What is effective supervision of microfinance?
Decades of experience around the world with many forms of alternative financial institutions—including various forms of financial cooperatives, mutual societies, rural banks, village banks, and now MFIs—demonstrate that there is a strong and nearly universal temptation to underestimate the challenge of supervising such institutions in a way that will keep them reasonably safe and stable. It is relatively easy to craft regulations, but harder and less attractive to implement concrete practical planning for effective supervision. The result is that supervision sometimes gets little attention in the process of regulatory reform, often on the assumption that whatever supervisory challenges are created by the new regulation can be addressed later, by providing extra money and technical assistance to the supervisory agency for a while. This assumption can be wrong in many cases. The crucial importance of early and realistic attention to supervision issues stems from the fiduciary responsibil
