Microfinance activities and the Core Principles for Effective Banking Supervision

The Basel Committee on Banking Supervision has issued for consultation a report that contains the guidance for the application of the Basel Core Principles for Effective Banking Supervision (BCP) to microfinance activities, and the range of practices on regulating and supervising microfinance activities.

Comments on the report should be submitted by 7 May 2010 by e-mail (baselcommittee@bis.org) or post (Secretariat of the Basel Committee on Banking Supervision, Bank for International Settlements, CH-4002 Basel, Switzerland).

Highlights

The report is based on a careful analysis of key regulatory and supervisory issues relevant to microfinance activities as identified through a questionnaire conducted by the Basel Committee, as well as secondary research to provide a more comprehensive snapshot of current practices and experience in countries from different geographical regions and income levels. The main conclusions from the report essentially illustrate the general applicability of the BCP to the supervision of microfinance activities and consistently highlight the following four key considerations on the need to:

a) allocate supervisory resources efficiently, especially where depository microfinance does not represent a large portion of the financial system but comprises a large number of small institutions;

b) develop specialised knowledge within the supervisory team to effectively evaluate the risks of microfinance activities, particularly microlending;

c) recognise proven control and managerial practices that may differ from traditional banking but may suit the microfinance business both in small and large institutions; and

d) achieve clarity in the regulations with regard to permitted microfinance activities to different institutional types, while retaining flexibility to deal with individual cases.

The final version of this paper was released in August 2010.