Emerging Trends and Challenges
Edited by Suresh Sundaresan
Chapter 5: How Should Governments Regulate Microfinance?
5. How should governments regulate microﬁnance? Richard Rosenberg1 INTRODUCTION Powerful new microﬁnance techniques are being developed that allow formal ﬁnancial services to be delivered to low-income clients who have long had no access to such services. But the microﬁnance industry will not reach its full potential unless many of its service providers can eventually enter the arena of licensed, prudentially supervised ﬁnancial intermediaries. Regulations must eventually be crafted that allow this to happen. Dozens of developing and transition country governments are now at earlier or later stages of addressing this challenge. Many diﬀerent actors are pushing for regulatory adjustments, from microﬁnance institutions themselves (MFIs), to international development agencies, to government oﬃcials who want to democratize ﬁnance or protect against perceived risks for the ﬁnancial system (or perhaps clamp down on annoying non-governmental organizations—NGOs). The interests and objectives of these actors diverge considerably. Thorny technical and practical issues are involved. We do not have decades of experience with regulated microﬁnance to guide us—most of the countries with microﬁnance regulations have only a few years of experience with implementing them. And country-speciﬁc circumstances loom large, so there can be no standard model for microﬁnance regulation. Nevertheless, among people working on these topics there are surprisingly wide areas of consensus on some general principles that should bear on regulatory design for microﬁnance. The author is conﬁdent that most of the material in this chapter is consistent with the views...
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