Regulation of Microfinance: An Impact Assessment of the Regulatory Framework of Microfinance Institutions in Peru

Publication Date: 2006
Document Type: Paper (PDF)

View this Document (664 KB)   Email this Document

The contribution of regulatory practices and country-specific frameworks for the development of microfinance

This paper assesses the impacts of the Peruvian regulatory framework on the microfinance sector through an analysis of the costs and benefits raised by regulation, and how these are distributed among microfinance stakeholders.

The paper states that since the establishment of prudential regulation for MFIs in Peru more than a decade ago, microfinance activities have expanded, making an impact assessment of this regulation a meaningful study.

Study findings suggest that:

• Regulation has brought more benefits than costs to the industry as a whole;
• The impact of regulation could be understood as a positive sum game where all microfinance stakeholders have gained;
• Financial regulation might:
  • Impact in different ways the behavior and performance of microfinance stakeholders;
  • Promote or deter the level of competition in the microfinance market.

In conclusion, the paper states that:

• Peruvian microfinance regulation has acted as a facilitator for enhancing the growth and development of MFIs;
• This can be seen as a consequence of following a financial system approach that integrates microfinance with the conventional financial environment;
• Regulation should be:
  • Clearly defined to avoid regulatory arbitrage;
  • Country-specific and consistent with the chosen regulatory approach.

The author recommends revision of some regulatory issues so as to allow MFIs to become more competitive in a highly commercialized context, while achieving their goals of serving the microentrepreneurs and low-income households.