European Microfinance Network 4th Annual Conference
Microfinance in a Banking Environment
Models, Experiences, the Way Forward"Research in European Microfinance” workshop
Presentation of the work-in-progress of the PhD dissertation
Regulating microfinance through a social and economic
analysisSimone di Castri
Research coordinator and assistant project manager - Microfinance project - International Development Law Organization (IDLO)
PhD candidate in Law and Economics - University of Bologna
The thesis
1. Overview of the literature on microfinance regulation
2. Comparative analysis of microfinance and its regulations in some developed and developing countries
3. Economic analysis of different regulatory approaches
4. Identifying the guidelines
5. A model to regulate microfinance in Italy
6. Microfinance and social welfare/workfare policies
The questions
• How does microfinance differ from mainstream financial provision in overcoming the challenges of social and financial exclusion?
• How is microfinance interacting with the financial system and regulation?• How does the legal framework influence microfinance scale, outreach and
impact?• How is microfinance modifying financial services regulation and the mainstream
banking activity’s usual procedures?• Do the benefits of microfinance action justify the cost of changing regulation and
subsidizing microfinance?• Is there a need for MFIs everywhere, or could mainstream financial providers be
boosted to serve those at bottom of society?
• How to design a regulatory environment to increase and improve the provision of financial services to marginalized people
• Is it a national or EU issue?
Why this research
• There are only studies country-based• There are not studies conducted through the
economic analysis of microfinance regulation
• Microfinance in Italy is underdeveloped and regulation matters
• Law-makers’ approach can not be addressed without a policy analysis that looks at microfinance in the range of the other social welfare/workfare tools
How it has done2. Comparative analysis to understand markets’ structure
• micro financial services demand povertyincome inequality
capabilities inequalitylack of financial servicesclients/beneficiaries
• micro financial services supply providersservicesserved peoplediffusionconstraints
• microfinance outreach and impact
• financial regulation
}capacities of the existing infrastructures
Demand and supply
poor
poorest
Different providers for different targets and needs
Regulation is a main factor affecting the supply side
Characteristics of the demand
Capacity and potential of the supply
Supply and regulation
Why does regulation is a main factor that affects the supply?
• Actors/providers enabled to participate the market• Financial services they are allowed to provide
» SUSTAINABILITY, OUTREACH AND IMPACT
• Instruments they can use to raise capital» SUSTAINABILITY AND OUTREACH
• Governance» SUSTAINABILITY, OUTREACH AND IMPACT
Regulation and the demand
How can regulation affect the demand?
(indirectly)• Providers can offer more and better services
And
(directly)• Managing costs and incentives that improve the
environment for entrepreneurship
• Comparative analysis to understand markets’ structure
» Demand» Supply
• Analysis of the regulations to understand how regulation affects the market
• Cross analysis to see how regulation can be amended to maximize the efficiency of the existing infrastructures or to push in the market new actors to reach the unserved
Regulation and public policy approaches in EMN countries:some examples of constraints and incentives
• France» Loi 2001-420 on “Nouvelles Régulations Economiques”» “Borloo” law on social cohesion» Tax exemptions» Interest caps removed
• Spain» Saving banks» Public programs» Entitades de Apoyo al Microcrédito
• Germany» Banks» Grunderzentren» Public fund for microfinance» Ich-AG
• United Kingdom» Community Development Financial Institutions (CDFIs)» Small Firms Loan Guarantee Scheme (SFLGS)» Phoenix Fund» Basic Bank Account
• Italy+ USA
Different approaches - evidences
• the role of social intermediaries and business incubators; - see Spain and Germany
• the application of or the exemption from the mainstream banking legal requirements to micro finance intermediaries; their inclusion into the the range of financial providers; - see France
• public programs to provide capital to lend to IMFs and share the risk with them;
• the interest caps issue; - see UK and France
• valorization of governance requirements; - see UK CDFIs
• improving mainstream financial intermediaries’ role in the sector, even through some coercive methods that take into account their accountability towards stakeholders and communities; - UK Basic Bank Accounts and US Community Reinvestment Act
• emphasizing the potential of savings banks, cooperative banks and foundations through their inclusion in public programs (establishing public funds to share risks);
• the maximization of public subsidies and the incentive for private donors; - see UK
OPEN ISSUES
• the role of EU and the capacity of European policy to spur microfinance provision in Western EU countries > JEREMIE
• implementation of public credit registries;
• implementation of evaluation methods for microfinance transparency;
• the effects of Basel II
Main problems for this research
Lack of studies on– Outreach and impact– Sustainability
Lack of– a systematic procedure for studying the implementation of regulation
Difficulties in– reaching legal data globally
Lack of homogenous and comparable information for a holistic study
Presentation of the work-in-progress of the PhD dissertation
Regulating microfinance through a social and economic
analysis
Simone di Castri
Research coordinator and assistant project manager - Microfinance project - International Development Law Organization (IDLO)
PhD candidate in Law and Economics - University of Bologna