety and soundness reasons and was last revised in 2009, imposes a cap on interest rates on deposit products for various maturities and sizes offered by “less than well capitalized institutions”. The cap is set at 75 basis points calculated on a national reference rate, which is the average of the rates paid by financial institutions for the specific type of deposit, published on a weekly basis. The FDIC has recently submitted for comments a proposal for a new methodology for the interest rate restrictions. INTEREST RATE REPRESSION AROUND THE WORLD <<< 19 > > > F I G U R E 3 . IRC Methodology: Absolute vs Relative Number of Countries 30 29 25 7 22 1 20 3 18 6 1 1 15 2 3 10 8 18 7 1 16 1 5 11 2 3 7 1 1 0 1 4 1 0 HI* LMI* HI LMI HI LMI HI LMI Lending Ceiling Lending Floor Deposit Ceiling Deposit Floor * High Income Countries Fixed Cap: Relative Caps: ** Low & Middle Income Countries Absolute rate Admin rate CB rate Market rate > > > F I G U R E 4 . IRC Currency Denomination Number of Countries 30 29 25 7 22 20 18 10 15 22 10 8 7 18 2 1 12 5 3 1 1 6 6 0 1 2 0 HI* LMI* HI LMI HI LMI LMI LMI Lending Ceiling Lending Floor Deposit Ceiling Deposit Floor * High Income Countries ** Low & Middle Income Countries Local Currency All Currencies 20 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT > > > F I G U R E 5 . IRC Basis of Regulation Number of Countries 30 29 25 22 1 20 17 18 15 6 10 21 8 7 12 4 12 5 3 6 1 0 2 4 1 1 0 HI* LMI* HI LMI HI LMI HI LMI Lending Ceiling Lending Floor Deposit Ceiling Deposit Floor * High Income Countries ** Low & Middle Income Countries Administrative Regulation Primary Law Court Ruling > > > F I G U R E 6 - Countries with IRC, Restriction on Fees Number of Countries 30 29 25 22 16 20 5 18 15 10 15 17 7 13 5 4 3 3 0 HI* LMI* HI LMI Lending Ceiling Deposit Floor * High Income Countries ** Low & Middle Income Countries Fees Restrictions No Additional Restrictions INTEREST RATE REPRESSION AROUND THE WORLD <<< 21 3. >>> Characterizing the Data A. Are IRCs Binding? The presence of IRCs is a necessary yet not sufficient condition for legal restrictions to be binding, that is, to lead to out of equilibrium interest rates. The mainly legal aspects of IRCs presented in the previous section are important per se, being particularly useful for policy makers, researchers and market participants interested in comparing specific features of a country’s IRC regime with those in other countries. However, the economics of IRCs are equally important. In this context, it is of special interest attempting to assess whether IRCs are binding. This happens when caps (floors) on lending rates are below (above) the market rates, that is interest rates based on the market forces of demand and supply, and when caps (floors) on deposit rates are set at a level below (above) market rates. In these circumstances, regardless of the intended objectives, IRCs can have nontrivial consequences for savings and investment and, ultimately, for welfare, as discussed in section I. Assessing the bindingness of IRCs is not an easy task. There is no well-established methodology to judge whether the prevailing level and structure of interest rates is out of equilibrium. For one, when IRCs are in place we may not be able to observe market rates directly. Actual rates are not an accurate indicator of market rates where IRCs are in fact binding, since the actual rates reflect the influence of the cap or of the floor. The multiplicity of IRCs is another complication. As shown in the previous section, often countries set different caps or floors for different banking products, providing rational financial institutions with room for regulatory arbitrage so that they can borrow where they can pay below market rates and lend where they can obtain market rates. In principle, one would expect that under competitive conditions the expected real interest rates on savings instruments is positive, else there would be a strong tendency to substitute hoarding of cash, goods and self-investment for financial savings. Yet occasionally, in the presence of volatile inflation, real interest rates in an economy can be negative even when rates are free and competitively determined.13 Finally, international comparisons with similar countries and markets may provide useful indications on interest rate levels, yet differences in regulations and other country characteristics may be difficult to isolate. 13. A similar argument can be made in the context of very low policy rates and unconventional monetary policy. INTEREST RATE REPRESSION AROUND THE WORLD <<< 23 We measure the bindingness of IRCs that apply to such as observed average interest rates of previous periods commercial banks by taking the difference between respond to the price setting behavior of lenders so that even the legal limits and the actual interest rates. The gap, during one period interest rates converge towards an existing expressed in percentage points and in real terms, between limit, the next period’s limit will be higher or lower. As a result, the de jure limit, as reported by the country authorities in there cannot be focal point for collusion in the long run. In any our survey, and the observed actual average interest rate event, whether focal points happen in practice in the presence charged or paid by commercial banks in a country provides of IRCs is an empirical issue. a preliminary indication of the degree of bindingness of IRCs and therefore of interest rate repression.14 The lower the gap Gaps between lending ceilings and actual rates offered between the regulatory limit and the interest rate for caps on a diverse landscape. Table 4 presents legal limits and actual deposit and lending rates, the higher the degree of bindingness rates as well as the gap measure for the representative market of IRCs. A gap of zero may indicate full bindingness. For floors segment in 2019 for the 47 economies that reported interest on deposit rates, the higher the gap between the interest rate rate caps for commercial banks. It portrays a very heterogenous paid by lenders and the regulatory minimum, the more binding map, with the large majority of countries showing a relatively is the IRC. Where multiple legal limits exist, we calculate our large gap between the cap and the actual rates. Only five gap measure for the most representative product-level IRC countries (Argentina, Bolivia, Marshall Islands, Mauritania and that apply to commercial banks in a country. For example, Vietnam) exhibit a zero gap, and in two economies (France Colombia reported legal (usury) limits for all commercial bank and Ecuador) the gap is within 150 basis points. Countries lending products and interest rate ceilings for rural lending at the top of our bindingness ranking include a majority of products. In our framework, we use the former only given its middle income economies, with a regional predominance of broader coverage. Accordingly, we use the relevant market Latin American economies. Interestingly, the large majority of rate to calculate the gap. In our example, we use the weighted countries where our gap measure is narrowest adopt a fixed average of commercial bank lending rates to measure the gap or absolute cap. While this approach in principle entails a with the legal ceiling. For countries that, for example, reported high degree of rigidity for the IRC regime, judging from the de jure controls on credit card rates, we use the market credit overall distribution in Table 5 we cannot point to the conclusion card rate to calculate the gap. We acknowledge that it would that fixed limits are in fact more binding than relative or be ideal to focus on products and maturities rather than flexible limits. institutions yet data constraints in our cross-country setting limits the feasibility of this option. Gaps for commercial bank deposit rates are generally narrow in the nine countries that reported the presence of Our gap measure of IRC bindingness is not without IRCs in these markets. As described in the previous section, shortcomings. The most important limitation is that we lack legal limits on deposit rates are largely concentrated in savings a longitudinal dimension in our data as we only collected accounts. For example, France imposes a cap on the “Livret A”, information on IRCs as of 2019. Ideally one would observe a popular tax-free savings account available to all individuals over time the evolution of the gap between IRCs and actual in the country. Table 5 shows legal limits, actual rates and the rates to draw more general conclusions about the degree of gap measure for the nine economies that impose ceilings on IRC bindingness. Future research at the county level could deposit rates. In three countries (Mauritania, Morocco and fill this gap. Another shortcoming of our approach is that Vietnam) the real gap between the legal limits and the actual the convergence of the actual interest rates towards the deposit rates is zero, while in other three economies (France, caps on lending rates and the floors on deposit rates may Ecuador and the US) the gap is within 100 basis points of the be symptomatic of low competition rather than reflect the respective limit. The method used to determine the ceiling in bindingness of IRCs. In an oligopolistic market with inelastic these four countries is either fixed or relative to a non-market demand, the presence of a legal limit may serve as a focal reference rate. Interestingly, Table 6 also shows that actual point for tacit collusion. However, this behavior may arise real rates are negative in four economies (Belgium, France only in the case of fixed rate limits or in the case of flexible and US) where monetary policy is likely to play a role, and in rate limits which are tied to a specific external reference rate, one country (Brazil), where the presence of a negative real such as an interest rate decided on by the central bank. In floor (see below) in addition to the cap in a highly oligopolistic contrast, reference rates which are endogenously determined market may act as a focal point. 