A recent article featured on the CGAP (Consultative Group to Assist the Poor) website discusses a new series of Policy Framing Notes by regulatory expert Dr David Porteous concerning the tradeoffs that regulators face in trying to encourage healthy competition in the microfinance industry. “Part of the regulator’s dilemma is that encouraging competition can increase the pressure on microfinance institutions (MFIs) to make more and larger loans to keep up with their competitors,” which the article claims can lead to an increase in the borrowers’ risk of default.

Another issue that Dr Porteous raises in the Policy Framing Notes is whether microcredit is still a distinct market. Borrowers are increasingly taking out loans for everyday expenses such as paying for health care and providing their families with food, suggesting that there may be little difference between microcredit and consumer credit.

By: Stefanie Rubin, Research Assistant

About CGAP (Consultative Group to Assist the Poor):

Housed at the World Bank Group, CGAP (Consultative Group to Assist the Poor) is an independent policy and research center dedicated to providing financial access for the world’s poor. CGAP is supported by over thirty development agencies and private foundations. Its mission is to provide market intelligence, to promote standards and to offer advisory services to governments, microfinance providers, donors and investors.

Additional Resources:

Source Article: CGAP: “The Regulator’s Dilemma: Navigating Competition Policy,” http://microfinance.cgap.org/2010/02/11/the-regulator%E2%80%99s-dilemma-navigating-competition-policy/

MicroCapital Universe: CGAP: http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=CGAP+%28Consultative+Group+to+Assist+the+Poor%29