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Emerging Trends and Challenges

Edited by Suresh Sundaresan

This book takes a solid step toward a systematic analysis of the implications of microfinance for the role and regulation of capital markets. The authors address integration of capital markets with microfinance, technological innovations such as the use of mobile phone technology, the consequences of women’s access to micro-loan borrowings, and the regulatory challenges and opportunities emerging as the landscape of microfinance dramatically evolves.
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Chapter 5: How Should Governments Regulate Microfinance?

Richard Rosenberg


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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