Public Policy on Microfinance in South America

Suggesting policy approach to enable development of microfinance
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This paper analyzes the impact of public policies on microfinance development in South America.

The study focuses on financial system regulatory frameworks, as they tend to play a fundamental role in the success of inclusion and microfinance programs. It also analyzes best practices recommended by international agencies, comparing them to existing framework for microfinance activities in South American countries.

Study findings reveal that different countries had different approaches, ranging from interventionist to pro-market and laissez faire, often existing side by side, due to the process of policy accumulation. Commercial banks, with active government encouragement, have played an active role in the development of microfinance in all these countries. The authors posit an emerging intermediate viewpoint that:

  • Favors direct, well designed, pro-market government interventions to meet market failures and accelerate the passage to a developed financial market;
  • Defines that role of government is to promote development of deep and efficient financial markets, not to replace them.