Is it time to regulate microfinance?

Abstract

In this article we suggest a new future for microfinance institutions (MFIs). In order to better serve the needs of the poor, we propose government regulation, improved organizational governance and business models for MFIs. With a strict definition of ‘microfinance’, true microfinance can be properly distinguished from other forms of financial activities. With adequate regulation and supervision, MFIs can take deposits from the poor thus providing a valuable service while obtaining money to lend. We propose that MFIs meet a strict definition and then be regulated and monitored to protect borrowers, which will also help to legitimize the microfinance industry.