Evaluating the State Laws and Regulations of Microfinance Institutions (MFIs) in Asia: A Comparative Study

Abstract

This study evaluates the laws and regulations of Microfinance Institutions (MFIs) in Asia. It compares the regulatory framework of MFIs with institutional development and macroeconomic perspective and concludes that central banks control formal MFIs by applying legislation. Conversely, semiformal MFIs are regulated and controlled by a government body or an apex organization. Unfortunately, informal MFIs are not regulated at all. It was observed that even though regulations are effective; however, the ownership structure, governance, and internal controls are not adequate and appropriate for all types of MFIs. Since the existing rules do not apply to all MFIs, this study recommends formulating special prudential regulations for MFIs, similar to the ones used in the banking sector. Formulating regulations should be the responsibility of the government, central banks, private sector, and the donors. Furthermore, regulators should develop a separate team of qualified members to monitor the regulatory environment, protect the interest of depositors and donors, and encourage MFIs to attain sustainability as well as outreach.Keywords: central banks, Microfinance Institutions (MFIs), prudential regulations, regulatory bodyJEL classifications: G2, G21, G28