Getting the Framework Right: Policy And Regulation for Microfinance in Asia

Publication Date: 1998
Published by: FDC - Foundation for Development Cooperation
Document Type: Paper

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Turning attention to the role of the policy and regulatory environment in microfinance

This paper explores how lack of access to financial services is a critical constraint to the establishment or expansion of viable microenterprises. It is commonly accepted that populations traditionally excluded from the formal financial sector can, in fact, be a profitable market niche for innovative banking services, and that microfinance can be very important in reducing poverty.

The paper further explains the rapid growth of microfinance institutions (MFIs) in recent years and how their outreach has remained small compared to the potential demand. Few MFIs have yet attained any significant degree of self-sufficiency. While microfinance has the potential to make an important contribution to poverty reduction in the region, the requirement is development of a microfinance sector that is able to reach large numbers of poor people on a sustainable basis.

This, in turn, requires increased attention to all aspects of microfinance, including the policy and regulatory environment. While the nine countries included in this study differ in terms of their level of economic development, social conditions and institutional structure, the study finds that an effective policy and regulatory environment for microfinance is likely to include a number of common elements

The paper recommends a number of methods for the regulation of bank/non-bank financial institutions, and for direct support by donors and governments.