Paper

Principles and Practices for Regulating and Supervising Microfinance

How to supervise microfinance institutions?

This paper analyzes the microfinance regulatory framework of four countries: Bolivia, Colombia, Paraguay, and Peru. It discusses the following topics as they relate to microfinance institution (MFI) and credit union (CU) regulation:

  • Legal form and purpose;
  • Ownership;
  • Control by owners;
  • Minimum capital;
  • Capital adequacy;
  • Credit concentration;
  • Permitted operations;
  • Distribution of dividends.

It also provides recommendations on the practices for supervising MFIs and CUs. These cover:

  • Organization of the supervisory agency;
  • Role of microfinance and CU specialists;
  • Licensing of MFIs and CUs;
  • Off-site supervision;
  • On-site supervision;
  • Sanctions;
  • Accounting standards.

The paper concludes that:

  • The search for resources has led many nonprofit MFIs to consider transformation from nonprofit foundations to regulated and supervised (for-profit) financial entities.
  • Bank supervisors can maintain the integrity of the regulatory framework and accommodate microfinance at the same time.

About this Publication

By Jansson, T., Rosales, R. & Westley, G.D.
Published