Should Principles of Regulation and Prudential Supervision be Different for Microenterprise Finance Organizations?

Publication Date: 1993
Published by: USAID - U.S. Agency for International Development
Document Type: Paper

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How are MFOs regulated? Is there any optimum regulation?

Examines rationale for the regulation of microenterprise finance organizations (MFOs), and looks at the practically adopted regulatory policies, such as:

• the role of government as a lender of last resort
• deposit insurance
• licensing of financial intermediaries
• capital adequacy requirements
• incentive compatibility

• regulation is desirable because preventive action is more cost-effective than remedial interventions
• it is critical to recognize that there are no standardized rules for optimum regulation, because MFOs have a great diversity in their institutional designs
• frequently adopted policies such as incentive compatible regulations must be designed to reach beyond simple capital adequacy requirements

This document is available in hardcopy only. Copies of GEMINI publications can be obtained from PACT Publications.