CGAP M ICROFINANCE C ONSENSUS G UIDELINES:
Guiding Principles on Regulation and
Supervision
of Microfinance
March, 2002
The Guiding Principles were formally adopted by CGAP’s 29 member donor agencies in September 2002. The document was written by Robert Peck Christen, Timothy R. Lyman, and Richard Ronberg, with input from more than 25 commentators who have worked on regulation and supervision of microfinance in every region of the world.. Mr. Christen and Mr. Ronberg are Senior Advisors to CGAP. Mr. Lyman is President and Executive Director of the Day, Berry & Howard Foundation and chairs its Microfinance Law Collaborative.
cgap_paper.doc 023052-00160
August 21, 2003 4:50 PM
Rough Draft Outline
Table of Contents
[this needs to be updated, and all cross-references to ctions in the document need
to be checked]
I.Introduction (1)
II.What is ‘Microfinance’ and What is ‘Microfinance Regulation’? (1)
A.What is ‘Microfinance’? (1)
B.What is ‘Microfinance Regulation’? (2)
3.Regulation as promotion (4)
4.‘Special windows’ and other regulatory approaches (5)
5.‘Regulatory arbitrage’ (5)
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III.Non-Prudential Regulatory Issues (6)
A.Permission to Lend (6)
B.Consumer Protection (6)
1.Protection against ‘abusive’ lending and collection practices (7)
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2.Truth in lending (7)
C.Fraud and Financial Crime Prevention (7)
D.Credit Information Services (8)
E.Interest Rate Caps and Similar Limitations (9)
F.Limitations on Ownership, Management, and Capital Structure (10)
G.Tax and Accounting Treatment of Microfinance (10)
郑州特色1.Taxation of financial transactions and activities (10)
2.Taxation of profits (10)
H.Feasible Mechanisms of Legal Transformation (11)
IV.Prudential Regulation of Microfinance (11)
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A.Objectives of Prudential Regulation (11)
B.Line-Drawing: When to Apply Prudential Regulation in Microfinance? (12)
1.Timing and the state of the industry (12)
2.Drawing lines bad on sources of funding (12)
(a) Donor grants (12)
(b) ‘Cash collateral’ and similar obligatory deposits (13)
(c) Borrowing from non-commercial sources, including donors or sponsors (13)
(d) Commercial borrowing (13)
(e) Wholesale deposits and deposit substitutes (13)
(f) Members’ savings (14)
3.Rationing prudential regulation; minimum capital (14)
4.Drawing lines bad on cost-benefit analysis—the ca of small community-
bad intermediaries (15)
C.Regulate Institutions or Activities? (16)
D.Special Prudential Standards for Microfinance (16)
1.Minimum capital (17)
2.Capital adequacy (17)
3.Uncured lending limits; loan loss provisions (18)
4.Loan documentation (19)
5.Restrictions on co-signers as borrowers (19)
6.Physical curity and branching requirements (19)
7.Frequency and content of reporting (20)
8.Rerve against deposits (20)
9.Ownership suitability and diversification requirements (20)
10.Scope of application of special prudential standards (21)
G.Deposit Insurance (26)
1.Supervisory tools and their limitations (22)
(a)Portfolio supervision tools (22)
(b)Capital calls (23)
(c)Stop lending orders (23)
(d)Ast sales or mergers (23)
2.Costs of supervision (23)
F.Where to Locate Microfinance Supervision? (24)
1.Within the existing supervisory authority? (24)
2.‘Self-regulation’ and supervision (25)
3.Delegated supervision (25)
V.Key Policy Recommendations (26)
CGAP Microfinance Connsus Guidelines: Guiding Principles on Regulation and Supervision of Microfinance I.Introduction
Many developing countries and countries with transitional economies are considering whether and how to regulate microfinance. Experts working on this topic do not agree on all points, but there is a surprisingly wide area of connsus. CGAP1 believes that the main themes of this paper would com
mand general agreement among most of the specialists with wide knowledge of past experience and current developments in microfinance regulation.
We hope this paper will provide uful guidance not only to staff of the international donors who encourage, advi, and support developing- and transitional-country governments, but also to the national authorities who must make the decisions, and the practitioners and other local stakeholders who participate in the decision-making process and live with the results. On some questions, experience justifies clear conclusions that will be valid everywhere with few exceptions. On other points, the experience is not clear, or the answer depends on local factors, so that no straightforward prescription is possible. On the latter points, the best this paper can do for the time being is to suggest frameworks for thinking about the issue and identify some factors that need special consideration before reaching a conclusion.
Part II of the paper discuss terminology and preliminary issues. Part III outlines areas of regulatory concern that do not call for ‘prudential’ regulation (e the definition and discussion below). Part IV discuss prudential treatment of microfinance and MFIs. Part V summarizes some key policy recommendations.
II.Terminology and Preliminary Issues
A.What is ‘Microfinance’?
As ud in this paper, ‘microfinance’ means the provision of banking rvices to lower-income people, especially the poor and the very poor. Definitions of the groups vary from country to country.
