Friday, July 01, 2005
Microfinance Institutions and Public Policy
By: Daniel C. Hardy, International Monetary Fund, Paul Holden, Enterprise Research Institute, and Vassili Prokopenko, International Monetary Fund,
IMF Working Paper 02/159, 2002
Many governments and nongovernmental organizations have adopted policies to promote the growth of microfinance institutions (MFIs). The appropriate level and form of support for MFIs are discussed in this paper on the basis of a review of key MFI characteristics. Governments are also responsible for the regulation of MFIs; here, some principles concerning the extent and coverage of MFI regulation and supervision are developed. The paper addresses some of the public policy issues connected with the growth of the MFI sector. Further expansion in the numbers of MFIs and their financial importance seems likely, and they continue to attract financial and technical support from numerous sources. Meanwhile, the multiplication and growth of MFIs has prompted many countries to reconsider how, if at all, they should be regulated, and the relationship between the MFI sector and the rest of the financial system and, in particular, commercial banking. These developments give rise to several public policy questions, such as whether MFIs merit assistance from either official or nonofficial sources, and, if so, how such assistance can be deployed most efficiently. At the same time, the principles for the prudential and non-prudential regulation and supervision of MFIs are worth reviewing. Section II of this paper defines the main characteristics of MFIs and provides some indicators of their performance in different countries. Section III lays out the arguments for and against providing support to MFIs and discusses how negative side effects of such support can be reduced. Section IV considers the issues of why and how MFIs should be regulated and supervised. Section V concludes.
IMF Working Paper 02/159, 2002
Many governments and nongovernmental organizations have adopted policies to promote the growth of microfinance institutions (MFIs). The appropriate level and form of support for MFIs are discussed in this paper on the basis of a review of key MFI characteristics. Governments are also responsible for the regulation of MFIs; here, some principles concerning the extent and coverage of MFI regulation and supervision are developed. The paper addresses some of the public policy issues connected with the growth of the MFI sector. Further expansion in the numbers of MFIs and their financial importance seems likely, and they continue to attract financial and technical support from numerous sources. Meanwhile, the multiplication and growth of MFIs has prompted many countries to reconsider how, if at all, they should be regulated, and the relationship between the MFI sector and the rest of the financial system and, in particular, commercial banking. These developments give rise to several public policy questions, such as whether MFIs merit assistance from either official or nonofficial sources, and, if so, how such assistance can be deployed most efficiently. At the same time, the principles for the prudential and non-prudential regulation and supervision of MFIs are worth reviewing. Section II of this paper defines the main characteristics of MFIs and provides some indicators of their performance in different countries. Section III lays out the arguments for and against providing support to MFIs and discusses how negative side effects of such support can be reduced. Section IV considers the issues of why and how MFIs should be regulated and supervised. Section V concludes.