A Guide to Regulation and Supervision of Microfinance

16 October 2012
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This Guide updates CGAP’s 2003 Guiding Principles on Regulation and Supervision of Microfinance. The revisions reflect continuing developments in the global state of financial access for poor and low-income customers, including the following:
• Increased attention to financial services beyond microcredit
• Proliferation of new providers and financial service delivery mechanisms
• Rapid evolution of regulatory frontiers, such as the regulation of bank and nonbank agents and e-money issuers
• Increased funding from the private sector and quasi-commercial public investors
• More countries that have extended experience with microfinance and microfinance regulation and supervision
• In some countries, increased transformation of microfinance institutions from nonprofit to for-profit
• Competitive saturation of microcredit markets in a growing number of countries, which can increase portfolio risk and heighten consumer protection issues
• Integration of microfinance into mainstream finance institutions and markets
• Emerging consensus about creating a level playing field, and the role of regulating “by activity” to achieve that goal
• Focus of international financial standard-setting bodies on the need for proportionate regulation and supervision that does not result in the exclusion of low-income customers

In contrast to the situation a decade ago, most policy makers, donors, and private investors involved in microfinance now appreciate that poor and low-income people, like the rest of us, need a variety of basic financial services, not just credit. The ability of the market to respond to this demand depends not only on providers developing sustainable, low-cost ways to provide such services, but also on having an enabling policy and regulatory environment. Appropriate regulation and supervision of financial service providers is therefore critically important in bringing to poor and low-income people the financial services they need.