14. While most of the countries provided accurate references to the level at which floors and ceilings were set, their responses in terms of actual market rates were much more limited. As a complement to the survey, we therefore collected market rate information from the IMF’s International Financial Statistics and central banks’ webpages. 24 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT > > > T A B L E 4 . Lending Rate Ceilings, Commercial Banks NOMINAL REAL COUNTRY ACTUAL ACTUAL GAP TYPE OF LIMIT PRODUCT REGULATED CEILING CEILING RATE RATE Argentina 55.00 55.00 0.95 0.95 0.00 Absolute Retail (credit card) Vietnam 6.00 6.00 3.12 3.12 0.00 Absolute Business (real estate, agriculture) Retail (real estate, small business, micro), Bolivia 11.50 11.50 9.49 9.49 0.00 Absolute Business (working capital, term, agriculture) Mauritania 14.50 14.50 11.93 11.93 0.00 Relative: Adm. rate All retail/business loans Marshall Isl. 15.00 15.00 14.36 14.36 0.00 Absolute Retail (consumer loans) France 4.47 3.36 3.33 2.23 1.10 Relative: Market Rate All retail/business loans Ecuador 9.83 8.58 9.54 8.29 1.25 Absolute All retail/business loans Russia 11.67 8.75 6.89 4.10 2.79 Relative: Market Rate Retail (consumer, credit card, micro) Spain 7.50 4.20 6.75 3.48 3.28 Relative: Adm. rate Retail (consumer, real estate) Croatia 6.93 2.69 6.11 1.90 4.21 Relative: Market Rate All retail loans Italy 8.71 3.76 8.04 3.13 4.91 Relative: Market Rate All retail/business loans N.Macedonia 10.50 5.21 9.66 4.41 5.25 Relative: Adm. rate All retail/business loans Portugal 13.60 7.30 13.22 6.94 6.28 Relative: Adm. rate All retail/business loans Guernsey 10.00 3.65 7.80 1.57 6.22 Absolute All retail loans San Marino 15.95 9.55 14.86 8.52 6.34 Absolute All retail/business loans Chile 19.23 12.82 16.26 10.01 6.25 Relative: Market Rate All retail/business loans Morocco 13.57 6.50 13.35 6.29 7.06 Relative: Market Rate All retail/business loans Germany 14.26 7.13 12.64 5.60 7.03 Relative: Market Rate All retail/business loans Burkina Faso 15.00 6.81 18.84 10.38 8.46 Absolute All retail/business loans Niger 15.00 6.81 17.94 9.54 8.40 Absolute All retail/business loans Mali 15.00 6.81 16.94 8.61 8.33 Absolute All retail/business loans Côte D'Ivoire 15.00 6.81 16.29 8.01 8.28 Absolute All retail/business loans Benin 15.00 6.81 15.96 7.70 8.26 Absolute All retail/business loans Guinea-Bissau 15.00 6.81 14.72 6.55 8.17 Absolute All retail/business loans Togo 15.00 6.81 14.23 6.09 8.14 Absolute All retail/business loans Senegal 15.00 6.81 13.01 4.96 8.05 Absolute All retail/business loans Belgium 10.00 1.70 8.44 0.26 8.18 Absolute Retail (consumer, real estate), All business loans Netherlands 14.00 4.99 11.07 2.29 8.78 Relative: Adm. rate All retail/business loans South Africa 20.64 10.14 15.86 5.77 10.08 Relative: Market Rate All retail loans Armenia 24.00 13.12 22.24 11.51 10.73 Relative: Policy Rate All retail/business loans Israel 15.25 3.48 14.29 2.62 11.67 Relative: Policy Rate All retail/business loans Finland 20.00 6.33 18.78 5.25 13.53 Absolute Retail (consumer, credit card) Kyrgyz Rep. 34.99 18.94 33.47 17.61 15.87 Relative: Market Rate All retail/business loans El Salvador 24.28 8.03 24.19 7.95 16.24 Relative: Market Rate All retail/business loans Colombia 28.98 10.38 24.59 6.62 17.97 Relative: Market Rate All retail/business loans Paraguay 37.81 18.08 34.11 14.91 19.20 Relative: Market Rate All retail/business loans Korea 24.00 3.40 23.53 3.01 20.52 Absolute All retail/business loans United States 31.00 10.32 28.67 8.35 20.31 Absolute Retail (consumer,small business, micro) Thailand 28.00 4.08 27.10 3.35 23.75 Absolute Retail (consumer,credit card, micro) Uzbekistan 50.00 23.61 30.93 7.89 23.03 Absolute Retail (small business, micro) Sweden 40.00 6.00 37.55 4.14 33.40 Relative: Policy Rate Retail (consumer, micro) Uruguay 50.00 11.56 39.04 3.41 35.63 Relative: Market Rate All retail/business loans Georgia 50.00 10.82 43.06 5.69 37.37 Absolute All retail/business loans Bulgaria 50.00 9.93 45.48 6.62 38.86 Relative: Adm. rate All retail loans Lithuania 75.00 2.20 71.01 -0.13 71.14 Absolute Retail (consumer, credit card, real estate) Latvia 107.36 17.28 101.69 14.07 87.61 Absolute All retail loans * Brazil, which has a lending cap for commercial banks, was excluded due to the limited applicability of IRC to loans under Sistema Financeiro da Habitação (SFH). INTEREST RATE REPRESSION AROUND THE WORLD <<< 25 Actual deposit rates paid by commercial banks the policy rate) approach are among those where the gap unsurprisingly show a general convergence towards is zero. On the other hand, a few economies had negative floors. Table 6 presents the real gaps between the actual real deposit floors (and actual rates) in 2019. Again, these interest rates paid by commercial banks and the legal limits, are mostly eurozone economies (Belgium, France and used as a proxy for determining the degree of bindingness Portugal) where monetary policy greatly constrains the of floors on deposit rates. It shows that in 2019 in all but level of rates, in addition to Brazil, discussed above, and one country the real gap was within 100 basis points of the Ethiopia, where interest rate repression is embedded in the respective limit. In six economies (Brazil, Bolivia, Pakistan, country’s framework for managing its monetary and foreign Mauritania, Montserrat and Belgium) the gap is zero or close exchange policy (Chauffour and Gobezie, 2019). One country, to zero. All but two countries reporting deposit rate floors Malaysia, shows a negative real floor though the actual rate determine the legal limit using a fixed rate. Interestingly, the paid was positive. two economies (Bolivia and Brazil) that adopt a relative (to 26 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT > > > T A B L E 5 . Deposit Rate Ceilings, Commercial Banks NOMINAL REAL COUNTRY ACTUAL ACTUAL GAP TYPE OF LIMIT PRODUCT REGULATED CEILING CEILING RATE RATE Morocco 1.94 1.94 1.74 1.74 0.00 Relative: Policy Rate All deposits Vietnam 5.00 5.00 2.14 2.14 0.00 Absolute Certificates of deposits Relative: Administrative Mauritania 4.70 4.70 2.35 2.35 0.00 All deposits rate France 0.75 0.50 -0.35 -0.60 0.25 Absolute All deposits Ecuador 1.50 1.05 1.23 0.78 0.45 Absolute All deposits Savings, checking and money market United States 1.38 0.63 -0.42 -1.16 0.74 Relative: Market Rate accounts, CDs up to 60 months Belgium 3.00 0.14 1.54 -1.28 2.82 Relative: Policy Rate Savings accounts Brazil 6.17 3.15 2.35 -0.56 2.91 Absolute Savings accounts, Others North Macedonia 10.50 1.87 9.66 1.10 8.56 Relative: Adm. Rate All deposits > > > T A B L E 6 . Deposit Rate Floors, Commercial Banks NOMINAL REAL COUNTRY ACTUAL ACTUAL GAP TYPE OF LIMIT PRODUCT REGULATED CEILING CEILING RATE RATE Brazil 3.15 3.15 -0.56 -0.56 0.00 Relative: Policy Rate Savings accounts, Others Bolivia 2.00 2.00 0.16 0.16 0.00 Absolute Savings accounts, Term (CD) Pakistan 11.25 11.25 0.61 0.61 0.00 Relative: Policy Rate Savings, Checking accounts Mauritania 4.70 4.70 2.35 2.35 0.00 Relative: Adm. Rate All deposits Montserrat 2.00 2.01 3.10 3.11 0.01 Absolute Savings accounts Belgium 0.11 0.14 -1.31 -1.28 0.03 Absolute Savings accounts Portugal 0.00 0.11 -0.34 -0.23 0.11 Absolute All deposits Dominica 2.00 2.12 0.48 0.60 0.12 Absolute Savings accounts Antigua And 2.00 2.16 0.52 0.68 0.16 Absolute Savings accounts Barbuda Grenada 2.00 2.20 1.39 1.59 0.20 Absolute Savings accounts St. Vincent And 2.00 2.29 1.08 1.37 0.29 Absolute Savings accounts