A Framework for Regulating Microfinance Institutions

Abstract

No AccessPolicy Research Working Papers21 Jun 2013A Framework for Regulating Microfinance InstitutionsAuthors/Editors: van Hennie Greuning, Joselito Gallardo, Bikki Randhawavan Hennie Greuning, Joselito Gallardo, Bikki Randhawahttps://doi.org/10.1596/1813-9450-2061SectionsAboutPDF (0.3 MB) ToolsAdd to favoritesDownload CitationsTrack Citations ShareFacebookTwitterLinked In Abstract:February 1999 Is there a need to regulate microfinance institutions? If so, what activities should be regulated? Who should regulate them? And what issues are fundamental to the sector's regulation? The continuum of institutions providing microfinance cannot develop fully without a regulatory environment conducive to their growth. Without such an environment, fragmentation and segmentation will continue to inhibit the institutional transformation of microfinance institutions. Van Greuning, Gallardo, and Randhawa recommend a tiered approach to external regulation, one that takes into account the different types of microfinance institutions, the products they offer, and the markets they service. A tiered approach can be useful in designing regulatory standards that recognize the basic differences in structure of capital, funding, and risks faced by different kinds of microfinance institutions. The model they develop for a regulatory framework identifies thresholds of financial intermediation activities, thresholds that trigger the requirement that an institution satisfy external or mandatory regulatory guidelines. It focuses on risk-taking activities that must be managed and regulated. They illustrate the usefulness of the model by practically applying prudential considerations to various categories and values of financial risk for each of three broad categories of microfinance institution: ° Those that depend on other peoples' money (such as donor or public sector funding). ° Those that depend on members' money. ° Those that leverage the general public's money to fund microfinance loans. For each category, the model highlights: ° The observed value ranges for selected indicators of financial risk. ° Recommended ranges of value suitable for consideration under internal governance. ° Suggested threshold values that indicate the need for external regulation. A transparent, inclusive framework for regulation will preserve the market specialties of different types of microfinance institutions-and will promote their ultimate integration into the formal financial system. One example of the kind of regulation the authors recommend: Require standard registration documents and procedures-no different from those required of regular corporations-including the designation of a central government agency with which they should register as corporate entities. This paper-a product of the Financial Sector Development Department-is part of a larger effort in the department to explore ways to provide more financial services to the poor. The authors may be contacted at [email protected], [email protected], or [email protected] Previous bookNext book FiguresReferencesRecommendedDetailsCited ByThe Regulatory and Supervisory Frameworks of Conventional Microfinance in Kenya26 April 2022Determinants of Microfinance Outreach in India: Empirical EvidenceApplied Economics Quarterly, Vol.66, No.2Are microfinance institutions in South-East Asia pursuing objectives of greening the environment?Journal of the Asia Pacific Economy, Vol.23, No.223 May 2018Board Independence and Microfinance Performance: Evidence from an Emerging MarketSSRN Electronic JournalMicrofinance regulation and effective corporate governance in Nigeria and ZambiaInternational Journal of Law and Management, Vol.59, No.1Financial disclosure and performance of microfinance institutionsJournal of Accounting & Organizational Change, Vol.10, No.3Microfinance intermediation: regulation of financial NGOs in GhanaInternational Journal of Law and Management, Vol.56, No.4Developing microfinance: A survey of the literatureStrategic Change, Vol.21, No.7-826 November 2012What Drives the Microfinance Lending Rate?SSRN Electronic JournalTrade in Financial Services, Financial Crisis and Development Implications: What is Important and What Has Changed?SSRN Electronic JournalInformation Transparency and Agency Costs in the Microfinance IndustryReview of Market Integration, Vol.2, No.118 August 2010The impact of outside control in microfinanceManagerial Finance, Vol.35, No.12Performance and governance in microfinance institutionsJournal of Banking & Finance, Vol.33, No.4Performance and trade‐offs in Microfinance Organisations—Does ownership matter?Journal of International Development, Vol.20, No.5Internet reporting in microfinance institutionsOnline Information Review, Vol.32, No.3From Revolution to Evolution: Charting the Main Features of Microfinance 2.0SSRN Electronic JournalDo regulated microfinance institutions achieve better sustainability and outreach? Cross-country evidenceApplied Economics, Vol.39, No.10Governance and performance of microfinance institutions in Central and Eastern Europe and the Newly Independent StatesWorld Development, Vol.33, No.10Comparative Review of Microfinance Regulatory Framework Issues in Benin, Ghana, and TanzaniaSSRN Electronic JournalMicrofinance regulation influence on small firms' financing in TanzaniaJournal of Financial Regulation and Compliance, Vol.12, No.1Towards best practices for micro finance institutional engagement in African rural areasInternational Journal of Social Economics, Vol.31, No.1/2The Microfinance Revolution and the Grameen Bank Experience in BangladeshFinancial Markets, Institutions and Instruments, Vol.11, No.3Transitioning from Dysfunctional to Normal Banking System after The 1997 Crisis: Thailand Policy ConsiderationsSSRN Electronic JournalTransitioning from Dysfunctional to Normal Banking System after The 1997 Crisis: Thailand Policy ConsiderationsSSRN Electronic JournalSome Analysis and Thoughts on Financial Sector Development Policy and Strategy in European and Cetntral Asian CountriesSSRN Electronic Journal View Published: November 1999 Copyright & Permissions Related RegionsAfricaLatin America & CaribbeanRelated CountriesBoliviaCzech RepublicSri LankaRelated TopicsFinance and Financial Sector DevelopmentPrivate Sector Development KeywordsBALANCE SHEETBANKBANKSCAPITALCRED CREDIT UNIONSDEPOSITSEMERGING MARKETSEQUITYEQUITY CAPITALFINANCIAL INSTITUTIONSFINANCIAL RISKFINANCIAL SERVICESFINANCIAL SYSTEMSGOVERNMENTSHOUSINGINSTITUTIONAL DEVELOPMENTLOANSMICROFINANCESAVINGS PDF DownloadLoading ...

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