4.2 Minimum Regulatory Requirements and Supervision Practices: Microfinance in Africa - Experience and Lessons from Selected African Countries
4.2 Minimum Regulatory Requirements and Supervision Practices: Microfinance in Africa - Experience and Lessons from Selected African Countries
The principal regulatory requirements are licensing, information transmission requirements,
and prudential norms. These should be used in line with the objectives of the regulatory
design discussed above. Reviewing the experience of four countries shows a similar gradual
approach to licensing requirements: newer and smaller institutions are encouraged to apply
for licensing without much regulatory requirement while larger institutions are regulated and
supervised more closely and strictly.
The scope and intensity of supervision practices applied to MFIs have varied across
countries, as described in Box 4. In Benin, there are several on-site inspections during the
year, which assess the financial performance of the institution and its practices in several
other areas, notably with regard to governance, accounting, financial and credit management,
and compliance with prudential ratios. By contrast, in Guinea, although the central bank
relies on off-site and on-site audits, the supervision effort has been impeded by institutional
capacity constraints, especially lack of qualified staff. In Ghana, given the high costs of
supervising, a large number of MFIs and the limited supervision capacity, the Bank of Ghana
has relied more on strict regulatory requirements than on actual supervision.
The experience of the four countries suggests that a minimum set of prudential rules for
larger institutions include capital requirements (minimum capital limit, minimum retained
earnings, or capital adequacy ratios), risk concentration limits (on single borrowers), liquidity
limits, and well-defined provisioning requirements (Box 6).
42 Minimum Regulatory Requirements and Supervision Practices Microfinance in Africa Experience and Lessons from Selected African Countries - To learn more about this author, visit International Monetary Fund's Website.
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(IMF Working Paper, Prepared by Anupam Basu, Rodolphe Blavy, and Murat Yulek1, September 2004)
The principal regulatory requirements are licensing, information transmission requirements,
and prudential norms. These should be used in line with the objectives of the regulatory
design discussed above. Reviewing the experience of four countries shows a similar gradual
approach to licensing requirements: newer and smaller institutions are encouraged to apply
for licensing without much regulatory requirement while larger institutions are regulated and
supervised more closely and strictly.
The scope and intensity of supervision practices applied to MFIs have varied across
countries, as described in Box 4. In Benin, there are several on-site inspections during the
year, which assess the financial performance of the institution and its practices in several
other areas, notably with regard to governance, accounting, financial and credit management,
and compliance with prudential ratios. By contrast, in Guinea, although the central bank
relies on off-site and on-site audits, the supervision effort has been impeded by institutional
capacity constraints, especially lack of qualified staff. In Ghana, given the high costs of
supervising, a large number of MFIs and the limited supervision capacity, the Bank of Ghana
has relied more on strict regulatory requirements than on actual supervision.
The experience of the four countries suggests that a minimum set of prudential rules for
larger institutions include capital requirements (minimum capital limit, minimum retained
earnings, or capital adequacy ratios), risk concentration limits (on single borrowers), liquidity
limits, and well-defined provisioning requirements (Box 6).
42 Minimum Regulatory Requirements and Supervision Practices Microfinance in Africa Experience and Lessons from Selected African Countries - To learn more about this author, visit International Monetary Fund's Website.
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