Comparative Review of Microfinance Regulatory Framework Issues in Benin, Ghana and Tanzania

This review identifies key issues and lessons about how the overall regulatory framework affects the ability of MFIs to become more market-oriented and integrated with the financial system.

The paper summarizes the findings of country studies on microfinance regulation in Benin, Ghana and Tanzania to better inform its advice and project design regarding the appropriate balance among the objective of promotion, performance and prudential supervision.It finds that:

• Recognizing different tiers of both regulated and unregulated institutions in a financial structure facilitates financial deepening and outreach to groups in under-served urban and rural areas;
• Such an environment promotes:
  • Sustainable microfinance under shared performance standards,
  • The development of appropriate prudential regulation and staff capacity;
• There is a need for an intermediate approach that integrates commercial microfinance into the formal financial sector by adjusting existing regulatory structures.

The authors' study of the three countries finds that:

• Regulation can sometimes result in overly restrictive and unmanageable standards;
• Dynamic microfinance sectors have emerged without conducive regulatory regimes;
• It is important to:
  • Differentiate when prudential regulation is warranted and when regulatory oversight suffices,
  • Identify the agencies to carry out regulation.

The paper concludes by stressing the importance of:

• Measuring and paying for the costs of regulating microfinance;
• Building the technical capacity of supervisory and regulatory staff.