An Analysis of the Legal Requirements for Microfinance: Based on a Recent GTZ Study of 11 Countries Worldwide

This presentation is a desk study that focuses on legal frameworks specifically catering to MFIs or being used by institutions that provide microfinance services. It begins by providing a list of countries and institutional types and looks at who regulates whom in these countries. It also examines different levels of rule-making.The presentation states that:

• Countries can stipulate microfinance-specific requirements through:
  • Separate laws for MFIs;
  • Legal windows that allow for microfinance provision;
  • Microfinance-specific statutory regulation under general banking laws.
• The following authorities can supervise MFIs: the Central Bank, a separate supervisory authority, a specialized agency.

The presentation identifies various criteria for:

• The choice of regulatory approach;
• The criteria for line-drawing in terms of permissible businesses, product characteristics, target groups, etc;
• Limits for credit amounts.

It states that the specification of regulatory instruments for MFIs is not much different than that for banks, other than being tighter or more relaxed, and examines:

• Capital adequacy requirements and provisioning requirements in various countries;
• Provisioning schedules, such as:
  • Provisioning against risk concentration;
  • Reserve and liquidity requirements;
  • Ownership concentration;
  • Sanctions and corrective actions.

The presentation concludes by indicating its aim to provide a list of options and interesting cases, and listing the issues for future study.