regulation of microfinance – a level playing field for all microfinance providers mark bienstman -...

Regulation of Microfinance – a level playing field for All microfinance

providers Mark Bienstman - senior adviser WSBI

UN DESA panel discussionNew York, 10 April 2007

overview

Introduction: put the topic in perspective

Regulation: some specific concerns from Savings Banks

Introduction Before we start :

what is the reality in the field ?* > 10.000 MFI’s* < 1.000 are +/- sustainable (Mix db)* > 9.000 (very) small structures with (very) limited resources* limited resources at the level of national regulators/supervisors as well.

In practice: don’t regulate if you cannot monitor

(avoid creating costs with no added value) limit the number of players you need to

monitor. HOW ?a) «killing» the (very) small? NO - they have added value in the A2F processb) «push» to achieve scale? YES

HOW to achieve scale in microfinance ? Internal growth (-> slow process) M & A (-> different «roots» -> NGO) Create a national association/Federation including a «central» bank – cfr Mexico/Bansefi

and El Salvador/Fedecrédito («light») cooperation agreements with bigger

(regulated) Institutions (make a clear split between «distributing» and «managing» financial products)

Regulation: specific concerns from Savings Banks

Microfinance goes beyond MFI’s Allow for a «pluralistic» financial sector Keep coherence between different

government policies Regulation in line with the risks Regulation of ALL financial players Allow «one stop shopping»

Microfinance goes beyond MFI’s

Microfinance is more than microcredit Microfinance is offered by a broad range

of financial institutions and intermediaries, so regulations should cover all these.

A specific regulation for microfinance can be indicated, but not a specific regulation for MFI’s.

Regulation -> PLURALISMEsupport a «pluralistic» financial sector (to

allow choices for the customer):* NGO (-> MFI’s)* cooperatives and/or credit unions: members owned organisations* state-owned (retail and/or savings) banks: stakeholders driven * commercial banks shareholders driven * ….

Regulations -> COHERENCE

facilitating general access to finance requires coherence with other national policies:

such as development policy - rules on KYC – AML – FATF.…

But also with budgetary policies: conflict of interest between A2F (i.e. Via Postal Savings Banks) and reduction of public spending (i.e. In the Postal area)

Regulation -> RISK DRIVEN

«the more risks, the more regulation» There is a difference for:

savings (deposit taking) credit or lending (where is the funding

coming from?) payments services (retail versus

institutional) insurance (pm)

Regulation -> WHO ?

All financial institutions should be regulated and supervised by financial specialists (i.e. Ministry of Finance - Central Bank - Banking Commission...) same business -> same risks -> same rules

NOT by departments in charge of: PTT (cfr the Postal Savings Banks) Cooperatives (cfr credit unions) …

Regulation and «one stop shopping»

Today a lot of Savings Banks are «savings only»: no credit (all funding is for public finance) best

allocation of resources ? no cross-selling -> no «one stop shopping» no payments services (current account - payment

cards ) -> difficult to handle remittances ! no access to national interbank payment and/or

clearing and settlement system(s) no fair competition…..

Conclusion ?

By all means, avoid «crowding out»: At the level of the customer:

regulation should promote (not kill!) easy access to finance;

At the level of the microfinance providers:regulation should create a level playing field for ALL providers, regardless of their legal status - regardless of their ownership structure – regardless of their size - …

THANK YOU !