This paper argues that policy interventions should seek to address market failures - such as information constraints, transaction costs, risk allocation, and weak governance - rather than view the financial sector as an arm of anti-poverty programming.
The paper:
* Analyzes illustrative experiences in this field, with emphasis on those that have achieved some success;
* Addresses the case of Bolivia, Brazil, Ghana, Indonesia, Mexico, the Philippines, and South Africa;
Aims to bring international lessons to bear on microfinance regulatory development in India;
* Examines the key features of microfinance regulation in each country, their evolution, and their impact.
The paper:
* Describes the size and characteristics of the microfinance market in the seven countries;
* Presents data on growth trends contemporaneous with the introduction of reforms;
* Looks at the development of the regulatory framework for microfinance, discussing both the main futures of the framework and the rationale and influences affecting its adoption;
* Discusses the style, scope and location of supervisory powers and responsibilities - including delegated systems;
* Examines sector promotion and development efforts that are part of the regulatory framework, or complementary to it;
* Addresses the implementation and impact of regulatory regimes for microfinance;
* Deals with the issue of how non-government organizations (NGOs) and other pre-existing microfinance providers cope with transformation to regulated status.
The paper concludes that any regulatory intervention should be justified as the most cost-effective and realistic method for achieving policy aim.
