Job Market Paper
Effects of Usury Ceilings on Consumers Welfare: Evidence from the Microcredit Market in Colombia [link to the last version]
Interest rate caps are a widely used policy tool intended to protect consumers from excessive charges by loan providers. However, they are often cited as a barrier for the development of credit services for low-income borrowers, as they make riskier borrowers unprofitable and reduce the incentives to invest in branching networks, particularly in remote and isolated locations. In this paper, I exploit a change in the usury ceiling applied to micro-loans in Colombia to understand the effects of this policy across geographic markets. To quantify the welfare implications of this policy, I structurally estimate a demand and supply model that incorporates the changes in size and composition of the potential market caused by the policy change, in a context where the distribution of branching networks has a crucial role in the optimal pricing strategies of loan providers. I find that the policy generated an increase in consumer surplus at the national level that is explained by greater credit availability for riskier borrowers and the expansion of branching networks in areas that were previously under-served. A counterfactual exercise reveals that the welfare gains associated to this policy depends greatly on additional investment in branching networks, as they help to compensate the consumer welfare loss associated with the subsequent increase in interest rates after the relaxation of the ceiling.
The interaction between microfinance institutions and traditional banks in rural markets. Evidence from Colombia
In recent years, microfinance institutions (MFIs) have undergone a transition from non-profit organizations into regulated (for profit) financial establishments, transforming their competitive interaction with formal loan providers in local markets. While the new scenario could be characterized by increased business stealing between the two types of competitors, MFIs might also create positive spillovers on mainstream financial institutions, due to market expansion and information sharing. These spillovers may have an impact on entry decisions in local markets, with considerable implications on market power and consumer welfare. I use a structural model to identify the effects of entry on the overall profit and the stock of loans provided by incumbents of different types in small isolated markets in Colombia. I evaluate different assumptions on the interaction across types of loan providers, finding positive and significant spillovers between banks and MFIs. I find important asymmetries in the competitive interaction across different types of loan providers. The presence of MFIs has a positive impact on the profit of mainstream institutions, which is partially explained by market expansion in the loans market. By contrast, MFIs do not seem to benefit significantly from the presence of mainstream institutions. This result is relevant for the design of policies that attempt to increase the supply of financial services in isolated markets.
FinTech in the US mortgage industry
The U.S mortgage industry has experienced a rapid transformation, with an increasing number of lenders adopting technological innovations that allow potential borrowers to complete their mortgage application process online, reducing the need for face-to-face interaction with loan officers. The market share of financial institutions offering this type of service has increased significantly in recent years, reaching 9.5\% of the originations in 2017. This paper examines the response of incumbent mortgage lenders to the advent of this technology. I find that the increased availability of lenders providing online mortgages has had a differentiated impact on the volume of applications and loan originations for incumbent providers depending on their size. The results suggest that local lenders are better able to differentiate from FinTech institutions by offering services that are appealing to some segments of borrowers. By contrast, mortgages provided by FinTech seem to be a closer substitute for the services provided by large financial institutions.
Measuring systemic risk in the Colombian financial system: A systemic contingent claims approach Capera, L. Gomez, E., Laverde, M., Morales-Mosquera M. A. (2013) Measuring systemic risk in the Colombian financial system: A systemic contingent claims approach. Journal of Risk Management in Financial Institutions Volume 6, Issue 3, 253-279.
Relaciones crediticias y riesgo de contagio en el mercado interbancario no colateralizado colombiano
Capera, L., Lemus J. S., Estrada, D. (2014) Relaciones crediticias y riesgo de contagio en el mercado interbancario no colateralizado colombiano (Credit relationships and contagion risk in the Colombian interbank market). In ”Política monetaria y estabilidad financiera en economías pequeñas y abiertas [Monetary Policy and Financial Stability in Small Open Economies]. Banco de la República.