Many countries in Africa have established interest rate ceilings to protect consumers from high interest rates charged by microlenders. Such ceilings are often the response of governments facing political or cultural pressure to keep interest rates low. The general idea is that interest rate ceilings limit the tendency of some financial service providers to increase their interest yields (all income from loans as a percentage of the lender's average annual gross loan portfolio) especially in markets with a combination of no transparency, limited disclosure requirements and low levels of financial literacy. Despite good intentions, interest rate ceilings can actually hurt low-income populations by limiting their access to finance and reducing price transparency. If ceilings are set too low, financial service providers find it difficult to recover costs and are likely to grow more slowly, reduce service delivery in rural areas and other more costly markets, become less transparent about the total cost of loan, and even exit the market entirely.
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