Regulating for development: the case of microfinance

The regulatory concerns of microfinance sector lies in the special nature of these institutions which caters the needs of those who have been marginalised from the formal financial sector. The paper underlines the importance of an appropriate regulatory framework to support sustainable delivery of diversified microfinance services such as savings and insurance. The paper explores the rationale for regulation in the microfinance sector, and followed by a review of major regulatory approaches and its impact on the microfinance sector. The sector-specific regulations along with prudential reforms may facilitate and environment, which allows microfinance institutions to mobilise savings and to reduce the problems in enforcing normal banking regulations. The paper also emphasises the need to incorporate the country specificities in the regulatory approach to encapsulate the specificities of macroeconomic environment and different stages of development. (C) 2005 Board of Trustees of the University of Illinois. All rights reserved.