We study the liberalization of the microcredit usury rate in Colombia and its effects on loan expansion. In February 2007 the interest rate ceiling for microcredit loans was lifted and fixed to 33%, while the ceiling of all other loans remained unchanged and close to 20%. We perform a Difference-in-Difference analysis by comparing the expansion of microcredit loans (treatment group) with that of corporate loans (control group). While both credit portfolios target the same type of clients, namely entrepreneurs, we nonetheless control for loan size and debtor’s riskiness to make both loan portfolios more comparable. We employ highly granular data (using the entire credit registry, with roughly one million observations during 2005–2008) both at the loan and bank-level. Our results indicate that this policy encouraged and facilitated credit access. On average, we find that for every percentage point lift in the microcredit lending rate, the number of new loans increases by 4.5% and the total loan portfolio increases by 3.7%. Further, the size of each microcredit loan decreases, on average, by 8%, and the loan term maturity is reduced by approximately 3 months.
