Case Study

Recent Developments in Microfinance

What lessons can be drawn from a financial crisis for regulation and supervision of MFIs?
Download11 pages

This paper presents five case studies summarised from the author's field research and consultancy work: two from Indonesia, two from Nepal and one from India.

It draws lessons in the light of the recent financial crisis in Indonesia:

  • Prudential deregulation, macroeconomic stability, and effective bank supervision are essential for sustained financial and economic growth: Indonesia performed well on deregulation and stability, but failed on bank supervision;
  • Microfinance was least affected in sound banking and avoided political influence;
  • As MFIs cannot rely on adequate bank supervision, they are advised to establish their own networks with apex organisations of external auditing, inspection and supervision.

It concludes that financial deregulation without adequate bank supervision can be disastrous.

[Author's abstract]