Impact of Regulation on the Cost Efficiency of Microfinance Institutions in Bangladesh

Abstract

The increasing recognition of microfinance as an instrument of poverty alleviation has created numerous microfinance institutions (henceforth, MFIs) in Bangladesh. Albeit, the top five MFIs control around 60 per cent of the microcredit market, both horizontal and vertical growth over the past two decades ended up at more than 750 MFIs with a network of over 17 thousand branches (CDF and InM 2011). These institutions emerged as self-regulated non-government social organizations. Nevertheless, self-regulation appeared to be inadequate to protect interest of member savings and lenders with growing number of evidences of unscrupulous behaviour of the management and/or indiscernible exit of some of these institutions from the credit market.