2. INTRODUCTION:
Historically, governments have used credit schemes as a way
to transfer resources to specific target populations. The
negative impact of most of these schemes has led many
donors and experts to advocate for national governments to
disengage from microfinance.
However, there is increasing clarity that governments do
have a constructive role in building financial systems that
work for the poor.
More specifically, governments can encourage the shift
toward sustainable, market-based microfinance through three
specific roles: eliminating unfair competition from public
institutions; undertaking regulatory reform; and improving
the business environment.
4. GOVERNMENT ROLE IN SUPPORTING
MICRO FINANCE
1. Setting sound macroeconomic policy that provides
stability and low inflation.
2. Avoiding interest rate ceilings.
3. Adjusting bank regulation to facilitate deposit taking by
solid MFI’s, once the country has experience with
sustainable microfinance delivery.
4. Creating government wholesale funds to support retail
MFI’s if funds can be insulated from politics, and they
can hire and protect strong technical management and
avoid disbursement pressure that force fund to support
unpromising MFIs.
5. Contd.
5. Promote microfinance as a key vehicle in tackling
poverty, and as vital part of the financial system.
6. Create policies, regulations and legal structures that
encourage responsive, sustainable microfinance.
7. Encourage a range of regulated and unregulated
institutions that meet performance standards.
6. How can Governments support an
inclusive financial sector?
• To maintain macroeconomic stability through
appropriate monetary and fiscal policies.
• By involving the private sector.
• By adjusting regulatory frameworks.
• By investing in supervisory capacity.
7. What kinds of Government interventions that
harm the development of microfinance?
• Interest rate ceilings
• Provision of credit at retail level
• Subsidized lending programs
• Political interference
8. DONORS SUPPORT GOVERNMENTS TO PLAY
A CONSTUCTIVE ROLE
Collaborate according to respective strengths.
Provide technical inputs to poverty reduction strategy
papers (PRSPs).
Faster strong network and empower other local stakeholders
capable engaging with government in policy dialogue.
Support interest rate liberalization.
Where circumstances call for it, technical support to help
governments adjust the regulatory and supervisory
framework.
Investment in public retail lenders and apexes only.
