In surveying the landscape of microfinance regulation, the authors make a threshold distinction between prudential and non-prudential regulations. Prudential regulations have dual objectives, the soundness of the financial sector as a whole and the protection of individual deposits. They are typically complex, burdensome to meet and require the oversight of a central financial authority. The current discussion surrounding microfinance regulation has emphasized prudential regulations. The authors believe that in certain circumstances, however, “the most pressing issues are non-prudential – how to enable MFIs to lend legally.” (pg. 4.). Non-prudential regulations are concerned with “conduct of business” and can often be regulated by existing authorities within their respective spheres of influence. In other words, non-prudential regulations may prove adequate to the task where prudential concerns are not at issue. A non-exhaustive list of issues that can be addressed with non-prudential regulations include: permission to lend; fraud and financial crime prevention; interest rate limits; limitations on ownership, management, and capital structure; tax and accounting treatment of micofinance; and feasible mechanisms of legal transformation. This distinction is more than academic because regulations require the dedication of supervisory resources which are themselves scarce. By carefully calibrating prudential versus non-prudential matters, a government may effectively mobilize scarce resources and promote microfinance development. Continue Reading »

     Despite challenging economic times, Banco Compartamos SA, a microfinance bank located in Mexico City, has reported strong results for third quarter of 2009. Compartamos reported a total loan portfolio of 7,071 million pesos or 548 million USD, or an increase of 40.2 percent from the previous year.[1, 2] The number of new clients reached 1.4 million active clients resulting from an increase of 36.1 percent of new clients over the past year.[1,2] Compartamos states that global macroeconomic environment has not negatively affected client demand.[2, pg.4] The average outstanding loan balance per client increased slightly by 3.1 percent to 4,968 pesos or 385 USD in third quarter of 2009.[2, pg.4] Compartamos’ core product called “Credito Mujer” (group loans) represents 74.2 percent of the total loan portfolio in third quarter of 2009.[2, pg.4] The Bank states that it “restructured the loan origination process in higher risk profile products, establishing stricter policies to avoid over indebting customers.”[2, pg. 4] Continue Reading »