The Effects of Regulation on Microfinance in West Africa
This paper discusses the various regulations established by countries of the West African Economic and Monetary Union (WAEMU) for their regional financial systems. It highlights trends and widespread perceptions of existing risks in the region and finds that a number of concerns are present. In order to evaluate the regulations, the paper considers the views of many stakeholders, both, from the supply side and the demand side. It suggests that legislation is important in the microfinance sector because of a number of reasons including poor governance at MFIs, weak information management systems, over indebtedness, and lack of transparency. Key highlights from the paper include:
- In the region, regulation in microfinance had to perform something of a catch up role in a sector that has grown considerably in the 1990s;
- Regional financial systems are a major source of employment, with over 15,000 jobs created;
- Generally regulations in the region aim to standardize products and practices;
- Rise in interest rates has a negative effect on the level of demand for credit while proximity and timely access to credit have a greater impact on demand;
- Implementation of new laws and regulations within WAEMU means that how MFIs function requires comprehensive reviewing.