Regulating Innovation In Microfinance Griffith University-PDF Free Download

Regulating innovation in microfinance Griffith University

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Regulating Innovation in Microfinance Dr Katherine Hunt1 1Department of Accounting, Finance and Economics, Griffith Business School, Griffith University, Australia, Phone: +61 7555 27789, Email: [email protected] Abstract Microfinance is a socio-financial innovation which has increased financial inclusion in majority



Regulating Innovation in Microfinance
Dr Katherine Hunt1
Department of Accounting Finance and Economics Griffith Business School Griffith
University Australia Phone 61 7555 27789 Email k hunt griffith edu au
Microfinance is a socio financial innovation which has increased financial inclusion in majority
countries for the past three decades However changing technology and demographics mean
that the future of microfinance depends on innovation by Microfinance Institutions MFI s in
product design application processes and financial operation This paper applies the results
from interviews with stakeholders in Pakistan India and Bangladesh to understand how
microfinance regulation directly impacts on MFI innovation and thus on the sustainability of
financial inclusion in majority countries We propose that microfinance regulation can support
long term financial inclusion via microfinance innovation through allowing MFI s to access
equity partnerships diversified capital sources and leverage opportunities derived from the
mobile banking revolution for loan repayments These findings have direct relevance for policy
makers and contribute to the literature regarding the future of financial inclusion
Key words Innovation Policy Microfinance Microfinance Innovation Microfinance Policy
JEL Codes G21
Acknowledgements The author would like to thank the participants at the Personal Finance
and Investments Symposium in Brisbane in November 2015 for their helpful comments
Further the author would like to thank Dr Anastasia Girshina Dr Saeed Ahmed Dr Jaroslaw
Kantorowicz and Dr Lindsay Reilly for their advice and assistance on this paper
1 Introduction
Innovation is as important for governments as it is for business for through regulation
governments are able to leverage off the private sector to achieve the goals they so ardently
desire This is particularly true when it comes to financial inclusion Majority world1
governments seek financial inclusion as a tool for long term economic growth and
Microfinance Institution MFI regulation is one method to achieve financial inclusion
However the needs of consumers in majority countries change just as rapidly as the needs of
those in developed countries Batra Ramaswamy Alden Steenkamp Ramachander 2014
Hwang Wu Yu 2016 Popkin Adair Ng 2012 Thus MFI s must continuously
innovate to maintain relevance for their borrowers and to ensure their business operations are
financially self sustainable However the innovations of MFI s greatly depend on the
regulation under which they are governed For example consider Bangladesh the birthplace
of modern microfinance yet the country with the least amount of microfinance innovation
This presents a great risk for long term financial inclusion in Bangladesh because it indicates
MFI s have not adapted to the changing needs of their borrowers in the last 30 years and that
their outdated model will lose still more relevance over the next 30 years Hence the risk of
not innovating is putting the long term economic growth of Bangladesh at risk On the other
hand the amount of innovation by MFI s in Pakistan covers all aspects of business operations
and is facilitated by regulation This paper focusses on the regulation of three key countries
Pakistan Bangladesh and India and how it affects innovation by MFI s This topic has not
been considered by the literature to date despite the fact that innovation by MFI s will shape
the future of microfinance financial inclusion and economic growth in majority countries
Microfinance Institutions can innovate in one of four ways product design product delivery
product approval and access to credit Innovations in product design may include an
allowance for loans to be secured by gold jewellery Innovations in product delivery could be
in the form of mobile phone disbursement of loans or applications Innovations in product
approval may take the form of fingerprint readers to identify borrowers who are not in
possession of an identity card Innovations in access to credit may take the form of
securitisation of loans or accessing the capital markets These innovations are all critical for
1 Majority world is a term used to refer to those countries which are still developing and which comprise the majority
of the world in which we live in the current era This term has been used widely in the sociology literature and is
aligned with the socioeconomic outcomes of microfinance Punch 2003
MFI s seeking to adapt to the changing financial inclusion landscape and regulation holds the
key as to whether MFI s are able to innovate
Financial inclusion through microfinance reflects a trend in economic development which aims
to leverage the financial system to create widespread opportunities for the vulnerable in society
