Regulation, supervision important
Dr A G
Developing a proper regulatory and supervision system and effective
implementation of it will enable the micro-finance industry to reach its
full benefits, the South East Asian Central Banks (SEACEN) Executive
Director Dr A G Karunasena said at the inauguration of the SEACEN Course
on Regulation and Supervision of Micro-finance Institutions.
He said the number of people benefiting from micro finance is
significant and increasing faster in developing countries although the
relative share is low in terms of assets compared with the banking
sector. Presently, there are enough micro-finance regulatory and
supervisory systems with some length of experience to draw lessons and
share experience with others.
Dr Karunasena drew attention to two basic issues related to the
regulation and supervision of micro-finance activities. Firstly, whether
micro-finance institutions should be regulated and supervised and
secondly how should it be done if there is a need to do it.
Answer to the first issue will depend on the potential benefits and
costs. Highlighting five major benefits based on experience he said that
it gives greater access to sources of funds through equity, deposits and
borrowings, it provides greater ability to achieve growth and serve more
people with improved public confidence. It also enables to provide more
professional services by meeting higher standards of regulations and
supervision and to offer financial services beyond micro-credit
especially savings and transfers.
Finally, it enhances the legitimacy of micro-finance in the financial
sector and with the public, he said. Referring to the second issue, how
to regulate and supervise micro-finance institutions he said it is not
possible and appropriate to apply regulations, prudential requirements
and guidelines applicable to traditional banking to micro-finance.
They have to be modified by taking into account specific features in
micro-finance activities, products, and customers which requires
involving people who have knowledge in micro-finance in developing a
supervisory system. He said that the CGAP document in 2002 and BIS paper
developed in 2010 have clearly highlighted the necessity of
incorporating some flexibility when designing regulatory and supervisory
systems for micro-finance activities for countries.
The SEACEN course on Regulation and Supervision of Micro-finance
Institutions will be hosted by the Central Bank of Sri Lanka from
November 30 to December 4 at Cinnamon Grand Hotel Colombo for 31
participants from eight countries in the region.