POLICY ENVIRONMENT

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Statement

Intelligent regulation and an enabling policy and programme environment at various levels - from local to national and international.

Explanation

A better understanding of microfinance issues, based on both best practices and worst practices, has led to more efficient and sustainable microfinance programmes. But as the number of microfinance institutions (MFIs) and their clients and portfolios increase, it is clear that there is a need for an enabling policy environment to be put in place at the local and national levels. Such 'formal' policies need to be directed at the overall financial system as a whole and those for commercial banks, plus new ones for MFIs.

The objectives of these policies are, first of all, to recognise the beneficial role that MFIs play in serving the needs of low-income households and microenterprises. They also need to focus on support services, both financial and non-financial, that MFIs would require. Policies also need to take into account the 'social' face of MFIs - in terms of their role in poverty alleviation, and therefore use evaluation and monitoring criteria sensitive to this orientation. MFIs, to a large extent, have sprung up as a result of the failures of formal banking systems, and hence, unique systems of reporting and other requirements have to be created, that different from those for commercial banks.

The 3As outlined by the Virtual Library on Microcredit (VLM) point towards a deeper need - Awareness: creating opportunities to learn about values, principles, and practice of microfinance; Assessment: developing resources and tools for communities and microfinance organizations to monitor progress and track good practices in their region; and Action: promoting wider participation in making microfinance available to all low-income households and microenterprises.

Key Actors

  • National and state governments
  • Central/Federal/Reserve Banks
  • UN and International institutions
  • Virtual Library on Microcredit

Related Issues

  • Central Bank rules on supervision, reporting etc.
  • Rules and regulations on savings and deposit mobilization
  • Rules and regulations on loan disbursement and collection
  • Registration and incorporation systems for MFIs
  • Alternative performance standards

  • Gender dimensions of microfinance
  • Microfinance support for local environmental management

Examples

  • Bangladesh
  • Bolivia

Links in the Virtual Library

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Hari Srinivas - hsrinivas@gdrc.org
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