The policy and regulatory environment for microfinance incorporates a number of elements. These include the policies of governments and donor agencies to support microfinance, the regulatory environment that applies to specialised MFIs, and the extent to which the legal framework enables regulated banks to engage in microfinance. Until recently, there has been very little research on these key issues. And while three important studies focusing on the regulatory framework have been published recently (see Berenbach & Churchill 1997; Jansson & Wenner 1997; and Rock & Otero 1997), these focus much more on the situation in Latin America than in Asia. This study considers the policy and regulatory environment from a broad perspective, and with a particular focus on Asia. Individual country studies using a common research framework were undertaken to examine the policy and regulatory environments for microfinance in the nine countries represented in the BWTP Network: Bangladesh, India, Indonesia, Malaysia, Nepal, Pakistan, Philippines, Sri Lanka and Thailand. These studies were conducted in close cooperation with the members of the Network in each country. They also involved interviews with senior officials from a wide variety of institutions including government departments, donor agencies, central banks, microfinance institutions (MFIs), commercial banks, research institutes and other relevant bodies. These individual country studies, which are included as appendices, each provide a detailed description of the policy and regulatory environment for microfinance in the country concerned and contain a number of recommendations. The main report draws heavily on these nine country studies, highlighting policy measures that have been successful and identifying the key elements of a policy and regulatory environment which would encourage the growth of microfinance on a sustainable basis. A draft of the study was presented at the Fourth Asia-Pacific Regional Workshop on Banking with the Poor, which was held in Bangkok in 3–7 November 1997 in conjunction with the Asia Regional Conference on Sustainable Banking with the Poor. These meetings were organised jointly by the Foundation and the Sustainable Banking with the Poor project of the World Bank. Representatives from the BWTP Network endorsed a statement on the policy and regulatory environment for microfinance in Asia. This was based on the draft study, and is included as a preface to this volume. The study itself has been revised to reflect comments made at the Fourth Regional Workshop, and to incorporate information received since that time. Following this introduction, chapter 2 offers an overview of microfinance in the region, providing a context for the discussions that follow. Chapter 3 analyses the arrangements by which governments and donor agencies provide support for microfinance, whether through specialist MFIs, the banking system or direct government programs, and identifies current best practice in a number of key areas. The regulation of non-bank MFIs is considered in chapter 4. The discussion addresses the broad regulatory framework and interest rate restrictions, before moving on to a detailed discussion of experience with alternative approaches to ensuring high performance and reporting standards for MFIs. These include prudential regulation and supervision, the standards of second tier microfinance institutions, and self-regulation. Finally, the chapter discusses the difficult issue of savings mobilisation and deposit taking by MFIs. Chapter 5 looks at the regulation of banks, insofar as the regulatory framework affects the scope for regulated banks to engage in microfinance. While minimum capital requirements and interest rates are identified as fundamental issues, the chapter also discusses a range of other prudential requirements. Finally, chapter 6 outlines the key conclusions and recommendations of the study. |
