4.2 Minimum Regulatory Requirements and Supervision Practices: Microfinance in Africa - Experience and Lessons from Selected African Countries

(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). To learn more about this author, visit International Monetary Fund's Website.

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