International Conference on Rural Finance Research Moving Results

International Conference on Rural Finance Research: Moving Results into Policies and Practice The Impact of Regulatory Policies on Provision of Financial Services to the Poor

Objective of the study, relevance to conference and theme To assess how regulation impacts the delivery of micro -finance services to the poor in rural areas and the lessons for policy makers seeking to design supportive policy frameworks.

Hypotheses, key research questions studied n n What has helped to shape regulation? Does micro-finance work better with or without regulation? Does regulation increase the cost of service delivery and typically leave out the poor? How can one design regulation to better serve the poor?

What shapes regulation? n Underlying philosophy State n Civil Society n n Genesis of the sector institutions Policy n Culture n Operations n

What shapes regulation? Balancing competing demands n Access and Outreach n n Poverty Alleviation n n directed subsidized lending vs a financial sector approach) loan size, interest rates, collateral Types of Services loans n Savings n Transfer services n

What Shapes Regulation? Competing Perspectives n Regulatory Authorities Protection of Depositors n Security (branch operations) n supervision mechanisms n n Micro-Finance Providers Cost of operations n Sustainability n Repayment n Collateral n

What shapes regulation? Balancing Competing Demands n n Rural vs Urban Poor vs Non-poor

Does regulating the sector leave out the poor? Disadvantages n Cost of operations increases (MCR, CAR, PAR) n Proportion of assets in high-return loan portfolio n Taxation n Interest rate barriers n Reporting requirements n Volume of funds?

Does regulating the sector leave out the poor? Advantages n Types of services n Protection of clients n Source of financing n Cost of financing n Loan size n Interest rate ceilings

Projected Growth of Selected Micro -Finance Institutions in Pakistan

Does micro-finance work better with or without regulation? Bangladesh Little or no regulation Bolivia Special regulatory category Colombia No special pathway Mexico Focus on Co-operatives India Financial Inclusion Indonesia Directed subsidized credit lines and financial system approach

Institution Genesis Market Share Bangladesh BRAC and Grameen Special license to operate but mostly NGOs 35% India ICICI Mainstream commercial banks via Self-Help Groups Bolivia Banco. Sol First private commercial microfinance bank transformed from NGO to Bank Indonesia BRI From cooperative to state owned bank to limited liability corporation to public company Brazil Banco do Nordeste Mainstream commercial bank 200, 000 clients

Market Share of Micro-Finance in Pakistan

Where is growth coming from?

Where is growth coming from?

Where is growth likely to come from? n n Transformation of NGOs into banks Niche micro-finance banks