generating general and long lasting changes in prosperity These changes in prosperity will
come from millions of people having access to financial services enabling them to save
borrow and insure in a way which allows for wealth creation and wealth protection However
the sustainable provision of financial inclusion requires consistent innovation by the firms
which provide access to financial services This paper considers the role regulation plays in
enabling or crippling innovation in Microfinance Institutions MFI s It will be argued that the
effect of regulation on MFI innovation will ultimately determine the continued financial
inclusion of a majority of people in the world
The economic benefits of financial inclusion generally relate to microenterprise creation and
expansion which is implemented through microfinance2 Although research to date has found
that the economic benefits of microfinance are lower than previously expected Aggarwal
Klapper Singer 2012 Ahlin Jiang 2008 there is consensus that the initiative is likely
to have greater benefits than disadvantages costing governments relatively little to support
Hunt 2013 The social benefits of microfinance have been well established in the literature
to date Hossain Knight 2008 Molyneux Hutchison Chuma Gilson 2007 Roper
2005 with MFI s seeking to extend financial inclusion to the most vulnerable in society The
targeted users for MFI s are usually rurally located illiterate women in majority countries a
segment of society whose vulnerability to financial exclusion is matched only by the cost of
extending financial services to Cull Demirg Kunt Morduch 2010 Woller 2002
Microfinance is a financial innovation and MFI s are specialised providers of financial
services who have innovated business models products and access to credit in order to extend
financial services to those previously excluded from them Historically many MFI s have relied
on international donations and there has been a trend in recent years for MFI s to seek
operational self sustainability The potential long term security of microfinance for more than
2 Microfinance is the provision of small loans of generally less than US 1 000 to individuals utilising social rather than
physical collateral references from community members and with no financial recourse for unpaid loan amounts
Sharma 2005 The aim of microfinance is threefold providing access to credit shifting household bargaining power
and providing incentives to change the way people decide on temptation expenditure and efficient expenditure
Banerjee Duflo Glennerster Kinnan 2009 pp 11
100 million borrowers Armend riz Morduch 2010 comes from the ability of MFI s to
respond to the changing needs of their clients through innovation
The regulatory environment in which MFI s function determines the ability of an MFI to
innovate This is an important topic of research for the literature and also for policy given the
significant positive impact3 that microfinance has in majority world countries Additionally
without regulatory measures which allow innovation the ability of MFI s to provide financial
inclusion to vulnerable populations will be hindered Some of the key aspects of organisational
innovation are found in the development of income streams capital raising and expense
minimisation these characteristics are illustrated in MFI s which are financially self
sustainable The financial self sustainability of MFI s is a topic covered in the literature
generally relating to the impact on the borrowers This paper takes an alternative perspective
by linking MFI financial self sustainability to their ability to innovate which is ultimately
affected by regulation
Financially self sustainable MFI s contribute to ensuring long term financial inclusion Haq
Skully Pathan 2010 At the heart of the research question for this paper is the discussion
of why MFI s should be operationally self sustainable and innovative A report by the IMF
explained how MFI s which rely on donations are restricted by limited resources Sarr 2006
Indeed this report goes on to say that subsidised lending by NGO s may actually have adverse
effects on the operations of MFI s Sarr 2006 If MFI s are not financially sustainable or
otherwise unable to access sources of sustainable capital Al Azzam Mimouni Ali 2012
they must primarily rely on other funding sources either from NGO s or subsidised credit from
governments Di Bella 2011 This may result in the ongoing attainment of the social benefits
derived from microfinance however the continuation of these benefits relies on a cycle of
charitably motivated funding A financial model which relies on donor funding when a self
The literature is comprehensive in regards to the impact assessment of microfinance such as the positive effect on
consumption poverty employment education and social status Torkestani Pari 2008 However there is a general
lack of data on microfinance borrowers their characteristics contextual influences and success rates Emeni
Kehinde 2008 Weiss Montgomery Kurmanalieva 2003 Further the research to date has focussed on
microfinance as a socio economic mechanism rather than as a tool to promote latent entrepreneurship and economic
growth Affleck Mellor 2006 Considering the fact that microfinance emerged as a tool to fight poverty this is not
