Overview of Microfinance-related Legal and Regulatory Issues in the Newly Independent States and the World

This presentation provides information about microfinance-related legal and regulatory issues, focusing on the New Independent States (NIS).

The presentation:

• Defines microfinance;
• Mentions the legal forms and the terminology that NIS use in microfinance regulation.

The presentation discusses various aspects of the prudential regulation of microfinance, looking at

• Objectives:
  • To protect the soundness of licensed intermediaries' businesses;
  • To prevent financial system instability and losses to depositors.
• The application of prudential regulation depending upon:
  • Timing and the state of the industry;
  • Sources of funding;
  • Cost-benefit analysis.
• Special prudential standards in microfinance.

The presentation identifies supervisory challenges in microfinance and makes the following key policy recommendations:

• Regulation must allow microfinance to enter the arena of licensed, prudentially supervised financial intermediation;
• Prudential regulation should not be imposed on lending only microfinance institutions (MFIs);
• Before policy makers create new forms of prudentially regulated depository MFIs, they should obtain a complete financial and institutional analysis of the leading MFIs;
• Policy makers should be flexible with limitations on foreign ownership or maximum shareholder percentages.

The presentation concludes by posing questions about the application of these principles in the NIS, looking especially at:

• The scope of regulatory oversight;
• The risk of abuse and possible consequences;
• Relation to the regulation of banks;
• Capacity issues.