Risk-based Supervision of Banks Involved in Microfinance

Abstract

Microfinance banks have, through the years, shown a remarkable ability to reach low-income borrowers, most of whom do not have bankable assets to serve as collateral. As such, they necessarily fill a gap unserved by formal credit institutions. In this light, there is a need to further expand their reach and to be able to do this, they should be able to show to the regulatory authority and the public that they are as trustworthy as the regulated nonmicrofinance bank. How to do this is the question. This Policy Notes therefore offers an answer through the adoption of a risk-based regulation and supervision approach that is appropriate to the nature and set-up of a microfinance bank.microfinance