Varying terminology used in the discussion of microfinance regulation sometimes leads to confusion. The following general definitions are offered:
| Financial Intermediation |
The process of accepting repayable funds (such as funds from deposits or other borrowing) and using these to make loans.
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| Hybrid/Delegated Regulation |
Regulation by a private entity delegated with the authority of a public regulatory body.
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| Laws |
The subset of regulation adopted by a legislative body such as a parliament.
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| License |
Formal governmental permission to engage in financial service delivery that will subject the license-holding institution to prudential regulation and supervision.
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| Microfinance Institution (MFI) |
Any form of legal entity whose primary activity is providing microfinance services.
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| Microfinance Program |
An organized program to provide microfinance services carried out by a legal entity also engaged in substantial other activities.
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| Non-bank Financial Institution |
An institution offering financial services under a financial license that restricts the type of activities it can engage in, typically including restrictions on deposit-taking.
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| Permit |
Formal governmental permission to engage in non-depository microlending activity that will not subject the permit-holding institution to prudential regulation and supervision.
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| Prudential Regulation or Supervision |
Aimed at protecting the financial soundness of licensed intermediaries’ business, in order to prevent financial system instability and losses to depositors.
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| Regulation |
Binding rules governing the conduct of legal entities and individuals, whether they are adopted by a legislative body (laws) or an executive body (regulations).
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| Regulations |
The subset of regulation adopted by an executive body such as a ministry or a central bank.
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| Self-regulation / Supervision |
Regulation by a member-owned body endowed with supervisory authority, and effectively controlled by the regulated entities.
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| Supervision |
External oversight aimed at determining and enforcing compliance with prudential regulation.
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