Another 'French Paradox': Explaining Why Interest Rates to Microenterprises Did Not Increase with the Change in French Usury Legislation

Cahiers du CEREN, 37 (2011), pp 27-42

16 Pages Posted: 24 May 2012

See all articles by Arvind Ashta

Arvind Ashta

CEREN EA 7477 Burgundy School of Business - Université Bourgogne Franche-Comté

Laurence Attuel-Mendes

Groupe ESC Dijon Bourgogne - CEREN

Jean-Guillaume Ditter

Université de Bourgogne - Burgundy School of Business

Date Written: October 1, 2008

Abstract

Conventional wisdom indicates that the growth of credit may not materialize if credit rates remain capped by usury laws, as had long been the case in France. France therefore abolished usury ceilings on loans to microenterprise in an effort to increase financing for microenterprises. This should have led to an increase in interest rates and increase in microcredit. However, it did not and this is therefore a paradox. This paper provides possible explanations for the paradox in terms of classical equilibrium analysis as well as behavioral and institutional analysis and softer institutional reasons.

Keywords: Microfinance, Microcredit, usury, behavioral finance, law and economics, institutional analysis, interest rate

JEL Classification: B52, B59, E4, G21, K00

Suggested Citation

Ashta, Arvind and Attuel-Mendes, Laurence and Ditter, Jean-Guillaume, Another 'French Paradox': Explaining Why Interest Rates to Microenterprises Did Not Increase with the Change in French Usury Legislation (October 1, 2008). Cahiers du CEREN, 37 (2011), pp 27-42. Available at SSRN: https://ssrn.com/abstract=2065859 or http://dx.doi.org/10.2139/ssrn.2065859

Arvind Ashta (Contact Author)

CEREN EA 7477 Burgundy School of Business - Université Bourgogne Franche-Comté ( email )

29 rue Sambin
21000 Dijon
France

Laurence Attuel-Mendes

Groupe ESC Dijon Bourgogne - CEREN ( email )

France

Jean-Guillaume Ditter

Université de Bourgogne - Burgundy School of Business ( email )

29 rue Sambin
Dijon, 21006
France

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