The Iron Law of Interest Rate Restrictions (by Gonzalez-Vega 1976): The lower the real rate of interest, the more heavily concentrated will be the loans in the hands of relatively few large borrowers as well as to the exclusion from these portfolios of a large numbers of small potential borrowers. Of course, this fact may be masked by formal lenders who make a number of small loans to the poor and multiple large loans to wealthy borrowers. This is not due to a conspiracy. the self-interest of each lender combines with the excess demand that exists for negatively priced loans to force lenders to ration funds to their most profitable and powerful customers. Another effect of low interest rates on loans is that they force intermediaries to pay even lower rates, usually negative in real terms on savings deposits. Most of the well-to-do find places to invest their surpluses in non-financial assets, so that they are not seriously affected by the low rates paid on savings deposits. The low rates on deposits hurt poor households the most because they cannot assemble enough savings to buy lumpy non-financial assets such as land or cattle or gold. Source: Are the Arguments for Cheap Agricultural Credit Sound? By Dale Adams
Posted on: Tue, 29 Jul 2014 09:56:10 +0000
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