Sa-Dhan Newsletter Volume 3 Issue 2

Microfinance Regulation

loan sanction, and areas of early warning signals. For FFPs

and Open Cooperatives, the supervision is more stringent as

S.No.

Category

Arrears in

Provisioning

the risk perceived by the SBFE is more in view of a highly

days

%

decentralized nature of functioning of these institutions.

1.

Normal

>5

1.0.

Support Provided by SBFE: SBFE has put in place a system

2.

Potential Problem

6.30.

5.0.

of providing the credit history of all the clients of the

3.

Deficient

31.60.

20. 0.

regulated mFIs, and plans to have a similar information

system for unregulated mFIs. These are available on line

4.

Doubtful

61.30.

50.0.

through modems and updated on a monthly basis. Setting

5.

Loss Asset

>91

100.0.

up of such "credit information bureau" or "risk center" has

helped the financial institutions avoid over-financing.

PROVISIONING NORMS FOR LOANS

The norms prescribed above are mandatory. The regulated

Savings and Regulatory Measures: The regulated mFIs are

mFIs have, in general, attempted to make higher provisions

allowed to mobilize deposits upto 10 times their paid up

than required. In the case of Banco Sol, it reported an

capital. However, at the moment, there is no protection to

increase in loan delinquency ratio2 from 7% in 1999 to

the savers of even regulated mFIs. SBFE and the Government

12.3% in 2000. It has made provisions, which are 3.3%

are working towards setting up a Guarantee Fund for protecting

points higher than the mandatory provisions requires by

the savers from any possible failures of the regulated mFIs.

SBFE. At the end of 2000, it had covered 78.6% of the

Meeting the Regulatory and Supervision Costs: The functions

delinquency by the provisions made by it during the year.

of SBFE, which include maintaining the risk centers, off-site

Similarly, in the case of Fie-FFP, the provisioning covers about

data collection and its analysis, and on-site supervision, are

92% of the delinquent loan portfolio. This is done by MFIs

all cost intensive. It also incurs pre-formation expenditure or

to run their businesses on sound principles and enable them

incorporation expenditure, whenever a prospective promoter

to meet any contingency.

of an FFP applies for a license.  In order to meet its

expenditure, it charges the regulated mFIs and FIs (including

Measures taken for avoidance of double or multiple financing:

banks) an annual fee equivalent to 0.001% of the total assets

The growth of the mF sector (and the slow down of the

of each institution. Although receipts from such fees are very

economy in general) saw multiple mFIs targeting the same

nominal in the case of upcoming regulated mFIs, the same

good clients, which at times resulted in more than one mFI

are reasonably compensated by the receipts from well-

financing the same client.  To discourage such financing,

established banks.  It was understood that the SBFE is

SBFE has made it mandatory for the regulated mFIs to make

functioning without any financial support, either budgetary

100% provisioning of such loans where the same client has

from the Government or funding from the CBB, and is

been financed by two mFIs, though such loans could be

meeting all its expenditure from out of the fee income and

classified as 'normal'. This seems to have considerably

other income. However, SBFE was initially supported by way

brought down instances of such double financing.

of technical assistance by a number of International donor

agencies, mainly for providing training to its personnel,

Supervision: The Department of Non-Banking Entities of

developing systems and procedures, developing manuals etc.

SBFE is responsible for supervision of all the regulated mFIs.

The financial independence of SBFE has contributed very

Both off-site and on-site supervision methods are used by the

largely to its independent working.

SBFE.  The off-site surveillance is the same for Banks and

NBFEs. The Department has prescribed various statements for

ROLE OF GOVERNMENT, CENTRAL BANK AND

the mFIs to be submitted to it from time to time. These are

NGOS IN DEVELOPMENT OF MF SECTOR

scrutinized by the department, and the mFIs are advised to

initiate remedial measures, wherever required.  These

The rapid growth of mF sector over the last decade was made

statements attempt to get a microscopic view of the functioning

possible by successive measures taken by the GOB. Some

of the regulated mFIs. In all, about 500 statements are being

of the milestones in the history of mF sector development in

sent annually by the mFIs to the SBFE. With the high level

Bolivia were:

of automation adopted by the FFPs, furnishing the requisite

information from time to time, does not seem to be a burden

In 1987 the GOB enabled the Central Bank (CBB) to

§

for them. FFPs also feel that such periodical reporting makes

provide autonomy to the SBFE

them pro-active in taking necessary corrective measures. The

In 1992 it allowed PRODEM-NGO to promote a

§

on-site supervision differs according to the risk associated

commercial bank with exclusive focus on mC

with each type of institution. It includes sample checks on

loan accounts, compliance of various conditions stipulated for

The loan delinquency ratio in Bolivia refers to the ratio of the (aggregate of) entire loan for which any installment is in default

2

for more than 5 days compared to the aggregate outstanding loans of the FI.  For an individual borrower, therefore, either

there is a defaulted loan, or a regular loan.  Compared to this, the repayment percentage in India means the percentage of

repayment installments, which are in default, and not the entire loan amounts.

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