impact of legal and regulatory framework on microfinance

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Activities:◆ Grants◆ Borrowings◆ Deposits

Activities:◆ Loans◆ Lease financing◆ Deposits◆ Collateral interest

Impact of Legal and Regulatory Impact of Legal and Regulatory Framework on MicrofinanceFramework on Microfinance

Donors, banks, and general public

Small andmicro enterprises

Microfinanceinstitutions

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Impact of Legal and Regulatory Framework on Microfinance

Donors, banks, and Donors, banks, and general publicgeneral public

Small and micro Small and micro enterprisesenterprises

Microfinance Microfinance institutionsinstitutions

Activities:➤Grants➤Borrowings➤Deposits

Activities:➤Loans➤Leasing➤Deposits➤Collateral

◗ Establishment procedures◗ Regulations on operations Regulations on operations

as financial institutionsas financial institutions◗ Accounting standards and

procedures◗ Tax laws and regulations◗ Securities law◗ Legal framework for

ownership and security interests

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◗ Establishment Procedures:Establishment Procedures:❙ Recognition as legal entityRecognition as legal entity❙ Reporting requirementsReporting requirements❙ Bankruptcy law and Bankruptcy law and

proceduresprocedures







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◗ Regulations on Operations as Regulations on Operations as Financial Institutions:Financial Institutions:❙ Doing banking business, making loans, Doing banking business, making loans,

taking deposits - Licensing as bank or taking deposits - Licensing as bank or specialized financial institutionspecialized financial institution

❙ Minimum capitalization, governance Minimum capitalization, governance and other barriers to entryand other barriers to entry

❙ Risk-based prudential supervisionRisk-based prudential supervision❙ Reporting requirementsReporting requirements❙ Participation in clearing and payment Participation in clearing and payment

systemssystems

◗ What regulatory policy What regulatory policy should recognize:should recognize:

(i) Types of MFIs(i) Types of MFIs in the continuum, in the continuum, and and (ii) threshold levels of activities(ii) threshold levels of activities that trigger need for regulation or that trigger need for regulation or supervisionsupervision







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◗ Accounting Standards and Accounting Standards and Procedures:Procedures:❙ Internal and MIS reportsInternal and MIS reports❙ External reports and audited External reports and audited

financial statementsfinancial statements❙ Tax returns and reportingTax returns and reporting







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◗ Tax Laws and Regulations:Tax Laws and Regulations:❙ Provisioning expense and loan Provisioning expense and loan

write-offswrite-offs❙ Leasing law - depreciation Leasing law - depreciation

expense and tax treatmentexpense and tax treatment❙ Cascading taxes on financial Cascading taxes on financial

transactionstransactions







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◗ Securities Law:Securities Law:❙ Blanket assignment of Blanket assignment of

receivablesreceivables❙ Creation and issuance of Creation and issuance of

financial securitiesfinancial securities❙ Registration of security Registration of security

issuesissues







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◗ Legal Framework for Legal Framework for Ownership and Security Ownership and Security Interests:Interests:❙ Documentation and Documentation and

registration of ownership registration of ownership rightsrights

❙ Creation and enforcement of Creation and enforcement of security interestssecurity interests

❙ Foreclosure lawsForeclosure laws







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COLLATERALFormats andInstruments

PersonalPersonalGuaranteeGuarantee

AssignmentAssignmentforfor

SecuritySecurity

Pledging orPledging orPawningPawning(perfected(perfected

security interest)security interest)

Chattel MortgageChattel Mortgage(attached(attached

security interest)security interest)

ofClaims and

Rights

ofMovableProperty

ofReal

Property

impact of legal and regulatory framework on microfinance

Economy & Finance