The Grenadines St Kitts And Nevis 2.00 2.36 0.39 0.74 0.35 Absolute Savings accounts St. Lucia 2.00 2.36 1.28 1.64 0.36 Absolute Savings accounts Senegal 3.50 4.00 1.71 2.20 0.49 Absolute All deposits Malaysia 0.25 1.01 -0.41 0.35 0.76 Absolute Savings accounts Togo 3.50 4.32 2.81 3.62 0.81 Absolute All deposits Guinea-Bissau 3.50 4.32 3.24 4.06 0.81 Absolute All deposits Benin 3.50 4.32 4.36 5.18 0.82 Absolute All deposits Mali 3.50 4.32 5.25 6.08 0.83 Absolute All deposits Niger 3.50 4.32 6.14 6.98 0.84 Absolute All deposits Burkina Faso 3.50 4.32 6.96 7.80 0.84 Absolute All deposits France 0.00 0.98 -1.10 -0.12 0.97 Absolute All deposits Anguilla 2.00 2.99 1.17 2.15 0.98 Absolute Savings accounts Ethiopia 7.00 8.00 -7.62 -6.76 0.86 Absolute Savings accounts, Term (CD) Côte D'Ivoire 3.50 4.64 4.66 5.81 1.15 Absolute All deposits INTEREST RATE REPRESSION AROUND THE WORLD <<< 27 B. Are IRCs Part of a Broader Financial Repression Policy Toolkit? IRCs have been historically part of a wider financial repression policy toolkit. IRCs have often been one among many financial repression policies, including government ownership or control of banks, controls on cross-border capital flows, restrictions on entry in the banking market, and excessively high bank reserve requirements. To check whether interest rate repression is in fact more pervasive in countries which adopt other financial repression policies, we calculate the pairwise correlation coefficients between our measure of IRC bindingness for lending ceilings and the following proxies for financial repression policies:15, 16 • State ownership of banks: Ownership of banks is the • Capital account restrictions: Restrictions on most direct form of control a government can have over international financial transactions are often imposed credit allocation. State ownership can be the result of to give the government greater control over the flow of nationalization following a banking crisis (e.g., Mexico credit within the economy, as well as greater control over in 1982, Indonesia in 1998 or more recently many the exchange rate. These restrictions can take various advanced economies in the context of the GFC) but forms, from transactions taxes to outright restrictions on more often is the result of a conscious policy decision inflows and/or outflows. We measure the extent of capital by the authorities (e.g., in India beginning in 1969). We account restrictions by the widely used Chinn-Ito index. proxy this variable by the share of the banking system’s This is an index measuring a country’s degree of capital assets controlled by the government, where control is account openness initially introduced by Chinn and Ito defined when the government owns 50 percent or more (2006) and updated frequently.18 The index is based on equity. We use Anginer et al. (2019), which provides the the tabulation of restrictions on cross-border financial latest figure for 2016.17 We expect a negative association transactions reported in the IMF’s Annual Report on between our measure of interest rate repression and Exchange Arrangements and Exchange Restrictions. the share of state ownership of banks, that is the lower It is therefore a measure of de jure restrictions. We the gap between the legal limits and the actual interest take the latest available value of the series, which is rates, the higher should be state ownership of banks. available up to 2017. Given that higher values of the Chinn-Ito index imply greater capital account openness, we expect a positive association with our measure of interest rate repression. 15. While an important financial repression measure used in many jurisdictions, we do not include lending quotas that, to the best of our knowledge, are not systematically tracked and cannot be meaningfully proxied by a quantitative variable. 16. We did not calculate correlation coefficients for deposit IRCs due to the low number of observations. There are only 9 countries with deposit rate ceilings, and while there are 25 countries with deposit floors, 8 of them are ECCU members and 8 economies are WAEMU members. 17. Available at https://datacatalog.worldbank.org/dataset/bank-regulation-and-supervision-survey#tab2. 18. Available at http://web.pdx.edu/~ito/Chinn-Ito_website.htm. 28 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT • Entry barriers: To maintain control over credit • Excessive reserve requirements: Governments allocation, governments may restrict the entry into the may impose excessively high reserve requirements, financial system of new domestic banks or of other beyond what can be reasonably expected for prudential potential competitors, for example foreign banks or purposes, and reserves may not be remunerated at non-bank financial institutions. Entry barriers may market rates of return. Excessive reserve requirements take several forms, including outright restrictions on are not directly observable, however. We measure foreign banks; bank activity restrictions; or excessively reserve requirements using the Reserve Requirement restrictive licensing requirements. We proxy entry Dataset (Federico et al., 2014), who provide a database barriers by an index of legal requirements needed to of various reserve requirements (by type of currency, obtain a banking license. This indicator, first developed products, etc.) for 65 countries updated to 2019. We by Barth et al. (2001), can be calculated using data take the average of reserve requirements, which are systematically collected by the World Bank as a part of expressed as a percentage of the instrument targeted. the Bank Regulation and Supervision Survey. We use We expect that higher values of reserve requirements the latest available data (World Bank, 2019) and expect are positively associated with higher interest rate a negative association with our measure of interest rate repression hence we expect a negative sign on the repression, given that a higher value of the index of coefficients of correlation. legal requirements indicates greater entry barriers. Pairwise correlations confirm that IRCs may in fact be a component of a wider financial repression policy toolkit. Table 7 presents the pairwise correlation coefficients among the gap between actual lending rates and legal ceilings, our bindingness measure for lending rate caps, and our proxies for other common financial repression policies along with their statistical significance. Pairwise correlations suggest that the relative bindingness of lending ceilings is associated with a higher share of state-owned commercial banks, which governments can use to direct credit, and more stringent de jure capital controls, which can be used to influence size and composition of capital flows. Correlations become stronger, including for other proxies of financial repression (albeit not significant), when lending ceilings that are determined relative to a market benchmark are excluded from the sample. INTEREST RATE REPRESSION AROUND THE WORLD <<< 29 > > > T A B L E 7 . Correlation Between Lending IRC Bindingness and Other Financial Repression Policies FULL SAMPLE EXCL. RELATIVE (MKT) CEILINGS ρ ρ COUNTRY N N State ownership of banks -0.284* 42 -0.393** 31 Capital account restrictions 0.305** 45 0.377** 33 Entry into banking requirements 0.002 42 0.032 30 Excessive reserve requirements -0.082 19 -0.403 12 Significance at ***1%, **5% and *10%. 30 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT > > > F I G U R E 7 . Lending IRC Bindingness and Other Financial Repression Policies 100 100 % of banking system’s assets controlled by govt % of banking system’s assets controlled by govt 80 80 60 60 40 40 20 20 0 0 0 10 20 30 40 50 0 10 20 30 40 50 Gap between ceiling and actual interest rate Gap between ceiling and actual interest rate 8 30 7 25 Entry into Banking Requirements Average Reserve Requirement 6 20 5 4 15 3 10 2 5 1 0 0 0 10 20 30 40 50 0 10 20 30 40 50 Gap between ceiling and actual interest rate Gap between ceiling and actual interest rate Relative: Market Rate Absolute + Other Relative (Policy Rate & Adm. Rate) Excluting Relative (Mkt) Full Sample INTEREST RATE REPRESSION AROUND THE WORLD <<< 31 4. >>> Policy Discussion This section discusses the key contours of an interest rate management policy to move from fixed to market-determined interest rates when these are not appropriate. The previous sections have presented and discussed de jure IRCs in lending and deposit markets and provided some preliminary evidence on the degree of bindingness of controls. However, a more detailed country-level assessment would be needed to determine whether level and structure of interest rates in a country are appropriate in the presence of IRCs. Should the prevailing level and structure of interest rates in the country not