United Nations Department of Economic and Social Affairs
Panel Discussion on Regulation of Microfinance
New York, 10 April 2007
Approaches to Regulating Microfinance:
A Comparative Analysis
Presentation by Joselito Gallardo
Counsellot, Business Outreach Center Network, New York City
Contours of Microfinance Development
1. From microcredit to inclusive financial systems

Shift from narrowly-focused microcredit to broad range of
financial services: loans and credits, savings products,
microinsurance, inward remittances from overseas workers.
2. From credit-specialized NGOs and non-profits to a
broader range of institutional providers of finance

Credit-only NGOs and microfinance institutions, credit unions
and savings & credit cooperatives, specialized limited-service
banks, non-bank finance institutions, commercial banks
3. Creation and application of strategic alliances between
and among different institutional types
Contours of Microfinance Development (continued)
4. Rapid development and expansion of microfinance as
an industry and integral part of the financial system
has attracted:

Increased interest and attention of regulatory authorities and
international development agencies.

Entry of international and private investors as stakeholders in
registered / licensed / regulated microfinance institutions
(regular commercial banks and specialized banking institutions
with microfinance focus, non-bank financial institutions, some
Apex-type organizations)
Basic Types of Approaches to Microfinance Regulation
1. Recognition of microfinance as a financial sector
activity to be regulated or prudentially supervised.
2. Expansion of jurisdiction of banking and/or financial
sector regulatory authorities to include microfinance
institutions / activities (often, still no distinction
between regulating institutions vs. activities)
Basic Types of Approaches to Microfinance Regulation
(continued)
3. Specialized regulatory and reporting frameworks for
microfinance institutions or activities

Certain types of microfinance institutions are still excluded
from main regulatory regime, and are regulated by other
agencies (e.g., credit unions, savings & credit cooperatives)
4. Promoting and inducing institutional transformation of
NGOs and non-profit institutions to registered /
licensed status
5. Regulation of microfinance industry to protect or
insulate formal financial system
Observations on Country Experiences
1. Time period (8 years on average) to put in place
and implement effective regulatory framework.
 A long and costly process to elaborate rules, expand
supervisory capacity, transform institutions, and sort
out political conflicts.
2. Tension between maintaining soundness of
financial system as a whole and of microfinance
segment versus achieving outreach expansion
and deepening.
Observations on Country Experiences (continued)
3. Need to preserve and cultivate existing forms and
structures with potential to support sustainable
growth.
4. In spite of instances of abuse and regulatory arbitrage
by founders of microfinance institutions, country
experiences underscore need for balance and realism
in entry requirements and standards.
5. Complexity embedded in financial system’s
components, and insulation of reform process from
market forces and realities obstructs effective
operation of sustainable regulatory frameworks.
Observations on Country Experiences (continued)
6. Governments still tempted to use policy mandates and
subsidized credit / wholesale funds to force expansion
of the microfinance industry and deepen its outreach.
7. The all important message still remains: address
market needs and fix market failures – this is a main
characteristic of the trade-off between financial
deepening vs. expansion of financial services