Legal and Regulatory Analysis for Depository Microfinance Institutions (DMFIs): Analysis and Recommendations
This report studies the regulatory framework for depository MFIs in Afghanistan and evaluates the viability for MFIs to collect deposits. The study is based on a review of Afghan financial regulations, current trends and best practices and comparative examples from Uganda and Pakistan.
The research covers the legal framework for registration, ownership, licensing and governance of depository MFIs, prudential and economic statutory requirements and non-prudential requirements. It also examines the rules for combating money laundering and financing of terrorism. Study findings include:
- Financial inclusion is crucial for economic development given the high poverty level in Afghanistan;
- Government has provided a legal window under the banking law for institutions to collect savings from the poor;
- Afghan regulations differ from those of most countries in ownership structure of depository MFIs, corporate governance etc.
The article suggests that since the Central Bank is revising the regulations, the Afghan microfinance association could recommend changes to remove legal gaps, and promote financial deepening by removing ceilings on loan size.