be appropriate, an interest rate management policy would be desirable to minimize the adverse side effects to the economy they create while laying down the basis for a careful transition to market-determined interest rates. Important guiding principles of an interest rate management policy should be (i) transparency, to ensure that IRCs are known and understood by market participants so that opportunities for arbitrage are minimized, and (ii) flexibility, to ensure that changes in the underlying economic and structural conditions are transmitted to interest rates changes. The first step should be an assessment of the adequacy of current interest rate levels and structure. This is not an easy task, especially because there is no well-established methodology. A simple approach would be to decompose the bank interest rate spread by credit and deposit segment over time to identify the relative importance of the factors driving intermediation spreads. Under competitive conditions, the spread between lending rates and the average cost of loanable funds should be just enough to cover operating costs and credit risk while yielding “normal” profits (see, for example, Ferrari et al., 2018). Calculating average costs of funding augmented for statutory reserve requirements and corporate taxes would provide a natural floor to lending rates, while an analysis of the other components that determine the lending rate would contribute to shed light on areas where the authorities could direct efforts to improve the interest rate structure. If the country’s interest rate regime is inappropriate and distortive, an interest rate management policy may be necessary until conditions for a smooth liberalization obtain. INTEREST RATE REPRESSION AROUND THE WORLD <<< 33 Such a policy, which would introduce transparency and rate or a market rate. In contrast to absolute IRCs, relative flexibility to interest rate management, can take various forms caps vary over time based on the movement of the but should include, at a minimum, the following elements: benchmark rate but can be more complex to administer and can have unintended consequences. In countries • Objective of IRCs. It is important to explicitly outline the where money markets are not sufficiently developed there intended objective of IRCs to ensure accountability and may be no meaningful benchmark available, while the use proper monitoring. The objective of IRCs could be to of the central bank policy rate can complicate the conduct protect consumers from usury, encourage more efficient of monetary policy (see Alper et al., 2019). However, if and prudent pricing of financing products, and/or promote the spread or multiple over the benchmark accounts for greater transparency. Investment promotion and financial intermediation costs, credit risk and non-monopolistic inclusion are typically better served by other policies. profits the result under this approach could be an interest rate structure similar to equilibrium rates under competitive • Applicability and scope. A second essential building conditions. For these reasons, relative IRCs are to be block of an interest rate management policy concerns preferred to absolute controls. the financial institutions, products and interest rates that are subject to controls. Commercial banks and other • Disclosure. An essential element of the interest lenders should be ideally subject to the same restrictions rate management framework is the requirement that to avoid distortions and regulatory arbitrage. To minimize the methodology and the relevant parameters are the difficulties of establishing an appropriate interest transparently disclosed to the public. This would provide rate structure, it would also be important to minimize market participants with the notion of fairness, endorsing the number of administered interest rates. This would the view that any IRC is set in an objective manner. also have the advantage to facilitate the management of the interest rate regime. Often, selective credit • Monitoring. The impact of a the IRC framework should policies directed to designated sectors under more be monitored and assessed against the intended favorable conditions artificially create new interest rate policy objective. This evaluation should be carried out categories. To the extent that this is true, the authorities considering the level of the caps and/or floors, the could streamline these policies to reduce the number of reaction of demand and supply, borrowers’ and savers’ interest rates. Finally, to minimize arbitrage opportunities characteristics, the degree of competition in the markets and increase transparency, it would be important that and the structure of the financial system. the framework applies to the effective interest rates, that is the nominal interest rates augmented with fees and The establishment of a robust and transparent interest commissions and any compounding of interest that may rate framework should be complemented by reforms aimed come with the financial products. at successfully establishing the institutional and market preconditions for a safe transition or return to market- • Methodology. This is the most critical component of determined interest rates. Though economic theory offers little the interest rate management policy and its calibration support for these preconditions, international experience with should be informed by the adequacy assessment interest rate deregulation provides some guidance on desirable discussed above. In general, there are two broad criteria economic prerequisites in both the real and the financial for setting IRCs. The first is to set absolute IRCs, where sector.19 While macroeconomic and price stability along with the maximum or minimum interest rate is fixed. This can a healthy corporate sector are an important precondition for be a single cap or floor applicable across the board or be interest rate deregulation, reforms in the financial sector that different by product. The advantage of absolute IRCs is establish the necessary institutional and market infrastructure their simplicity. However, once they are set fixed IRCs while removing other government restrictions can go a long tend to vary little over time and for these reasons they can way in facilitating a smooth transition towards interest rate quickly go out of equilibrium with underlying economic liberalization and optimal allocation of resources. conditions and structural changes in the banking sector. The second approach is to establish relative IRCs, where An essential first step is to develop money market the maximum or minimum level of interest rates is a instruments able to influence the marginal costs of fixed spread or a multiple of an underlying benchmark or funds of financial intermediaries. The establishment of reference rate. The latter is usually the central bank policy a transparent interest rate framework would have to be 19. For a discussion on international experience with interest rate liberalization see, for example, Pereira Leite and Sundarajan (1990); Mehrann at al., (1996); and Hanson (2001). 34 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT accompanied by measures to establish a sound legal and strengthening collateral registries, modernizing the secured regulatory framework for the development of the money and transaction framework and the insolvency framework, and interbank markets. In the absence of well-developed markets, improving the credit information system could facilitate the the authorities would have to develop and streamline primary transition to market-determined interest rates. issuances of government and central bank securities and rediscount mechanisms so that the associated yields can Distortive government interventions in credit markets serve as the marginal cost of funds to banks. There may also need to be minimized. While some types of government be a need to strengthen the clearing and settlement system interventions can contribute to improve the allocation of for payment transactions to support an active money market. resources (e.g. partial credit guarantee schemes), other forms might cause resource misallocation. It is therefore important Prudential regulation and supervision need to ensure the to isolate those policies that may generate distortions and resilience of the banking sector. A sound banking system is address their shortcomings: critical for the effectiveness of a new interest rate regime. The move from fixed to market-determined interest rates requires sound • Bank financing of the government deficit at banks, with adequately developed monitoring and screening below market rates is often a major source of systems. Historical experience with interest rate liberalization misallocation and crowding out of