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AMERMS Workshop 3: A Regulatory Environment to End Poverty (PPT by David Cracknell)


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What is a Regulatory Environment that Truly Works for MFIs, Their Clients, and the End of Poverty
ROOM: Lenana Hall
Translated session: English & French
Chair: Prof. Njuguna Ndung’u, Governor, Central Bank of Kenya
Panelist: Mr. David Cracknell, MicroSave, USA

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AMERMS Workshop 3: A Regulatory Environment to End Poverty (PPT by David Cracknell)

  1. 1. Microfinance Regulation<br />Regulating Opportunity<br />
  2. 2. MicroSave<br />MicroSave’s experience in Africa<br />Kenya, Uganda, Tanzania, Egypt, Ethiopia, Cameroon, Ghana, Nigeria, South Africa, Malawi, Democratic Republic of the Congo, Sierra Leone<br />MicroSave has gained specific knowledge in micro-deposits, and has been involved in<br />Transformation of Faulu Kenya<br />Transformation of Ugandan MDIs<br />Initial transformation of Tanzanian MFIs<br />Pilot Test of M-Pesa<br />Central bank discussions in East and West Africa<br />Discussions on SACCO regulations<br />Experience in M-Banking <br />
  3. 3. Regulation<br />The financial access imperative provides the strongest rationale for the regulation of microfinance institutions. <br />In many countries in Africa less than ten percent of the population have accounts in formal sector institutions.<br />Why regulation <br />A)deposit taking, reducing cost of access, increasing points of access. <br />B) increasing competition from diverse institutions <br />Note: Regulation does not guarantee successful institutions! <br />
  4. 4. Competitive Environment<br />There is rapid change in the wider financial industry for mass market banking means regulation that will affect microfinance will will happen<br />Commercial Banking - Downscaling<br />Credit Unions, Community Banks – innovation<br />MFIs – Outreach, mission, micro-savings innovation<br />MNOs/Banks – M-Banking<br />Agency Banking<br />High cost and high returns to technology<br />
  5. 5. The Regulatory Environment<br />Institutional regulations: Direct regulation of microfinance institutions, or credit unions (SACCOs)<br />Payment regulations (m-banking): Who can conduct mobile phone banking, the payments that can be handled through different channels. <br />KYC regulations: The application of KYC principles into microfinance<br />Agency regulations: Can microfinance institutions be agents of banks, or can they have agents of their own.<br />
  6. 6. Ranges of Conservatism<br />A restrictive environment for microfinance in Egypt – credit only<br />A similar environment for microfinance and central bank regulation in many countries<br />Kenya, Uganda, Tanzania <br />A less restrictive environment in some countries <br />Ethiopia <br />Nigeria<br />A factor underlying this conservatism in some cases may be Central Bank capacity to regulate on one side, and the large potential number of institutions to be regulated on the another. <br />
  7. 7. Challenges<br />Getting the balance right is an Art: <br />Nigeria: Community Banks licensed as deposit taking institutions. Low capital. Low standards. CBN in a race to inject capacity into the industry.<br />Institutional failures highly likely. Difficult to regulate before institutional capacity is built<br />M-Banking regulations highly restrictive with the maximum transaction for non KYC of only a few dollars. <br />
  8. 8. Challenges - Uganda<br />Essentially cut down regulations for Banks<br />Similar formats aside from capital – often more restrictive <br />Loan portfolio, ownership, product types<br />Place of business has been a significant cost for microfinance<br />Research suggests customers prefer to deposit in banks<br />MDIs thinking about registering as banks, as they can meet the criteria.<br />Opportunity Uganda registered as a Tier 2 <br />Careful rethinking on Credit Bureau Regulations <br />
  9. 9. Challenges – Becoming Regulated<br />Limited number of regulated institutions so far process lengthy and costly. Two institutions supported by donor funds to transform in Kenya – only one regulated so far. Jamii Bora – merger with Credit Bank.<br />But - scale - SACCO Societies Regulatory Authority – 205 institutions to be regulated as FOSAs. (All are supposed to be regulated). <br />
  10. 10. Why Regulate – Microfinance Challenge<br />Make use of the regulations<br /> Too many institutions see regulation as the end in itself. But fail to adequately position themselves to take advantage of the regulations<br />Its not all about regulations<br />Ugandan microfinance institutions failing to gain significant deposits. Unless you can raise significant deposits – why become regulated? High costs, and vulnerabilities. <br />
  11. 11. Challenges M-Banking<br />MNO led: few markets have allowed this, though this is the model that creates the fastest access. Kenya 9 million M-Pesa Accounts. 16,000 agents. <br />Bank led: partnerships with banks is a normal model. This can be much slower than MNO led. Depends critically on the nature of the partnership. <br />
  12. 12. Opportunities<br />KYC: Clarity on how KYC impacts on microfinance<br />Regulatory process: Clarity on the process (always difficult for the first few!) <br />Place of Business: Reduce requirements (insurance) <br />M-Banking Regulations: Enable transactions even if this is MNO led. Don’t be too restrictive on the accounts. Clarity on KYC.<br />M-Banking Microfinance Companies: These are coming. <br />Agency Regulations: Develop and implement <br />Shared infrastructures: Support such developments<br />