(IMF Working Paper, Prepared by Anupam Basu, Rodolphe Blavy, and Murat Yulek1, September 2004)
In several African countries—for example, Ghana, Guinea, Tanzania and Uganda—
governments have in the past relied on state-owned banks to extend rural credit and microfinance services. In most cases, these banks have incurred large losses and have had to be restructured, recapitalized, privatized or liquidated. This experience of failed state-owned banks has led African governments to focus on financially viable approaches to providing microfinance and on developing regulatory and supervision frameworks that are well adapted to supporting such an effort.
Regulatory systems in the countries reviewed have evolved through a cycle of easy entry, weak performance, and finally tightening up of regulation and restructuring. This evolution generated adaptive licensing and regulatory frameworks that proved conductive to the development of the sector, but exemplified the risks associated with lax regulation of microfinance activities. In all four countries reviewed, the failure of major institutions led to major restructurings. The success of those restructurings was allowed by the simultaneous strengthening of the regulatory environment and of the supervisory capacity to avoid moral hazard problems. Box 4 presents the experience of the four African countries reviewed.
Along with the growth of the microfinance sector, governments have played a lead role in putting in place the supporting regulatory frameworks. Approaches to designing regulation differ widely both conceptually and in practice. In this section, we discuss issues related to the regulatory framework in the light of the experience of the four countries covered in this study.
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International Monetary Fund
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The IMF is an international organization
of 185 member countries. It was
established to promote international
monetary cooperation, exchange stability,
and orderly exchange arrangements; to
foster economic growth and high levels of
employment; and to provide temporary
financial assistance to countries to help
ease balance of payments adjustment.
Since the IMF was established its purposes
have remained unchanged but its
operations—which involve surveillance,
financial assistance, and technical
assistance—have developed to meet the
changing needs of its member countries in
an evolving world economy.
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