surprising However microfinance allows self employment which requires a whole new set of skills to overcome
difficulties at every stage of operation Felsenstein Schwartz 1993 Microfinance leads to entrepreneurship Emeni
Kehinde 2008 and limited access to capital has been found to be a contributing factor in the poor economic
growth of many majority world countries Collier Dasgupta 2007 Authors have supported the economic effects
of microfinance at a macro and also at a local level Buera Kaboski Shin 2012 and on the quality of life Eichner
sustaining model is available may put MFI s under unnecessary risk because if there is a
change in the financial stability or focus of their sponsors MFI s may be left without funding
However it is the legislation governing MFI s which potentially influences whether they are
regulated to a financially stable level where they can receive deposits and also whether
international and credit market funding sources are available
1 1 Theoretical framework
The literature on microfinance consistently mentions four areas of MFI operations where
innovation is vital product design product delivery product approval and access to credit
The current paper considers innovation in microfinance in each of these four fields with a view
as to how regulation can influence them and how vital innovation in these areas is to MFI s in
a diverse range of countries
The specific aspects of MFI operations that regulation can affect are product design such as
accepted collateral of gold or social collateral product delivery such as mobile phone
repayments product approval such as identification of borrowers using fingerprint
technology and MFI processes and access to credit This paper considers and compares the
impact of MFI innovation across these areas
2 Methodology
The current paper focusses on how regulation is affecting the future of microfinance via
innovation by MFI s In order to consider the topic more thoroughly it presents the findings of
three methodological perspectives which focus on the countries of interest by comparing
relevant regulation documentation statistical considerations and interview results
By utilising a strategy of methodology that relies on both quantitative and qualitative methods
of data collection this paper uniquely positions itself within analyses unexplored in literature
to date while providing a level of validity not achievable from focussing on one
methodological approach
The methodological processes of this paper represent an innovative strategy for considering
the future of financial inclusion The innovative approach taken by this paper is driven by a
lack of published research on this topic and hence the requirement to provide a foundation
paper which considers different possible perspectives regarding the influence of regulation on
financial inclusion When one considers the lack of research on this topic it is clear that initial
research in this field needs to establish a range of potential conclusions about the current state
of play Future research regarding innovation in microfinance will only have the ability to delve
into specific methodologies once the literature establishes a baseline by reflecting the current
state of play
2 1 Country selection
In a strategic sense there are two main perspectives on how to identify countries which yield
meaningful comparisons Some authors such as Marr and Tubaro 2013 who intentionally
chose to compare Peru Tanzania and the Indian state of Tamil Nadu have indicated that the
most beneficial comparison of legal issues can be made between countries which have large
contextual differences On the other hand authors have attempted to compare similar countries
such as Beck and Levine 2005 in their paper on the role of private investor protection on
financial development
Both perspectives are important for establishing a sound empirical methodology for the current
research however three similar countries Pakistan India and Bangladesh have been chosen
for a number of reasons Firstly they are relatively comparable in terms of cultural factors
which might otherwise distort the results Indeed these three countries have a shared history
and until 1947 were one original country
Secondly they are the most similar three separate countries which have available industry and
regulatory data on microfinance Therefore for the purposes of determining the effect of
regulation on innovation in microfinance these three countries are the most appropriate
2 2 Interview Methodology
To determine the effect of regulation in a meaningful way requires a broader range of data and
a richer consideration than a purely statistical approach Hence semi structured interviews
have been undertaken with stakeholders in the microfinance sector in Pakistan Bangladesh
and India The technique of interviewing has long been established as a method of gaining in
depth and personal information which is critical for certain research fields DiCicco Bloom
Crabtree 2006 Qualitative research faces similar methodological considerations to
quantitative research Creswell 2012 For both methodological perspectives the most
important aspect is the overall strategy and logic of the analysis and the second most important
aspect is the quality of data input4 thus quality interviews were sought
