Regulation of Microfinance

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Regulation of Microfinance a level playing
field for All microfinance providers

• Mark Bienstman - senior adviser WSBI
• UN DESA panel discussion
• New York, 10 April 2007

2
overview

• Introduction put the topic in perspective
• Regulation some specific concerns from Savings
  Banks

3
Introduction

• Before we start
• what is the reality in the field ?
• gt 10.000 MFIs
• lt 1.000 are /- sustainable (Mix db)
• gt 9.000 (very) small structures with
  (very) limited resources
• limited resources at the level of national
  regulators/supervisors as well.

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• In practice
• dont regulate if you cannot monitor
• (avoid creating costs with no added value)
• limit the number of players you need to monitor.
  HOW ?
• a) killing the (very) small? NO - they
  have added value in the A2F process
• b) push to achieve scale? YES

5

• HOW to achieve scale in microfinance ?
• Internal growth (-gt slow process)
• M A (-gt different roots -gt NGO)
• Create a national association/Federation
• including a central bank cfr
  Mexico/Bansefi and El Salvador/Fedecrédito
• (light) cooperation agreements with bigger
  (regulated) Institutions (make a clear split
  between distributing and managing financial
  products)

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Regulation specific concerns from Savings Banks

• Microfinance goes beyond MFIs
• Allow for a pluralistic financial sector
• Keep coherence between different government
  policies
• Regulation in line with the risks
• Regulation of ALL financial players
• Allow one stop shopping

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Microfinance goes beyond MFIs

• Microfinance is more than microcredit
• Microfinance is offered by a broad range of
  financial institutions and intermediaries, so
  regulations should cover all these.
• A specific regulation for microfinance can be
  indicated, but not a specific regulation for
  MFIs.

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Regulation -gt PLURALISME

• support a pluralistic financial sector (to
  allow choices for the customer)
• NGO (-gt MFIs)
• cooperatives and/or credit unions
• members owned organisations
• state-owned (retail and/or savings) banks
• stakeholders driven
• commercial banks
• shareholders driven
• .

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Regulations -gt COHERENCE

• facilitating general access to finance requires
  coherence with other national policies
• such as development policy - rules on KYC AML
  FATF.
• But also with budgetary policies conflict of
  interest between A2F (i.e. Via Postal Savings
  Banks) and reduction of public spending (i.e. In
  the Postal area)

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Regulation -gt RISK DRIVEN

• the more risks, the more regulation
• There is a difference for
• savings (deposit taking)
• credit or lending (where is the funding coming
  from?)
• payments services (retail versus institutional)
• insurance (pm)

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Regulation -gt WHO ?

• All financial institutions should be regulated
  and supervised by financial specialists (i.e.
  Ministry of Finance - Central Bank - Banking
  Commission...)
• same business -gt same risks -gt same rules
• NOT by departments in charge of
• PTT (cfr the Postal Savings Banks)
• Cooperatives (cfr credit unions)

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Regulation and one stop shopping

• Today a lot of Savings Banks are savings only
• no credit (all funding is for public finance)
  best allocation of resources ?
• no cross-selling -gt no one stop shopping
• no payments services (current account - payment
  cards ) -gt difficult to handle remittances !
• no access to national interbank payment and/or
  clearing and settlement system(s)
• no fair competition..

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Conclusion ?

• By all means, avoid crowding out
• At the level of the customer
• regulation should promote (not kill!) easy
  access to finance
• At the level of the microfinance providers
• regulation should create a level playing field
  for ALL providers, regardless of their legal
  status - regardless of their ownership structure
  regardless of their size -

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• THANK YOU !