the private sector shows the criticality of having a sound regulatory and supervisory that can undermine the effectiveness of interest framework to avoid volatility and instability. Without adequate rate liberalization. The reduction of the fiscal deficit prudential regulation and supervision, unexpected problems at along with essential reforms of the debt management individual financial institutions can morph into a systemic crisis framework can contribute to gradually set a (market- following liberalization. Moreover, demand for credit can become determined) floor for interest rates. An appropriate level inelastic to increases in interest rates if banks are overburdened and structure of interest rates can be established only by high nonperforming loans and have limited capital available to if the government gradually reduces its budget deficit support new lending. For these reasons, the adequacy of bank to a manageable level that can allow it to borrow from regulation and supervision and reforms in these areas are critical capital markets in competition with other borrowers for the effectiveness of interest rate liberalization. without recourse to special regulations. The bank competition policy framework needs to ensure • It is essential that state-owned banks (SOBs), responsiveness to interest rate changes. To ensure adequate another typically important source of distortions, are competition and avoid distortions in the level, structure and reformed, restructured, if needed, and repositioned responsiveness of interest rates, interest rate reform may to complement rather than substitute private lenders. require regulatory and institutional changes in the competition SOBs often provide subsidized credit to underserved policy framework. An oligopolistic market structure with limited segments of the population on the back of actual or contestability may reduce the effectiveness of market-determined perceived market failures. However, in many instances interest rates. It would be important to review policies toward SOBs compete directly with private banks. It would be entry and exit, mergers, licensing, branching, activity restrictions, important that reforms focus on ensuring that SOBs and portfolio regulations, among others. The institutional continue to be justified by the existence and pervasiveness architecture for the conduct of competition policy in the banking of market failures and adopt a sound corporate governance sector and the attribution of tasks among the relevant authorities with a clear mandate and independent boards of directors, is also an important area to assess and reform, if any. However, with transparent operations intermediated through the the desirability of more competition in the banking market should private financial sector to minimize interest rate distortions. always be weighed against the risks of financial instability. A consolidation and streamlining of existing public credit policies would also help reduce interest rates and facilitate Shortcomings in the contractual and information the liberalization process. frameworks need to be addressed. A sound credit infrastructure, that is the set of laws and institutions that • Finally, and related to the previous point is the facilitate the use of collateral, ensure debt resolution and importance to reform nonfinancial state-owned minimize information asymmetries, is a key building block of enterprises (SOEs) to gradually introduce a “hard” an efficient financial system. As such, it is instrumental to a budget constraint, which in addition to limiting contingent system where financial institutions are able to price risk and fiscal liabilities for the government, would also induce determine a lending rate that compensates for all expenses SOEs to behave in an interest-sensitive fashion when while leaving a profit. Market-enabling policies such as borrowing from the banking system. INTEREST RATE REPRESSION AROUND THE WORLD <<< 35 5. >>> Concluding Remarks In this paper we present a new database on IRCs in 108 countries, which account for 88 percent of global GDP, and discuss the key pillars of an interest rate management policy. There are signs of a resurgence in financial repression policies around the world, which may be exacerbated by the Covid-19 crisis. While some measures may turn out to be temporary, others may become permanent. Understanding their unfolding is therefore important for policymakers concerned with minimizing the associated costs. This paper represents a step towards that goal. Building on a survey of financial sector authorities and bankers’ associations conducted during 2019 in World Bank Group member countries, this paper documents a key form of financial repression: IRCs, including their origins, the legal framework and their intended objectives. The data collected through the survey are then used to provide a preliminary estimation of the degree of bindingness of IRCs and to calculate pairwise correlations with other financial repression policies. Should level and structure of interest rates in a country be inappropriate, an interest rate management policy may be necessary until conditions for deregulation obtain. INTEREST RATE REPRESSION AROUND THE WORLD <<< 37 The key findings of this paper are the following: • IRCs are common in countries across different • Fixed limits are the typical methodology employed income levels and legal systems though some for setting IRCs, which generally apply only to regional differences emerge. A total of 63 countries out domestic currency denominated transactions and of 108 surveyed responded that they have IRCs in place. are accompanied by limits on fees. However, some Both high income countries and low and middle income countries opt for flexibility when imposing caps on rates. countries show a similar prevalence of IRCs. The share of IRCs are typically applied to transactions denominated countries with de jure IRCs also remains roughly unaltered in local currency, especially deposit rate floors. Half when countries are divided according to their law system, of the countries with IRCs also impose limits on fees. though we observe a relatively higher prevalence of IRCs Restrictions on administrative and servicing fees aim to in common law countries. Geographically, IRCs tend curtail the ability of financial intermediaries to increase to be more popular in regions such as South Asia, the the effective lending rate beyond the established Americas, and Sub Saharan Africa. ceiling or to decrease the effective deposit rate below the established floor. We find that limits on fees are • Caps on lending rates and floors on deposit rates mostly imposed in the context of lending rate ceilings. are the most frequent types of IRCs. Most of the Finally, almost half of the countries with IRCs sanction countries imposing IRCs have ceiling on lending breaches to IRCs through administrative penalties, rates, regardless of the level of income. Lending rate which are typically enforced by the banking supervisor. ceilings typically apply to commercial banks and often to microfinance institutions. Floors on deposit interest • IRC bindingness in 2019 presented a diverse rates are also commonplace, especially within low and landscape. Gaps between legal limits and actual middle income countries. lending rates in real terms, used as a proxy to preliminary estimate the degree of bindingness of IRCs, portray • Limits on lending rates are usually imposed across a very heterogenous map, with the large majority all business and retail lending products in both high of countries showing a relatively large gap between income and low and middle income economies. In the cap and the actual rates and only five countries retail markets, IRCs typically focus on consumer loans exhibiting a gap of zero. Real gaps for commercial and microcredit, though high income countries have bank deposit rates are generally narrow in countries more breadth in terms of specific products, including that reported the presence of IRCs in these markets, credit cards and residential real estate loans. In the with only three countries showing a gap of zero. Actual case of deposit rate regulation, we observe almost deposit rates are negative in a few economies with as many countries with product-specific regulation as deposit rate ceilings. Finally, actual deposit rates paid those with all-encompassing restrictions. by commercial banks unsurprisingly show a general convergence towards floors, with a few economies • Consumer protection concerns are the main stated showing negative real floors and actual rates. reason for the introduction of IRCs, especially by those countries that imposed a ceiling on loan • The degree of bindingness of lending IRCs is rates. Financial stability is also a driving factor for associated with other financial repression policies. many countries, especially among those setting a Pairwise correlations suggest that the relative bindingness ceiling on deposits interest rates. Less cited reasons of real lending ceilings is associated with a higher share for introducing IRCs relate to resource allocation and of state-owned commercial banks, which governments competition, especially by countries with deposit can use to direct credit, and more stringent de jure rate caps. Other reasons such as financial inclusion capital controls, which can be used to influence size or strengthening the monetary policy transmission and composition of capital flows. Correlations become channels are reported by countries setting a floor for stronger, including for other proxies of financial repression, deposit interest rates. when lending ceilings that are determined relative to a market benchmark are excluded from the sample. 