Regulation and Supervision of Microfinance in Albania

This paper provides an overview of the literature on regulation and supervision of microfinance, focusing specifically on the regulation of microfinance in Albania.

The microfinance sector is expanding, and there is an increasing need for regulation and supervision. The paper states that regulation should ensure the security of people’s deposits and the soundness of the financial market. Prudential regulation and supervision should be applied to microfinance when MFIs collect and mobilize deposits from the general public and the scale of their activity is large enough to jeopardize the financial system.

Microfinance regulation in Albania is not activity-oriented, as there is no real definition of microfinance in Albanian law. The Albanian microfinance sector needs:

• Microfinance to be defined in order to implement the right development policies and avoid confusion and license misuse;
• Interventions that lower minimum capital requirements for nonbank financial institutions, simplify procedures, and documentation;
• Harmonization of institutional tax to enhance development, encourage access, and avoid market distortions;
• Regulation that considers microfinance an activity and helps start-up informal institutions develop and get formalized;
• Regulatory framework that induces commercial banks to integrate downward into the microfinance market.