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Oversight is a Many-Splendored Thing: Choice and Proportionality in Regulating and Supervising Microfinance Institutions
Jay K. Rosengard
Also appearing in Beatriz Armendáriz and Marc Labie, eds., The Handbook of Microfinance (Singapore: World Scientific Publishing), 2011.
Just as there are many different types of microfinance institutions (MFIs), there are also many options for regulating and supervising MFIs. Oversight is a many-splendored thing, with a long menu of options from which to formulate an appropriate mixture of MFI regulatory and supervisory regimes – one size certainly does not fit all.
The objective of this essay is to highlight the many choices available for regulating and supervising MFIs, and to provide guidance in judicious application of the proportionality principle to make prudent selections among these choices.
To make the case for choice and proportionality in MFI regulation and supervision, this essay is organized around the following five key questions:
· Why regulate and supervise financial institutions?
· Why distinguish between regulation and supervision?
· What is so special about microfinance institutions?
· What are our main alternatives for MFI oversight?
· How can we balance conflicting objectives?
Each question will be addressed in sequence, so that by the end of the essay the reader might fully appreciate the complexity of MFI regulation and supervision, as well as the opportunities that MFI diversity offers to effectively meet oversight needs creatively.