38 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT In the presence of IRCs, country authorities should intermediaries. Prudential regulation and supervision should assess the appropriateness of prevailing interest rate be strengthened to ensure the resilience of the banking levels and structure and, should IRCs be binding, sector. The bank competition policy framework would need to consider the introduction of an interest rate management be assessed and if needed strengthened to ensure market policy. The presence of IRCs is a necessary but not sufficient responsiveness to interest rate changes. Shortcomings in the conditions for interest rate restrictions to be binding, that is, to contractual and information frameworks should be addressed. have welfare implications. It is, therefore important to assess Finally, distortive government interventions in credit markets the adequacy of current interest rate level and structure. In would have to be minimized. the absence of a well-established methodology, this paper suggests an accounting decomposition of bank interest rates Further research is needed to advance knowledge on over time. If the country’s interest rate regime is inappropriate IRCs and investigate their effects on welfare. The hope is and distortive, an interest rate management policy may be that our database on IRCs can contribute to generate renewed necessary until conditions for a smooth liberalization obtain. interest and additional research on the topic, which can help Important guiding principles of an interest rate management provide concrete policy prescriptions. It would be important to policy should be (i) transparency, to ensure that IRCs complement our effort with country level analysis at the bank- are known and understood by market participants so that product level over time to ascertain whether legal limits to opportunities for arbitrage are minimized, and (ii) flexibility, to interest rates in a country are in fact binding and what are the ensure that changes in the underlying economic and structural welfare implications. In this context, it would also be important conditions are transmitted to interest rates changes. to include de facto IRCs in the analysis, especially those introduced by subsidized government programs. It would Complementary reforms would be needed to lay down also be interesting to collect data on other forms of financial the foundations for a smooth interest rate deregulation. repression, especially lending quotas on which there is very The establishment of a robust and transparent interest rate limited knowledge, and investigate the interactions among framework should be complemented by reforms aimed various forms of financial repression. It is likely that IRCs in at successfully establishing the institutional and market a country are part of a wider toolkit of financial repression preconditions for a safe transition or return to market- policies, as we have preliminary shown in this paper, and determined interest rates. While interventions would have to interaction and complementarity of policies may have different be calibrated at the country level, considering the initial level welfare outcomes. 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Zahid, S., 1995. “Financial Sector Development in Asia.” Oxford University, New York. INTEREST RATE REPRESSION AROUND THE WORLD <<< 43 >>> Annexes INTEREST RATE REPRESSION AROUND THE WORLD <<< 45 Annex 1. List of Surveyed Countries EAST ASIA EUROPE & MIDDLE EAST NORTH & SOUTH SUB-SAHARAN & PA-CIFIC CENTRAL ASIA & N. AFRICA SOUTH AMERICA ASIA AFRICA Countries Australia Armenia Israel Anguilla India Benin with IRCs Korea Belgium Morocco Antigua & Barbuda Pakistan Burkina Faso (2019) Malaysia Bulgaria Argentina Sri Lanka Côte d’Ivoire Marshall Islands Croatia Bolivia Ethiopia Thailand Finland Brazil Guinea-Bissau Vietnam France Chile Mali Georgia Colombia Mauritania Germany Dominica Niger Guernsey Ecuador Senegal Italy El Salvador South Africa Kyrgyz Rep. Grenada Togo Latvia Jamaica Lithuania Montserrat Netherlands Paraguay N. Macedonia St. Kitts & Nevis Portugal St. Lucia Russia St. Vincent & the San Marino Grenadines Spain United States Sweden Uruguay United Kingdom Uzbekistan Countries China Albania Algeria Bermuda Bangladesh Ghana without Hong Kong SAR Azerbaijan Iraq Canada Kenya IRCs (2019) Indonesia Bosnia & Jordan Costa Rica Mauritius Japan Herzegovina Lebanon Dominican Rep. Seychelles Macao SAR Cyprus Malta Guatemala Sudan New Zealand Czech Republic Qatar Guyana Zambia Philippines Estonia Nicaragua Greece Panama Iceland Peru Jersey Kosovo Liechtenstein Moldova Norway Romania Serbia Ukraine 46 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Annex 2. IRCs Around the World Type of Financial Financial Basis of regulation Limits Country Method Currency Enforcement IRC Institutions products Type Reference on fees Anguilla Deposit Commercial Savings Absolute Local Primary * Eastern Caribbean No Criminal rate floor banks accounts legislation Central Bank sanctions Agreement Act, 1983 Antigua Deposit Commercial Savings Absolute Local Primary * Eastern Caribbean No Criminal and rate floor banks accounts legislation Central Bank sanctions Barbuda Agreement Act, 1983 Argentina Lending Commercial Retail: credit Absolute All Primary * Credit Cards No Administrative rate cap banks card loans legislation Law Nº 25.065 sanctions Cooperative banks Savings banks Financing companies Microfinance institutions Armenia Lending Commercial All Relative: All Primary * Civil Code No Administrative rate cap banks business central legislation of the Republic sanctions loans bank rate of Armenia Microfinance All retail institutions loans Australia Lending Financing Retail: Absolute All Primary * National Consumer Yes Voidance/ rate cap companies consumer legislation Credit Protection invalidity of loans Act, 2009 contracts Microfinance Retail: credit Administrative institutions card loans sanctions Retail: Criminal microcredit sanctions Automatic substitution of contractual provisions Belgium Lending Commercial All business Absolute All Primary *Mortgage law Yes Administrative rate cap banks loans legislation of 1992 sanctions *Royal Decree on Cooperative Retail: saving depos-its AR/ banks consumer CIR92 loans *Royal Decree relating to the costs, Retail: resid. rates, duration and real estate repayment terms of credit Deposit Savings Relative: contracts subject to rate cap accounts central the application of bank rate Book VII of the Code Deposit of Economic Law. rate floor Benin Lending Commercial All business Absolute Local Regulation *Central Bank No Administrative rate cap banks loans Regulation sanctions Microfinance All retail WAEMU’s Council institutions loans of Ministers and the Board of the BCEAO, Deposit All deposits December 15 & 16, rate floor 1992. INTEREST RATE REPRESSION AROUND THE WORLD <<< 47 Type of Financial Financial Basis of regulation Limits Country Method Currency Enforcement IRC Institutions products Type Reference on fees Bolivia Lending Commercial Business: Absolute Local Primary President’s No Administrative rate cap banks working cap legislation Supreme Decrees sanctions loans Cooperative Business: *Nº 1842 Automatic banks term loans substitution of contractual provisions Microfinance Business: *Nº 2055 institutions agricultural loans Financing Retail: resid. companies real estate Retail: small business loans Retail: microcredit Brazil Lending Commercial Business: Absolute Local Primary Special Laws Yes Voidance/ rate cap banks agricultural legislation invalidity of loans contracts Cooperative Retail: resid. *Nº 4.380; Administrative banks real estate August 21, 1964 sanctions Savings Retail: *Nº 8.177; Criminal banks microcredit March 1, 2991 sanctions Microfinance *Nº 10.406; institutions January 10, 2002 Deposit