Regulation on Microfinance Institutions in Asia

Regulation on Microfinance Institutions in Asia

  • Submitted By: manojdahal
  • Date Submitted: 07/25/2010 7:24 PM
  • Category: Business
  • Words: 11261
  • Page: 46
  • Views: 869

International Review of Business Research Papers Vol.4 No.4. Aug-Sept 2008. PP. 421-450

Regulation of Microfinance Institutions in Asia: A Comparative Analysis
Mamiza Haq*, Mohammad Hoque** and Shams Pathan***
This  paper  compares  the  regulatory  framework  of  the  microfinance  institutions  (MFIs)  in  Asia.  We  find  formal  MFIs  are  generally  regulated  under  the  banking  legislation  and  supervised  by  central  banks.  In  contrast,  semiformal  institutions  like  NGO‐MFIs  are  regulated  by  either  an  apex  organisation  or  other  government body. Informal MFIs are not regulated but some are of sufficient size to become NGO‐MFIs or  even  banks.  The  formal  MFI  regulation  seems  effective  but  the  internal  controls,  governance  and  ownership structure are disappointing for NGO‐MFIs, and of course for the informal MFIs. We propose a  prudential  regulatory  environment  for  MFIs  similar  to the  banking  sector  with  the  realisation  that  some  existing banking rules may not be applicable to MFIs. The regulator should also remember the cost of over‐ regulation. This regulation is a joint and separate responsibility of the governments, central banks, donors  and private sectors. Their regulators require sufficient competence and supervision and enforcement skills  to achieve a suitable regulatory environment to protect depositors but still encourage MFI to improve their  outreach and attain sustainability. 

Key words:  Microfinance Institutions and Prudential regulations.  

1. Introduction
Microfinance entails the delivery of financial services (such as deposits, loans, payment services, money transfers and insurance) to poor and low income households and their micro-enterprises. Microfinance institutions (MFI)1 now play a key role in the fight against poverty by helping poor households build their income and assets (Zaman 2004). According to the State of MicroCredit Summit Campaign Report (2005) as of 2004 some...

Similar Essays