Consensus Guidelines on Regulating and Supervising Microfinance [12] [13]

• Design of microfinance regulation should not proceed very far without estimat­ing supervision costs realistically and identifying a sustainable mechanism to pay for them. Donors who encourage governments to take on supervision of new types of (licensed) institution should be willing to help finance the start­up costs of such supervision.

• In developing countries, “self-supervision” by an entity under the control of those supervised is not likely to be effective in protecting the soundness of the supervised financial institutions.

• A microlending institution should not receive a license to take deposits until it has demonstrated that it can manage its lending profitably enough so that it can cover all its costs, including the additional financial and administrative costs of mobilizing the deposits it proposes to capture.

image053Financial cooperatives (credit unions and savings and credit cooperatives)—at least large ones—should be prudentially supervised by a specialized financial authority, rather than by an agency that is responsible for all types of coopera­tives (financial and non-financial).

The Bibliography includes a number of reference works and guidelines that are useful in addressing the above questions—particularly on relevant prudential standards, tools for supervision, and costs of supervision—as well as providing the benefit of lessons from the experience of a number of countries that have had to address similar questions and issues.

Notes [14]

image052the institutional investor or lender is an insurance company, from the insurance commissioner.

6. Positive information includes repayment history with amounts and terms of the loans, while negative information includes delays in repayment and defaults.

7. See Christen, Lyman, and Rosenberg (2003). The selected set of key policy recom­mendations is presented and reproduced verbatim, except for those terms in brackets, which have been inserted for purposes of further clarification, and except for some changes in the order of presentation.


van Greuning, Hennie, Joselito Gallardo, and Bikki Randhawa. 1999. “A Framework for Regulating Microfinance Institutions.” World Bank Policy Research Working Paper No. 2061, World Bank, Washington, DC.

World Bank. 2001. “Finance for Growth: Policy Choices in a Volatile World,” World Bank Policy Research Report, World Bank and Oxford University Press, Washington, DC.

World Bank Institute. 2004. Interactive CD-ROM on Microfinance Regulation. Washington, DC: World Bank Institute.

Yaron, Jacob, and Stephanie Charitonenko. 1999. “Making the Transition from State Agricultural Credit Institution to Rural Finance Intermediary: Role of the State and Reform Options.” Paper prepared for the panel on Strategies for Microfinance in Rural Areas, Second Inter-American Forum on Microenterprise, Buenos Aires, Argentina, June 1999.

image053Zeller, Manfred. 2003. “Models of Rural Financial Institutions.” Lead theme paper pre­sented at the International Conference on Best Practices, “Paving the Way Forward for Rural Finance,” Washington, DC, June 2003.

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