Commercial Savings Central Bank rate cap banks accounts Resolutions Deposit Savings Deposit: *Nº 3109 rate floor banks other accounts Cooperative *Nº 4676 banks Bulgaria Lending Commercial All retail Relative: All Primary *Law on Yes Voidance/ rate cap banks loans adminis- legislation Consumer Credit invalidity of trative rate contracts Financing *Law on Obligations Administrative companies and Contracts sanctions Automatic substitution of contractual provisions Burkina Lending Commercial All business Absolute Local Regulation *Central Bank No Administrative Faso rate cap banks loans Regulation sanctions Microfinance All retail WAEMU’s Council institutions loans of Ministers and the Board of the BCEAO, Deposit All deposits December 15 & 16, rate floor 1992. Chile Lending Commercial All business Relative: Local Primary Special Yes Administrative rate cap banks loans market legislation Laws sanctions rate 48 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Type of Financial Financial Basis of regulation Limits Country Method Currency Enforcement IRC Institutions products Type Reference on fees Cooperative All retail *Nº 18010, Establece banks loans normas para las operaciones de crédito y otras obligaciones de dinero *Nº 20715, Sobre protección a deudores de créditos en dinero Colombia Lending Commercial All business Relative: Local Primary *Decree 1400, No Voidance/ rate cap banks loans market legislation Código de invalidity of rate Procedimiento Civil contracts Financing All retail Administrative companies loans sanctions Microfinance Criminal institutions sanctions Cooperative Automatic banks substitution of contractual provisions Côte Lending Commercial All business Absolute Local Regulation *Central Bank No Administrative D'Ivoire rate cap banks loans Regulation sanctions Microfinance All retail WAEMU’s Council institutions loans of Ministers and the Board of the Deposit All deposits BCEAO, December rate floor 15 & 16, 1992. Croatia Lending Commercial All retail Relative: Local Primary *Civil Code, NN Yes Administrative rate cap banks loans market legislation 53/1991 (8.10.1991.). sanctions rate Zakon o preuzimanju Zakona o obveznim Cooperative odnosima banks Financing *Consumer Credit companies Act NN 75/2009 (30.6.2009.). Savings Zakon o potrošačkom banks kreditiranju Dominica Deposit Commercial Savings Absolute Local Primary *Eastern No Criminal rate floor banks accounts legislation Caribbean Central sanctions Bank Agreement Act, 1983 Ecuador Lending Commercial All business Absolute Local Regulation *Monetary and Yes Voidance/ rate cap banks loans Financial Code invalidity of contracts Cooperative All retail Administrative banks loans sanctions Financing Criminal companies sanctions Deposit Commercial All deposits Automatic rate cap banks substitution of contractual provisions Cooperative banks Financing companies INTEREST RATE REPRESSION AROUND THE WORLD <<< 49 Type of Financial Financial Basis of regulation Limits Country Method Currency Enforcement IRC Institutions products Type Reference on fees El Lending Commercial All business Absolute Local Primary *Usury Law Nº 221 No Administrative Salvador rate cap banks loans legislation sanctions Cooperative All retail Automatic banks loans substitution of contractual provisions Savings banks Financing companies Microfinance institutions Ethiopia Deposit Commercial Savings Absolute Local Regulation *Interest Rate No Administrative rate floor banks accounts Directives Nº NBE/ sanctions INT/12/2017 Savings Certificates banks of deposits Microfinance institutions Finland Lending Commercial Retail: Absolute All Primary *Consumer Yes Automatic rate cap banks consumer legislation Protection Act substitution loans of contractual provisions Retail: credit card loans France Lending Commercial All business Relative: Local Primary *Usury Law 66-101, Yes Administrative rate cap banks loans market legislation December 28, 1966. sanctions rate Cooperative All retail *Consumer Criminal banks loans Protection Act, sanctions article 134 Savings *Monetary and Automatic banks Financial Code, substitution articles 131, 133, of contractual 312, 313, and 134 provisions Financing companies Microfinance institutions Deposit Commercial All deposits Absolute rate cap banks Cooperative banks Deposit Savings rate floor banks Georgia Lending Commercial All business Absolute All Primary *Civil Code Yes rate cap banks loans legislation of Georgia Cooperative All retail banks loans Savings banks Financing companies Microfinance institutions 50 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Type of Financial Financial Basis of regulation Limits Country Method Currency Enforcement IRC Institutions products Type Reference on fees Germany Lending Commercial All business Relative: Local Primary *German Yes Voidance/ rate cap banks loans market legislation Civil Code invalidity of rate contracts Cooperative All retail Administrative banks loans sanctions Savings Criminal banks sanctions Microfinance institutions Financing companies Grenada Deposit Commercial Savings Absolute Local Primary *Eastern No Criminal rate floor banks accounts legislation Caribbean Central sanctions Bank Agreement Act, 1983 Guernsey Lending Commercial All business Absolute Local Court decision *Court decision No Automatic rate cap banks loans substitution of contractual provisions Cooperative All retail banks loans Savings banks Financing companies Microfinance institutions Guinea- Lending Commercial All business Absolute Local Regulation *Central Bank No Administrative Bissau rate cap banks loans Regulation sanctions WAEMU's Council Microfinance All retail of Ministers and the institutions loans Board of the BCEAO, Deposit All deposits December 15 & 16, rate floor 1992. India Lending Microfinance Retail: Relative: Local Regulation Master Directions Yes Administrative rate cap institutions consumer market of the Central Bank sanctions loans rate of India Retail: * Interest Rate on Automatic microcredit Advances, 2016 substitution of contractual provisions Deposit Cooperative Certificates Absolute All * Interest Rate on rate cap banks of deposits Deposits, 2016 Financing Other companies accounts Israel Lending Commercial All business Relative: Local Primary * Laws of the No Voidance/ rate cap banks loans central legislation State of Israel invalidity of bank rate contracts All retail Administrative loans sanctions Criminal sanctions Automatic substitution of contractual provisions INTEREST RATE REPRESSION AROUND THE WORLD <<< 51 Type of Financial Financial Basis of regulation Limits Country Method Currency Enforcement IRC Institutions products Type Reference on fees Italy Lending Commercial All business Relative: Local Primary *Italian Usury Yes Voidance/ rate cap banks loans market legislation Law Nº 108/96 invalidity of rate contracts Cooperative All retail *Decree of Minister Administrative banks loans of Economy and sanctions Finance; October 17, Savings 2014. Nº. 176 Automatic banks substitution of contractual provisions Financing companies Microfinance institutions Jamaica Lending Microfinance Retail: Absolute All Primary *The Money Lending Yes Automatic rate cap institutions microcredit legislation Act; January 27, substitution 1938 of contractual provisions Korea Lending Commercial All business Absolute All Primary *Act on Registration Yes Administrative rate cap banks loans legislation of Credit Business, sanctions etc. and Protection of Cooperative All retail Finance Users Criminal banks loans sanctions Savings *Enforcement Automatic banks Decree of the Act on substitution Registration of Credit of contractual Business, etc. and provisions Protection of Finance Microfinance users institutions Kyrgyz Lending Commercial All business Relative: Local Primary *Usury Law Nº 163; Yes Voidance/ Republic rate cap banks loans market legislation July 24, 2013 invalidity of rate contracts Microfinance All retail institutions loans Latvia Lending Commercial All retail Absolute Local Primary *Consumer Rights No Administrative rate cap banks loans legislation Protection Law sanctions Cooperative banks Savings banks Financing companies Microfinance institutions Lithuania Lending Commercial Retail: Absolute All Primary *Law on Consumer Yes Administrative rate cap banks consumer legislation Credit (Vartojimo sanctions loans Kredito Istatymas) Cooperative Retail: credit banks card loans Financing Retail: resid. companies real estate 52 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Type of Financial Financial Basis of regulation Limits Country Method Currency Enforcement IRC Institutions products Type Reference on fees Marshall Lending Commercial Retail: Absolute Local Primary *Primary No Administrative Islands rate cap banks consumer legislation legislation