In Favour of Financial Liberalisation*

Fry, Maxwell J.

doi:10.1111/j.1468-0297.1997.tb00041.x

Cited by 187 publications

(48 citation statements)

References 35 publications

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“…The theory elucidates how financial repression can distort and greatly interfere with the micro lending market resulting into adverse effect on economic growth due to reduced credit supply (McKinnon, 1973;Shaw, 1973). This supports the argument of Fry (1997), Demetriades and Luintel (1997) who asserted that the use of interest rate ceilings, distorts the economy and inhibits financial deepening by depressing real rates of interest.…”

Section: Theoretical Frameworksupporting

confidence: 80%

“…The finding that Interest rate ceiling affects micro lending market by reducing credit supply to micro enterprises was in tandem with Fry (1997), Demetriades and Luintel (1997), McKinnon (1973) and Shaw (1973), who stated that financial repression can distort and greatly interfere with the micro lending market resulting into adverse effect on economic growth due to reduced credit supply. Bernanke et al (1996) stated that the less the savings owned by borrowers, the higher will be the divergence from the interests of the supplier of the external funds, and if the interest is capped, the borrowers with low savings will eventually be locked out of credit supply.…”

Section: Discussionmentioning

confidence: 77%

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Logit Analysis of the Relationship between Interest Rate Ceiling and Micro Lending Market in Kenya

Ochieng¹,

Odondo²

2018

IJEF

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Interest rate ceilings have been declining over the past decades as most developing countries continue liberalizing their financial policies. Prior to 2015, Kenya"s banking sector was vibrant and highly profitable. The sector loan book grew at an impressive compound annual rate of 16% in 2011 to 35% in 2015. However, after interest rate cap in 2016, there has been a general slowdown in micro lending and rise in non-performing loans. Some studies argue that the ceiling protects consumers from exploitation and guarantees access to credit while others observe the contrary. This study sought to establish the relationship between interest rate ceiling and micro lending in Kenya. It was anchored on financial accelerator effect theory and the theory of financial repression. The study relied on secondary data from Banks and Micro Entrepreneurs. Logit models were estimated to establish the relevant relationships. It was established that interest rate ceiling had significant negative association with credit supply and default rate. However, it had a significant positive association with cost of Credit. Both Nagelkerke"s R 2 and Cox and Snell"s showed that the estimated model fitted well. The Wald criterion demonstrated that credit supply, costs of credit and default rate were significantly different from zero. Thus, the independent variables were significantly affected by interest rate ceiling. It is recommended that banks pursuing policy of increasing credit supply and reducing cost of credit should advocate for the repeal of interest rate ceiling while those interested in reducing default rate should advocate for its retention.

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Section: Theoretical Frameworksupporting

confidence: 80%

Section: Discussionmentioning

confidence: 77%

Logit Analysis of the Relationship between Interest Rate Ceiling and Micro Lending Market in Kenya

Ochieng¹,

Odondo²

2018

IJEF

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“…Studies that examine the causality between financial development and economic growth take two broad econometrics approaches. Gelb (1989), Fry (1997) King & Levine (1993) Levine (1997Levine ( , 1998 Rajan & Zingales (1998) and Levine & Zervos (1998) have used national cross-sectional data to model the relationship between financial development and economic growth. These studies tend to support the hypothesis that the causality runs from financial development to economic growth.…”

Section: Empirical Studiesmentioning

confidence: 99%

Does Financial Development 'Lead' Economic Growth?

Shan¹,

Morris²

2002

International Review of Applied Economics

152

111

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We use the Toda & Yamamoto (1995) causality testing procedure to investigate the relationship, if any, between financial development and economic growth.We use quarterly data from 19 OECD countries and China, and use total credit and interest spread as indicators of financial development. We also consider the impact of financial development on investment and productivity. We find meagre evidence that financial development 'leads' economic growth, either directly or indirectly. This casts further doubt on claims that financial development is a necessary and perhaps sufficient precursor to economic growth.

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“…Devereux and Smith (1994) argue that risk diversification in trading activities may cause savings' rates to decline, hurting economic growth, while same results may occur due to the use of market manipulation strategies through in-excess stock trading (De Long, Shleifer, Summers, & Waldmann, 1989). Finally, Fry (1997) concludes that stock markets appear to be weak intermediaries between households and businesses.…”

Section: Discussionmentioning

confidence: 93%