Sa-Dhan Newsletter Volume 3 Issue 2
Microfinance Regulation
In 1993 GOB approved the New Banking Law for the
and mFIs in Bolivia are no exception to this. The unfortunate
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regulation of all FIs in the country
effect was that the race to sustainability seemed to dilute the
socio-economic change aspect of mF by neglecting those
In 1995 it passed legislation which created and defined
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who need these services the most. This is not to say that
the organization and functioning of FFPs
mF operations are bound to remain unsustainable.
Created FONDESIF and NAFIBO as apex funding and
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Lack of initiative by mFIs for accessing client savings (at least
development institutions to support mFIs
to us in India where providing savings service is considered
It is now considering setting up of a Fund for protecting
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sometimes more important than credit services) means that
the savers of regulated mFIs
mFIs remain donor dependent. Alternatives in the form of
apex funding institutions will also ultimately have their own
The CBB has been playing a catalytic role for the development
limitations. The clients remain devoid of an important
of the financial sector and particularly the mF sector in the
financial service, which could have gone a long way in
country. Accepting its true role of a Central Bank, it divested
improving their credit discipline.
of its control on the SBFE soon after reform measures were
initiated in the country. But, it continues to function as a
There also seem to be very few credit delivery innovations.
bridge between the Government and SBFE, enabling the latter
Loans with collaterals of houses, land, ornaments, or personal
to bring in suitable regulatory measures as and when needed.
guarantees were mentioned by some mFIs with pride (Such
The provision of higher CRAR by the regulated FFPs at 16.6%
loans are being given by FIs or moneylenders for the last 100
(Optimum required) as against 10% for the banks is one such
years in India). Though technology, SBFE and the Government
step initiated by the CBB.
have helped the mFIs a lot, and the hardware and software
costs have often not been borne by them, it has hardly
Worldwide, NGOs have played a very significant role in
reduced their transaction costs. Despite substantial donor
bringing mF to the centre stage of development initiatives for
presence and influence, innovations carried out elsewhere do
addressing the problems of the unreached and unserved poor.
not seem to be getting into Bolivia.
It was generally perceived that the institutional arrangement
of NGOs and the social orientation of the promoters might not
LEARNING FROM BOLIVIA
be best suited for providing mF services on a professional
and sustained manner. But, the fact remains that though a
The emphasis of the Bolivian mF sector has been on developing
number of NGOs have promoted FFPs to offer better mF
efficient "delivery systems" and not so much on developing
services, the core segment of the population viz., the poor
appropriate "receiving mechanisms". Issues that could be of
could not be benefited by the new arrangements. The
almost immediate interest not only for the mF sector in India,
experience of PRODEM, reflects the dilemma facing NGOs in
but also perhaps for the entire rural banking sector are
serving the rural poor. Therefore, it is difficult to ignore the
mentioned below:
NGOs in the business of mF. They would continue to have
User-friendly technology: Standardization of accounting
a strong role to play, as they would be more concerned than
systems and on-line front-office computerization through
others about providing microCredit to the most disadvantaged,
user friendly technology has led to perfection in accounting
viz. the poor.
and MIS, that help the management take appropriate policy
It can be said that the Government policies and independent
and operational decisions. Use of thumb impression reading
working of SBFE has contributed positively to the functioning
machines, generation of credit and debit vouchers through
of mFIs in Bolivia. It has allowed information to flow freely
computers, and (still in experimental stage) touch screen
and quickly, for all concerned. It has also allowed SBFE to
ATMs for withdrawals from savings accounts are examples of
have effective control on the functioning of the mFIs, regulated
use of sophisticated technology appropriately tuned to meet
by it. Strict entry norms, higher level of capital adequacy for
the needs of even illiterate clients. While such use of
FFPs, setting up a Credit Bureau and introducing additional
technology reduces the drudgery of book keeping for the mFI
provisioning for loans given by FFPs to a client who has
personnel and frees them for more personal contacts with the
availed credit facilities from another regulated mFI could be
clients, it also facilitates the clients' transactions, builds up
attributed to the autonomy given to the SBFE. It has ensured
their morale, and brings more transparency in the financial
that only those who are serious and have some experience in
operations.
running mFIs enter the regulated mFIs segment. Though
Transparency in credit operations: Most mFIs provide loans
there are a number of NGOs engaged in mF activities and
of fixed sums for various tranches of credit that a borrower
reportedly keen to set up FFPs, not many players were
may get. While this may lead to under-financing or over-
allowed to get into this business. Quickness of response and
financing of MEs, it has the benefit of bringing transparency
its ability to move with the changing needs of the mF sector
in operations, as every borrower knows how much loan is
are also some of the major advantages of its autonomous
one "entitled" to get. The mFIs also provide a computer
functioning.
printout of date-wise repayment schedule to the borrower as
soon as the loan is sanctioned. This again brings transparency
CONCERNS
as the borrower knows right from day one how much has to
"Sustainability" of mFIs is the catchword of mF everywhere,
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