Microfinance activities and the Core Principles for Effective Banking Supervision

The Basel Committee on Banking Supervision has issued the final version of its paper entitled Microfinance activities and the Core Principles for Effective Banking Supervision that contains supervisory 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.

The Basel Committee's guidance is intended to point out areas whereby some degree of flexibility in implementing the BCP to the supervision of microfinance activities is appropriate, in light of the unique characteristics of microfinance vis-à-vis conventional retail banking. With specific references to the need of balancing regulation and supervision with ensuring financial inclusion, the report will assist countries to develop a coherent approach to microfinance supervision that takes account of the need for:

1. specialised knowledge of supervisors to effectively identify and measure risks that are specific to microfinance, particularly to microlending;
2. conscious effort to allocate supervisory resources efficiently, especially where depository microfinance does not represent a large portion of the financial system; and
3. balanced regulatory and supervisory framework that does not add significant costs to microfinance activities across different institutional types.

A consultative version of this paper was released in February 2010.