Reducing the Cost of finance and Enhancing Financial Inclusion in Africa: Policy Options
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On average, lending spreads are higher in Africa than in other developing countries. Several government have reacted by establishing lending rate caps, yet these administrative measures can be counterproductive because interest rate ceilings do not ensure lower long-term lending rates and can adversely affect financial inclusion. In fact, lending institutions can react by simply increasing other service costs to recoup lost income. Moreover, lenders can stop servicing riskier segments of the market (such as MSMEs) if the cap does not adequately compensate operating and other costs.