Does Regulation Increase Microfinance Performance in Sub-Saharan Africa?

This paper assesses the impact of regulation on microfinance performance and sustainability. It is based on a multivariate analysis of data from 192 MFIs in 32 Sub-Saharan African countries for the year 2008.

The paper gives an overview of microfinance regulations in Sub-Saharan Africa and examines the types, timing and objectives of regulation. It presents a comparative analysis of regulated and unregulated MFIs on several variables. Findings include:

• Better regulatory framework and higher official supervisory power improve sustainability of MFIs;
• Age, size and level of capitalization are positively associated with operational self-sufficiency;
• After controlling for country differences in regulatory power, higher loan size increase the Operational Self Sufficiency.

The paper states that the central issue regarding public policy in Sub-Saharan Africa is enforcing and improving the quality of existing regulations. For individual MFIs, it is essential to conduct an in-depth analysis of the supervisors regulatory capacity before applying for a license.