sanctions loans Malaysia Deposit Commercial Savings Absolute Local Regulation *Development No Automatic rate floor banks accounts Financial substitution Institutions Act 2002 of contractual provisions Mali Lending Commercial All business Absolute Local Regulation *Central Bank No Administrative rate cap banks loans Resolutions sanctions Microfinance All retail WAEMU’s Council institutions loans of Ministers and the Board of the BCEAO, Deposit All deposits December 15 & 16, rate floor 1992. Mauritania Lending Cooperative All business Relative: Local Regulation *Instructions of Bank Yes Voidance/ rate cap banks loans admin- Debt Conditions Nº invalidity of istrative 01/GR/2008 contracts rate Commercial All retail banks loans Microfinance institutions Lending Commercial rate floor banks Microfinance institutions Deposit All deposits rate cap Deposit rate floor Montserrat Deposit Commercial Savings Absolute Local Primary *Eastern No Criminal rate floor banks accounts legislation Caribbean Central sanctions Bank Agreement Act, 1983 Morocco Lending Commercial All business Relative: Local Primary *Credit Institutions Yes Administrative rate cap banks loans market legislation Law, Nº sanctions rate 103-12 (relative aux établissements de Deposit Commercial All deposits crédit et organismes rate cap banks assimilés) Netherlands Lending Commercial All business Relative: Local Primary *Consumer No Administrative rate cap banks loans adminis- legislation Credit Law (Besluit sanctions trative rate kredietvergoeding) Cooperative All retail banks loans Savings banks Financing companies Microfinance institutions INTEREST RATE REPRESSION AROUND THE WORLD <<< 53 Type of Financial Financial Basis of regulation Limits Country Method Currency Enforcement IRC Institutions products Type Reference on fees Niger Lending Commercial All business Absolute Local Regulation *Central Bank No Administrative rate cap banks loans Regulation sanctions Microfinance All retail WAEMU's Council institutions loans of Ministers and the Board of the BCEAO, Deposit All deposits December 15 & 16, rate floor 1992. North Lending Commercial All business Relative: All Primary Law on Obligations No Voidance/ Macedonia rate cap banks loans admin- legislation invalidity of istrative contracts rate Savings All retail Administrative banks loans sanctions Financing companies Deposit All deposits rate cap Pakistan Deposit Commercial Checking Relative: Local Regulation Circulars of the Yes Administrative rate floor banks accounts central Central Bank sanctions bank rate of Pakistan: Savings *Nº 07 of 2008 accounts *Nº 07 of 2013 *Nº 05 of 2014 Paraguay Lending Commercial All business Relative: All Primary *Usury Law Nº No Voidance/ rate cap banks loans market legislation 2.339/2003 invalidity of rate contracts Cooperative All retail Administrative banks loans sanctions Savings banks Financing companies Microfinance institutions Portugal Lending Commercial All business Relative: Local Primary *Decree-Law Nº Yes Administrative rate cap banks loans admin- legislation 133/2009 sanctions istrative rate Cooperative All retail *Central Bank banks loans Regulation Deposit All deposits Absolute Regulation rate floor Russia Lending Commercial Retail: Relative: Local Primary *Consumer Credit Yes Voidance/ rate cap banks consumer market legislation Law Nº 353 invalidity of loans rate (Федеральный закон contracts "О потребительском Cooperative Retail: credit кредите (займе)") Administrative banks card loans sanctions Financing Retail: companies microcredit Microfinance institutions 54 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Type of Financial Financial Basis of regulation Limits Country Method Currency Enforcement IRC Institutions products Type Reference on fees San Marino Lending Commercial All business Absolute All Primary *Criminal Code, Yes Administrative rate cap banks loans legislation article 207 sanctions Financing All retail *Measurement of companies loans anti-usury threshold rate, Banca Centrale della Reppublica di San Marino Spain Lending Commercial Retail: Relative: All Primary Special Laws Yes Voidance/ rate cap banks consumer adminis- legislation invalidity of loans trative rate contracts Cooperative Retail: resid. *Nº 206; banks real estate July 24, 1908 Savings *Nº 80; banks April 4, 1994 Financing *Nº 271; companies November 12, 2003 Microfinance *Nº 294; institutions December 8, 2007 *Nº 151; June 25, 2011 *Nº 161; July 6, 2012 *Nº 116; May 15, 2013 St. Kitts Deposit Commercial Savings Absolute Local Primary *Eastern Caribbean No Criminal And Nevis rate floor banks accounts legislation Central Bank sanctions Agreement Act, 1983 St. Lucia Deposit Commercial Savings Absolute Local Primary *Eastern Caribbean No Criminal rate floor banks accounts legislation Central Bank sanctions Agreement Act, 1983 St. Vincent Deposit Commercial Savings Absolute Local Primary *Eastern Caribbean No Criminal And The rate floor banks accounts legislation Central Bank sanctions Grenadines Agreement Act, 1983 Senegal Lending Commercial All business Absolute Local Regulation *Central Bank No Administrative rate cap banks loans Regulation sanctions Microfinance All retail WAEMU’s Council institutions loans of Ministers and the Board of the BCEAO, Deposit All deposits December 15 & 16, rate floor 1992. South Lending Commercial All retail Relative: Local Primary *National Yes Voidance/ Africa rate cap banks loans market legislation Credit Act, 2005 invalidity of rate contracts Cooperative Criminal banks sanctions Financing companies Microfinance institutions Sri Lanka Deposit Financing All deposits Relative: Local Regulation *Finance Business Yes Administrative rate cap companies market Act Directions, Nº 2 sanctions rate of 2016, Central Bank of Sri Lanka INTEREST RATE REPRESSION AROUND THE WORLD <<< 55 Type of Financial Financial Basis of regulation Limits Country Method Currency Enforcement IRC Institutions products Type Reference on fees Sweden Lending Commercial Retail: Relative: Local Primary *Consumer Credit Yes Administrative rate cap banks consumer central legislation Act, 2010:1846 sanctions loans bank rate (Konsumentkreditlag) Cooperative Retail: banks microcredit Savings banks Financing companies Microfinance institutions Thailand Lending Commercial Retail: Absolute Local Regulation Notifications of the Yes Criminal rate cap banks consumer Bank of Thailand: sanctions loans Retail: credit *Nº FPG. 12/2560 card loans Financing Retail: *Nº FPG. 13/2560 companies microcredit *Nº FPG. (01) C. 5/2558 *Nº FPG. 2/2558 Togo Lending Commercial All business Absolute Local Regulation *Central Bank No Administrative rate cap banks loans Regulation sanctions Microfinance All retail WAEMU's Council institutions loans of Ministers and the Board of the BCEAO, Deposit All deposits December 15 & 16, rate floor 1992. United Lending Cooperative All retail Absolute All Primary *Consumer Credit Act Yes Voidance/ Kingdom rate cap banks loans legislation 1974 invalidity of contracts Financing *PS14/16: Detailed Administrative companies rules for the price cap sanctions on high-cost short-term credit *The Credit Unions Criminal (Northern Ireland) sanctions Order 1985 United Lending Commercial Retail: Absolute Local Primary *Usury laws at the Yes Voidance/ States rate cap banks consumer legislation state level invalidity of loans contracts Cooperative Retail: small *Federal Deposit Administrative banks business Insurance Act sanctions loans Savings Retail: Criminal banks micro-credit sanctions Financing companies Microfinance institutions Deposit All deposits Relative: Regulation rate cap market rate 56 >>> EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Type of Financial Financial Basis of regulation Limits Country Method Currency Enforcement IRC Institutions products Type Reference on fees Uruguay Lending Commercial All business Relative: All Primary legisla- *Usury Law Nº 18212 Yes Administrative rate cap banks loans market tion sanctions rate Cooperative All retail Criminal banks loans sanctions Financing companies Microfinance institutions Uzbekistan Lending Commercial Retail: Absolute All Primary *Resolution of the Yes Voidance/ rate cap banks small legislation President of the invalidity of business Republic of Pakistan contracts loans of March 23, 2018 Nº pp-3620, About Microfinance Retail: additional measures institutions microcredit for increase in availability of banking services Vietnam Lending Commercial Business: Absolute Local Primary *Law on Credit No Administrative rate cap banks com. legislation Institutions sanctions real estate Cooperative Business: banks agricultural loans Savings banks Financing companies Microfinance institutions Deposit Certificates rate cap of deposits INTEREST RATE REPRESSION AROUND THE WORLD <<< 57