Microfinance Regulation and Social Protection

This paper surveys microfinance regulation in Africa.

The study analyzes data from a sample of MFIs from ten African countries and explores the relationship between regulation and outreach in microfinance provision. MFI outreach affects the number of beneficiary households and microbusinesses. Efficient MFIs help in sustaining livelihoods and improving quality of life of individual households and businesses. MFI regulation affects performance and outreach, which in turn affects social protection.

The paper demonstrates that regulation plays a vital role in microfinance sector development and can determine the nature of social protection provided by the sector. It recommends that:

• Governments should develop MFI regulation in a broader social protection framework;
• Microfinance regulation should be sector specific and facilitate mobilization of savings by MFIs;
• Regulation should encourage MFIs to establish linkages with formal sector;
• Governments need to consider the consequences of regulation and ensure closer engagement with MFIs in developing appropriate regulatory framework.