Sa-Dhan Newsletter Volume 3 Issue 2

Microfinance Regulation

Sa-Dhan Newsletter

Volume 3, Issue 2 October 2002

Sa-Dhan

Sa-Dhan

Special Issue

The Association of

Microfinance Regulation:

Community Development

International Learning and Experience

Finance Institutions

From the Editor's Desk

CONTENTS

Dear Readers,

1.

Microfinance Regulation &

Successful regulation will be a complex and multi-pronged intervention, if it has to successfully

Enhancing Resource Flows:

contribute to enhancing the provision of financial services to the poor. The challenge of regulation

in microfinance requires not only to serve and protect the interest of poor but also in the overall

International Experience

integration of the service in such a manner that results in increasing the flow of resources to the

- Kathryn Imboden

poor. Consequently, the exercise of regulation involves addressing a variety of issues, that

(WWB, New York)

include among other things a favourable policy and legal environment, operational and

performance standards, innovation, and capacity building of the sector for sustainable provision

2.

Visit to Microfinance

of financial service to the poor.

Regulatory Council (MFRC),

Many countries today are recognizing the need for providing a facilitating regulatory environment

Johannesburg, South Africa

for the growth of the microfinance (MF) sector. In countries like Bolivia, Bangladesh, Kenya and

- D. Narendranath (Pradan)

Philippines, the current banking laws have been effectively used to provide commercial oriented

MF services through appropriate institutional transformation.  In other countries like Nepal,

3.

Microfinance : Design &

Morocco, Ethiopia, Peru and Gambia, there are special laws for the creation of regulated

Delivery Issues

microfinance institutions (MFIs). Uganda, Zambia, Honduras, El Salvador, Bosnia and Brazil are

in the process of revising laws in relation to the provision of mF service. While in India, we have

- Speech by Shri Vepa

now arrived at a minimum basic set of standards, around which to increasingly invite compliance

Kamesam, Deputy Governor,

and reporting. In Guatemala, 13 strong credit unions representing 85% of the country's credit

RBI, at Sa-Dhan Annual Policy

union's savings and loans have set up a mechanism for supervising the country's credit unions.

A unique case is that of the South African where a hybrid system covers the broad spectrum of

Conference

private individual suppliers of such services to the large banks. This Microfinance Regulatory

4.

Highlights of the recently held

Council (MFRC) is composed of representatives from two MF networks, development finance

institutions, the Central Bank and the Department of Trade and Industry. If we have to move

Sa-Dhan' Annual Policy

towards compliance and regular reporting it would be healthy to examine and come up with a

Conference

suggestions on the nature of a structure that might be appropriate for the Indian microfinance

sector.

5.

NABARD' Study Report on

Though microfinance is a nascent industry in India, the past few years have seen a tremendous

Regulatory and Supervisory

progress in terms of outreach and resource involved. Thousands of NGOs and a good number

Mechanism for MFIs in

of NBFCs have come into existence to cater the financial needs of the poor not reached by the

Bolivia : A Summary

formal banking systems. The new domain of professionalism for sustainable businesslike services

that also serve the interest of both the client and the service provider is growing by the day. In

6.

Sa-Dhan's Microfinance

conjunction with this is the increasing presence too of a diversity in approach, models,

Education Programme -

perspectives and processes practiced by NGO-MFIs ranging from a mediocre to service providers

maintaining high standards of operation. The variance and the quality of service directly affect

2002 (Information)

the credibility of the sector, which suggests an urgency in addressing the need for building a

well-defined operating framework for the sector.

7.

Recognitions : National &

International

Confronted with this environment, the Reserve Bank of India appointed within National Bank for

Agriculture and Rural Development (NABARD) a Task Force on Supportive Policy and Regulatory

8.

Sa-Dhan's Mission Statement

Framework for MF, which suggested the establishment of a self-regulatory body with norms and

standards. Subsequently, Sa-Dhan itself undertook a detailed study on what the contours of

some of those recommendations might be. The study raised a variety of issues and brought to

Edited by :

the fore the complexity of developing and building something that is valid for the Indian situation.

Mathew Titus

Keeping in mind all these aspects in regulation, this special issue once again has attempted to

surface some of the central issues that require attention. We present a multi-country experience

For Private Circulation Only

in the piece written by Kathryn Imboden, Policy Advisor at WWB, the NABARD Bolivia report and

the visit report to MFRC by Mr. Narendranath (PRADAN). Finally, we present the operating

Published by :

approach to the sector by the Central Bank by presenting the speech made by the Honourable

Shri. Vepa Kamesan, Deputy Governor, Reserve Bank of India at the recently concluded Annual

Sa-Dhan

Policy Forum on microfinance organized by Sa-Dhan on 4th September 2002 in New Delhi.

B-4/3133 Vasant Kunj

We hope you enjoy the reading

New Delhi-110 070

E-mail:sa_dhan@mantraonline.com

Mathew Titus

Website : www.sa-dhan.org

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