International Conference Microfinance Regulations: Who ... ?· International Conference Microfinance…

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  • International Conference Microfinance Regulations: Who benefits? Organized by: Microcredit Regulatory Authority (MRA), Bangladesh 15 17th March 2010 Venue: Pan Pacific Sonargaon Hotel, Dhaka, Bangladesh

    Microcredit Regulatory Authority (MRA): Microcredit Regulatory Authority (MRA) is a statutory government body, created in 2006 by an Act of Parliament to monitor and supervise microfinance operations of non-government organizations. MRA is the licensing, monitoring and supervising authority of all non-government organizations (NGO-MFIs) engaged in microfinance activities in Bangladesh. Objective of the conference: The three-day meet has been organized by Microcredit Regulatory Authority (MRA) Bangladesh with a view of sharing experience in the area of Microfinance (MF) regulations and related issues that impinge on the effectiveness of microfinance sector at global, regional and national levels. Areas of discussions are Global Practices in Microfinance Regulations; Resource Mobilization and Legal Issues; Rating and Supervision Issues of Microfinance Institutions; Ownership and Governance of Microfinance Institutions; and Regulatory Impact Assessment. The program was divided by six business session along with inaugural and closing session. Inaugural ceremony: The session was started at 10 am with a welcome addressed by Mr. Khandaker Muzharul Haque, Executive Vice Chairman of MRA Bangladesh. Mr. Abul Maal Abdul Muhit, MP and the Honourable Finance Ministers were present as the chief guest, formally declared the conference open. Dr. Atiur Rahman, Chairman MRA and Governor, Bangladesh Bank, chaired the session. Dr. Quzi Kholiquzzaman Ahmed, Chairman, PKSF Board and Mr.Chris Austin, Country Representative, DFID, Bangladesh was present as special guests besides a host of other dignitaries and participants from home (139) and abroad (49).

    Business session : 1(Why Regulation and Supervision?): In the first business session Dr. Gianfranco A.Vento of the European Business School, London, UK presented his paper about the recent trends in Microfinance (MF) industry and covering the regulations, supervisions and the principles of the Basel Committee. The recent trends witness a change in the industry due to several factors such as a shift from localized micro lending to institutional lending, involvement of a large number of global financial intermediaries, use of new technologies and especially web based platforms for channelling funds directly from households to microfinance institutions and borrowers. These changes could lead to a very significant growth in MF business worldwide. Such important progress of the industry have made the role of regulators and supervisors more crucial and it has become urgent to highlight the key criteria that a country has to follow in order to design an efficient and

