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 use a structural estimation of demand and supply 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 availability of funding alternatives for riskier borrowers rather than by the expansion of branching networks that took place after the regulatory change. Nevertheless, I find that additional investments in branching networks help to compensate the consumer welfare loss associated to the subsequent increase in interest rates, particularly in small markets.
Effects of Entry of Microfinance Institutions on Market Structure in the Retail Banking Industry. Evidence from Colombia
In recent years, institutions specialized in microfinance (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 may 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. In order to measure these spillovers, I use information from small isolated markets in Colombia to estimate a structural model that identifies the effects of entry on the overall profit and the stock of loans provided by incumbents of different types. 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 are partially explained by market expansion in the loans market, while 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.
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.