The term ‘microfinance’ is often ud in a much narrower n, referring principally to microcredit2 for tiny informal business of microentrepreneur s, delivered using methods
1 The Consultative Group to Assist the Poorest (CGAP) is made up of 29 international donor agencies that support microfinance. A version of this document was approved and adopted by the consultative group members in September, 2002.
2 Average microcredit loan balances tend be below per-capita national income.
developed since 1980 mainly by socially-oriented non-governmental organizations (NGOs). This paper will u ‘microfinance’ more broadly:
The clients are not just microentrepreneurs eking to finance their business, but the whole range of poor clients who also u financial rvices to manage
emergencies, acquire houhold asts, improve their homes, smooth
consumption, and fund social obligations.
The rvices go beyond microcredit. Also included are savings and transfer rvices.3
The range of institutions goes beyond NGOs, and includes commercial banks, state-owned development banks, financial cooperatives, and a variety of other咏柳的作者是谁
licend and unlicend non-bank institutions.
B.What is ‘Microfinance Regulation and Supervision’?
Varying terminology ud in the discussion of microfinance regulation sometimes leads to confusion. This paper us the following general definitions:
‘Microfinance institution’ (MFI) – A formal organization who primary activity is 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).
‘Laws’ – The subt of regulation adopted by a legislative body such as a parliament.
‘Regulations’ – The subt of regulation adopted by an executive body such as a ministry or a central bank.
“Banking” law or regulations – for the sake of simplicity, the paper us
“banking” in this context to embrace existing laws or regulations for non-bank
financial institutions as well.
‘Prudential’ (regulation or supervision) – aimed at protecting the financial soundness of licend intermediaries’ business, in order to prevent financial
system instability and loss to depositors.
‘Supervision’ – External oversight aimed at determining and enforcing
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苏秦以连横说秦compliance with regulation. For the sake of simplicity, ‘supervision’ in this paper
refers only to prudential supervision.
‘Financial intermediation’ – The process of accepting repayable funds (such as funds from deposits or other borrowing) and using the to make loans.
‘Licen’ – formal governmental permission to engage in financial rvice delivery that will subject the licen-holding institution to prudential regulation
and supervision.
3 This paper does not embrace insurance and leasing, even though the financial rvices have important potential for lower-income people. For the rvices, there is almost no experience yet with specialized regulation focud on the needs of poorer clients.
‘Permit’ – formal governmental permission to engage in non-depository
microlending activity that will not subject the permit-holding institution to
prudential regulation and supervision.
“Self-regulation/supervision” - regulation or supervision by a body that is effectively controlled by the regulated entities.
C.Prudential vs. Non-Prudential Regulation; Enabling Regulation
Regulation is ‘prudential’ when it is aimed specifically at protecting the financial system as a whole as well as protecting the safety of small deposits in individual institutions. When a deposit-taking institution becomes insolvent, it cannot repay its depositors, and—if it is a large institution—its failure can undermine public confidence enough so that the banking system suffers a run on deposits. Therefore, prudential regulation involves the government in attempting to protect the financial soundness of the regulated institutions. This concept is emphasized becau great confusion results when regulation is discusd without distinguishing between prudential and non-prudential issues.4
Prudential regulation is generally much more complex, difficult and expensive than most types of non-prudential regulation. Prudential regulations (for instance, capital adequacy norms or rerve and liquidity requirements) almost always require a specialized financial authority for their implementation, whereas non-prudential regulation (for instance, disclosure of effective interest rates or of the individuals controlling a company) may often be largely lf-executing and can often be dealt with by agencies outside the central bank or finance ministry.
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Thus, an important general principle is to avoid using burdensome prudential regulation for non-prudential purpos—that is, purpos other than protecting depositors’ safety and the soundness of the financial ctor as a whole. For instance, if the concern is only to keep persons with bad records from owning or controlling MFIs, the central bank does not have to take on the task of monitoring and protecting the financial soundness of MFIs. It would be sufficient to require registry and disclosure of the individuals owning or controlling any MFI, and to submit propod individuals to a ‘fit and proper’ screening. Some non-prudential regulation can be accomplished under general commercial laws, and administered by whatever organs of government implement tho laws, depending on the relative capacity of tho agencies.
Even where it has hundreds of thousands of customers, microfinance prently ldom accounts for a large enough part of a country’s financial asts to po rious risk to the overall banking and payments system. Thus, the rest of this discussion assumes that at prent the main justification of prudential regulation of depository microfinance is protection of tho who make deposits in MFIs. (On the other hand, the development of the microfinance is not static.
4 The term ‘non-prudential regulation’ pos some problems. The distinction between prudential and non-prudential regulation is not always crisp - sometimes a rule rves both prudential and non-
prudential objectives.
For example, regulation aimed at prevention of financial crimes, discusd in Section III.D, also contributes to prudential objectives. Moreover, defining non-prudential regulation simply by reference to what it is not leaves open the question of the scope of the concept. The term ‘conduct of business’ regulation is sometimes ud to denote the non-prudential rules applicable to financial institutions. However, this term is also problematic since prudential regulation also affects the conduct of a financial institution’s business.
