Legal Frameworks and Performance Standards for Microfinance: A Desk Study
This paper examined the legal / regulatory frameworks of eight countries, consolidating these experiences into useful lessons to shape Haiti's emerging microfinance sector. The countries selected were Dominican Republic, Philippines, South Africa, Cambodia, Senegal and the Central American Countries of El Salvador, Honduras and Nicaragua.
The microfinance institutions (MFIs) were segregated into three broad categories - using people's money, using members' money and using public money. Based on these categories and the associated risks, the authors determined the regulatory authorities. Case studies used the following parameters:
- How are credit-only MFIs organized, classified and supervised?
- How is access to public deposits controlled? Is there a need for a new category of MFI that can collect deposits?
- How are cooperative financial institutions integrated into legal and regulatory framework?
- How is the issue of performance standards for non regulated institutions addressed?
Based on the above discussions, the authors drew the following conclusions for microfinance regulation and supervision:
- Few countries have sought to create a special category or registration system for credit-only MFIs;
- It is important to develop a level playing field between different types of credit-only institutions, e.g. bank and non-bank, private, cooperative and non-profit credit providers;
- Disclosure and transparency of institutional data improves the efficient and appropriate allocation of funding;
- The government regulates and supervises the mobilization of savings limited to private companies or cooperative institutions, excluding the NGOs and the non-profit associations;
- High barriers to entry, particularly in terms of minimum capital requirements, might create the need for a new financial intermediary institutional category, such as non-bank financial institutions;
- It is important to consider the capacity of the regulatory body as banking authorities may not have the resources to supervise the large number of MFIs.