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Other People's Money: Regulatory Issues Facing Microenterprise Finance Programs
Vogel, R.
Publication Date: 1994
Published by: IMCC - International Management and Communications Corporation
Document Type: Paper (PDF)
What are the forces propelling successful microenterprise finance programs?
The paper states that there are two forces propelling successful microenterprise finance programs toward some kind of formalization:- deposit mobilization
- leverage
The paper explores a variety of issues surrounding the formalisation and regulation of informal microenterprise finance programs that wish to leverage themselves by borrowing from other financial institutions or taking deposits from the public. It looks at - a possible core of agreement -- in particular, the provision of more adequate information by microenterprise finance
- certain characteristics typical of most microenterprise finance programs (e.g
special characteristics of clients, types of loans and capital structures) are examined to see what implications these might have for an appropriate regulatory approach - some realities of prudential regulation and supervision
The paper observes that even in the richest countries where major resources have been devoted to regulation and supervision, costly failures have nonetheless occurred (e.g BCCI) and, further, that in poorer countries adequate regulatory and supervisory resources often do not exist to cover fully even the commercial banking sector
Concludes that:- a careful balancing will be required of the potential benefits from prudential regulation and supervision against the costs of inhibiting innovation and outreach by microenterprise finance programs
- successful microenterprise finance programs will and should continue to leverage themselves by obtaining external borrowed funds to expand outreach to their low-income clients
- attention to accurate financial information for effective management and control is clearly a key starting point for microenterprise finance programs wanting to transform themselves into financial intermediaries
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