Microfinance Regulation in Seven Countries: A Comparative Study

This paper argues that policy interventions should seek to address market failures - such as information constraints, transaction costs, risk allocation, and weak governance - rather than view the financial sector as an arm of anti-poverty programming. The paper:

• Analyzes illustrative experiences in this field, with emphasis on those that have achieved some success;
• Addresses the case of Bolivia, Brazil, Ghana, Indonesia, Mexico, the Philippines, and South Africa;
• Aims to bring international lessons to bear on microfinance regulatory development in India;
• Examines the key features of microfinance regulation in each country, their evolution, and their impact.

The paper:

• Describes the size and characteristics of the microfinance market in the seven countries;
• Presents data on growth trends contemporaneous with the introduction of reforms;
• Looks at the development of the regulatory framework for microfinance, discussing both the main futures of the framework and the rationale and influences affecting its adoption;
• Discusses the style, scope and location of supervisory powers and responsibilities - including delegated systems;
• Examines sector promotion and development efforts that are part of the regulatory framework, or complementary to it;
• Addresses the implementation and impact of regulatory regimes for microfinance;
• Deals with the issue of how non-government organizations (NGOs) and other pre-existing microfinance providers cope with transformation to regulated status.

The paper concludes that any regulatory intervention should be justified as the most cost-effective and realistic method for achieving policy aim.