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Publication Detail
FDC 1997-01: Fostering Financial Innovation for the Poor: The Policy and Regulatory Environment

This paper argues that, despite recent achievements in the field of microfinance, the vast majority of the poor still do not have access to financial services other than from moneylenders or other informal sources and despite the growing number of MFIs less than 2% of microentrepreneurs are reached. As such, the author states that the challenge to extend financial services to all sections of the community remains huge, and meeting it will require attention to a wide range of issues. The aim of this paper is to discuss a small subset of these issues, specifically: * The importance of financial innovation; * The ways in which innovation can be incouraged by the policy and regulatory environment. The document: * Assumes that particular regulatory environments reflect prior policy processes, and that the reform of such environments requires good policy, consciously implemented; * Addresses particular policy regimes which appear to have engendered regulatory frameworks which facilitate innovation; * Recognizes that much policy is determined without reference to the needs of the poor, and may consequently throw up unforeseen or unintended barriers to their accessing financial services. These subjects are dicscussed within the context of experiences in three Asian countries: Bangladesh, Indonesia and Philippines, all of which have been at the forefront in developing innovative approaches to financial services for the poor. The paper concludes that: * If MFIs are to flourish they must be able to operate relatively freely without unnecessary restrictions; * It is important to find cost-effective ways of improving standards while at the same time minimizing restrictions and encouraging innovation; * Performance and reporting standards should focus on performance rather than the methods used, so that MFIs are able to determine their own approaches to microfinance and to be innovative; * Regulated banks need more scope to establish small banks with realistic minimum capital requirements; * Deregulated interest rates would enable banks to operate microfinance programmes sustainably. The paper focuses on the importance of financial innovation in meeting the challenge of reaching poor households with financial services, and in particular how the policy and regulatory environment can encourage innovation. The discussion is based on experiences in three countries in Asia, namely Bangladesh, Indonesia and Philippines, which have been at the forefront in developing innovative approaches to financial services for the poor.

PinoyME Foundation
Authors Keywords
Conroy, John D.; McGuire, Paul B.; microfinance; financial innovation;
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Published in 1997 and available in the FDC or can be downloaded as full text Downloaded 819 times since November 25, 2011