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MICROFINANCE REGULATION: IMPLICATIONS FOR THE CARIBBEAN. PRESENTED BY: MRS. SHERRY KATWAROO-RAGBIR 4th Biennial International Business, Banking & Finance Conference JUNE 22 ND – JUNE 24 TH. OBJECTIVE.
PRESENTED BY: MRS. SHERRY KATWAROO-RAGBIR
4th Biennial International Business, Banking & Finance Conference JUNE 22ND – JUNE 24TH
Features of Microfinance(Basel Committee 2010).
Consultative Group to Assist the Poor (CGAP)2003 - guidelines on regulation and supervision of microfinance:
Regulation – binding rules governing the conduct of legal entities and individuals, whether they are adopted by a legislative body (laws) or an executive body (regulations).
Non-prudential regulation & supervision - span a wide spectrum and include:
Wright (2000) discussed the following options for microfinance regulation
in the pursuit of profit-maximization, actions by MFIs and their investors can disadvantage clients.
Increased transparency is required to provide greater client protection, in areas such as interest rate reporting.
Table I: Growth in Demand and Supply of Microfinance Services from 1997 to 2007
Source: (Daley-Harris 2009)
Figure1: Percentage Composition of MFIs by Institution type as at Dec 31st 2000 and 2009
To enable sustained growth many MFIs are opting to transform from a non-profit status to registered and regulated financial institutions, with start-up MFIs generally opting for regulated status.
Benefits of the licensed NBFI over the NGO:
Access to additional sources of funds - NGOs’ sources of funds are limited to donations, income from lending and subsidized loans. Regulated MFIs can access commercial sources of funds for both equity and debt.
Wider range of financial services – including but not limited to savings mobilization, this gives the MFI access to a stable source of local resources, and enables expanded outreach. Prudential regulation to protect depositors and guard against moral hazard is critical.
Self Sustainability and Profitability –
Wenner and Chalmers (2001)
Caribbean microfinance suffers from substandard financial performance and lacks outreach into the microenterprise sector when compared to Asia and Latin America.
To date most programs are financially unsustainable and remain dependant on government or donor-supported funding.
The Economist Intelligence Unit (2009) conducted a study which ranked fifty-five countries worldwide based on each country’s regulatory, investment and institutional environment for microfinance.
Constraints to the Growth of the Microfinance Sector in the Caribbean:
…. the smaller and more concentrated financial markets, the greater degree of macroeconomic stability, lower rates of poverty and superior standard of living, the prevalence of inappropriate lending technologies...
Where to Start?
Gain a comprehensive understanding of the present state of the microfinance industry.
Role of Government:
A phased approach focussing on critical priority areas: