How should microfinance institutions be regulated?
Many countries have approached the regulation of microfinance by creating new, specialized institutional types. In some settings, this can be the best option, especially when the existing financial framework does not have an existing financial license that would accommodate microfinance, or, as in many places in Eastern Europe and Central Asia, when microlending activities may be illegal under existing law. There is some danger that too exclusive a focus on a particular institutional form will inhibit innovation and competition, and impede the integration of microfinance into the broader financial sector. Incorporating the new institutional form within the existing financial sector framework will increase the likelihood that the regulatory changes are properly harmonized with the existing regulatory landscape. This can also reduce potential ambiguities between different pieces of legislation and may be easier from a technical point of view. However, local factors will determine the fea