  • effective regulatory framework. The recent attention on MF industry is also demonstrated by the interest towards this segment of financial market of the Basel Committee on Banking Supervision, which in February 2010 published a consultative document on MF activities and the Core Principles for effective banking supervision. The Panellists included Dr. Baque Khalily, Proffeser, Finance Dept, Dhaka University, Ms Justine Bagyenda, Executive Director, Central Bank og Uganda and D S K Rao, Regional Organiser for Asia-Pacific, Microcredit Summit Campaign. Dr. Salehuddin Ahmed, former Governor of Bangladesh Bank moderated the session. Business session 2 (MF Regulation around the world - Asia) :The session was moderated by Khondoker Ibrahim Khalid, former Deputy Governor of B. Bank and Chairman Bangladesh Krishi Bank. Paper presenter was Mr. Kim Vada, Deputy Director General, National Bank of Combodia, Mr. B B Mohanty, Chief General Manager, National Bank of Agricultural and Development (NABARD) India, Ms Lila Rashid, Director, MRA, Bangladesh and panellists was Mr. W M Karunaratne, Assistent Governor, Central of Srilanka and Mr.Gregory Chen, Regional Representative for South Asia, CGAP. Mr. Voda in his paper on Combodia Microcredit : Development and Challenges gave a brief background of the evolution of the banking system in Combodia. The Royel Goverment of Combodia adopted a series of policy measures that included introduction of a framework in the banking law to enable NGOs and other rural finance providers to become regulated MFIs, creation of a unit in the National Bank of Combodia (NBC) to supervise and monitor MFIs and establishment of an apex institution to provide financing for MFIs. In 2000 NBC issued regulations on the classification of MFIs into three categories according to the level of their operations and created criteria for licensing and registration. So that the regulation is very similar to commercial banks except that the capital requirment is substantially lower. The Financial Sector Development Strategy, Role of the NBC in promotion of MF regulation, supervision, capacity building, public awareness and lastly MF performance and challenges. Mr. B B Mohanty presented his paper titled Microfinance Sector in India Developing a supportive policy and regularity framework and environment Position and Perspectives. He narrated the background of Indian Govt. policies that helped the growth of the MFIs in India, which included nationalization of commercial banking sector, setting up of Regional Rural Banks (RRBs), reforms of financial sector, implementation of pro-poor schemes etc. NABARD was set up by an Act of Parliament. It initiated search for alternative policy, systems, procedures, savings and loan products, other complementary services and new delivery mechanism that would fulfil the requirements of the poor and disadvantaged. Self help groups have grown spectacularly with bank linkage program which was conceptualized by NABARD. Developing a new regulatory regime for MF takes a great deal of analysis, consultation and negotiation. At the end he advocated that the regulatory and supervisory framework envisaged will eliminate restrictions on orderly growth of the sector and lead to evolution of market-oriented financial and credit policies. He opined that the institutions already empowered with regulatory and supervisory powers in MF sector could be the torch bearers for the rest of the countries where regulatory and supervisory framework is yet to be set-up. Ms Lila Rashid, the third paper presenter of the session, discussed on Microfinance Regulations in Bangladesh: Development and Experiences which detailed the experiences of Microcredit Regulatory Authority (MRA) in Bangladesh. MFIs are now a new dimension of monetary policy transmission mechanism. MF sector is growing fast in terms of its client outreach, coverage, amounts of microcredit and microsavings. Alongside, liquidity and credit risks are growing. Domination of market by a few giant MFIs has posed a systemic risk. This has also put legal obligations to safeguard peoples deposits. MRA was established by the Govt. in August 2006 with a view to creating an enabling environment for NGO-MFIs to work, promote and foster sustainable development of MF institutions in Bangladesh. The experience of MRA indicates that there are other important issues which need to be addressed with caution. Among them

  • are issues of service charge, sustainability of the sector, problem of overlapping borrowers, establishing effective supervisory tool to monitor, new issues like foreign investment and securitization etc. Business session 3 (MF Regulation around the world Latin America): The second day of the conference started with a session on MF Regulation around the world Latin America. Paper presentations were made by Mr. Eduardo Gutierrez Escobar, former Financial System Manager, Bolivian Central Bank and Mr. Juan Ramos Diaz, Economist, Banking Commission, Govt. of Mexico (CNBV). The session was moderated by Mr. Gianfranco A. Vento of the European Business School, London, UK and panellist was Mr. Ashraf Khan, Executive Director, State Bank of Pakistan, Dr. Kazi Mesbahuddin Ahmed, Managing Director, PKSF and Dr. Maribel Munoz, Directora, de Merados, Precursores, Mexico. Mr. Eduardo Gutierrez Escobar presented his paper on Microfinance Regulations in Bolivia. NGOs began offering microcredit in the 80s. In the same period microcredit was incorporated into the Banking Law and regulation requirements for microfinance institutions were set. In the field of microcredit technology, financial and non financial services improved but the Development Finance Institutions (DFIs) grew noticeably less than regulated MFIs. In 2008 the Finance Supervision Authority (FSA) made regulation possible for DFIs, but the challenges faced are supervision procedures and the highly volatile nature of the business and little formality in client information. The regulation costs DFIs are high. DFIs have to develop information system, training and infrastructure all of which can affect interest rates negatively for the client. Finally, the current process of regulating DFIs has to be up to the challenge of preserving their original mission that is to reduce poverty and exclusion from financial services. Yet, DFIs must base their long-term financial viability on efficient management.

    Mr. Juan Ramos Diaz presented his paper on Mexican Popular Financial Sector Regulatory Framework. Due to the costs and incentives in the financial markets traditional commercial banks have shown little interests in the microfinance. MFIs in Mexico are financial entities that provide limited financial services to low income people and do not provide large loans limiting the amount between 390 to 1950 USD. In most cases MFIs start granting loans of small amounts and gradually increase the loan amounts. This methodology supports members to establish a credit history which could later be used to obtain other financial services. Business se

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