The Experience of Microfinance Institutions with Regulation and Supervision

This paper discusses regulation and supervision for microfinance institutions (MFIs). It draws on the results of a survey that examined the views of MFIs on the experience of being supervised and puts forth some recommendations on the content and implementation of supervision.

The paper finds:

• MFIs show a positive opinion towards being regulated;
• MFIs admit to several benefits brought about from the process of regulation:
  • Better access to commercial and non-commercial sources of funds for equity and debt,
  • Better ways to achieve growth and outreach goals,
  • Improved standards of control and reporting,
  • Improved ability to offer products beyond micro credit, such as savings and transfers,
  • Enhanced legitimacy in the financial sector and with clients.
• MFIs experience some loss in the ability to experiment with unconventional ideas;
• MFIs expect policymakers and supervisors to have a thorough understanding of the microfinance sector.

The paper also:

• Identifies the areas where the best practices of MFIs are in conflict with standard banking regulations;
• Identifies the areas where microfinance requires special norms;
• Highlights the desire of MFIs to work with supervisors with specialized training on microfinance.

Finally, the paper stresses on the need to build a deeper understanding of microfinance amongst regulators and supervisors and informs about the tools and guidelines that are being developed to lessen the gap between the emerging microfinance industry and the regulatory and supervisory authorities.