Microfinance Regulation: Lessons from Benin, Ghana and Tanzania

This article identifies key issues and lessons about how the overall regulatory framework affects the ability of microfinance institutions (MFIs) to become more market-oriented and integrated with the financial system.

The article is based on a review undertaken by the World Bank on microfinance regulation in Benin, Ghana and Tanzania to better inform, advice and project design regarding the appropriate balance between the objectives of promotion, performance and prudential supervision.

The article states that:

• In the underdeveloped financial markets of Africa, legislation intended to promote MFIs may impose untenable supervisory burdens, while an excessively restrictive approach may constrict innovation and expansion;
• Good microfinance legislation, regulation, and supervision involve adapting basic principles to the conditions in a given country. It discusses how Benin, Ghana and Tanzania vary in the nature of their MFIs and in their experiences with microfinance regulation;
• The key issues raised in the study about microfinance regulation and supervision are:
  • Can regulation promote the growth of microfinance?
  • What is the capacity to supervise and be supervised?
  • Who should regulate?
  • How to deal with cooperative financial institutions?

The paper concludes that the lessons learnt from the three countries do not support the proposition that establishing new regulatory categories will support the commercialization of microfinance or the creation of sustainable MFIs.