2 2 1 Interviewee Selection
Interviews were conducted with Chief Executive Officers CEO s Managing Directors
MD s and Chief Financial Officers CFO s of MFI s NGO s and self regulatory bodies in
the countries of interest In addition high level officials in the State Bank of Pakistan Reserve
Bank of India and Microfinance Regulatory Authority Bangladesh were interviewed
Previous research has indicated that six interviews are generally sufficient and that data
saturation occurs after 12 interviews Guest Bunce Johnson 2006 Hence a minimum of
six interviews was achieved for each country
2 2 2 Interview Questions
The interviews were semi structured meaning that the questions were used as a guide for the
discussions Indeed given the inherent nature of qualitative research of this kind the direction
of the interviews individually evolved depending on the particular interest experience and
perspective of the interviewee Further in order to ensure that the interviews proceeded in a
free flowing manner and yielded the maximum possible information a formal interview
technique which can make subjects suspicious and defensive Britten 1995 was avoided
2 2 3 Process
Interviews were conducted in the countries where interviewees were located namely Pakistan
India and Bangladesh Interviews were primarily conducted in the offices of the interviewees
or suitable nearby locations The discussions with interviewees were recorded electronically as
well as the responses being either typed or hand written during the interview5
2 3 Regulation Comparison Methodology
The methodology for conducting the comparative analysis of regulations between the three
countries of interest is based on the criteria broadly identified in The Law and Economics of
Microfinance by Hunt 2014 In that paper a law and economics analysis identified different
aspects of regulation which can theoretically have an impact on MFI innovation Hunt 2014
4 IT specialists refer to this phenomenon as GIGO or garbage in garbage out
5 Full interview transcripts and list of interviewees is available by emailing the author
In this way the current paper is a test of the theory as to which aspects of microfinance
regulation have a potential impact on MFI innovation which in turn has potential flow through
effects on long term financial inclusion In particular Hunt 2014 identified that regulation
which promoted the use of microfinance would potentially contribute to the financial
sustainability of MFI s through innovation The methodology of comparative analysis was
chosen for the current study because it provides a direct examination of the differences between
countries which directly assists comparisons of differences in MFI financial sustainability
The current paper identifies aspects of regulation which are relevant to innovation in
microfinance and presents a summarised discussion on the findings of the regulatory
comparison based on the regulations specific to microfinance in the countries of focus
The current paper seeks to determine the effect of regulation on innovation in microfinance in
the countries of interest Despite the plethora of research which has found that innovation is
closely tied to long term outcomes in a variety of societies Ford 2013 Langlois 1992 Potts
2009 this theory has not been directly applied to microfinance This is surprising given that
the long term sustainability of microfinance may potentially have some of the strongest and
most long lasting effects of any financial initiative in majority world countries The focus of
this paper is to identify the link between regulation and innovation in microfinance As such
results will be presented with this purpose in mind
3 1 Legal Comparison
For the current paper the level and degree of regulatory control functioning in each of the
countries studied was established by examining the original pieces of regulation The
regulatory comparison indicated that despite the Bangladeshi microfinance regulator 6
functioning in a paper based system inherently a year out of date there are very high written
controls regarding the freedoms accorded to MFI s For example in Bangladesh MFI s are
required to check with the government regarding all cash flow activities even if through
generation of capital surplus they wish to use funds for charitable purposes Consequently the
Bangladeshi MFI s spend a large amount of time completing paper based submissions and
6 Microfinance Regulatory Authority MRA
incurring a high level of administrative costs associated with regulation This naturally has an
impact on the capital available for innovating and ultimately on the development of products
designed to reach those financially excluded This micro managing approach of the
Bangladeshi regulator is in contrast to the never ending submission process of the Indian
government with regulation drafted in 2012 still not passed by the parliament
Regulatory analyses for Pakistan revealed the potential for regulation to effect the types of
microfinance loans developed For example the regulations provide a waiver for the general
provisions of assets to be held against loans which hold gold as security for the loan7 This has
the potential to encourage the functional use of gold held by households so long as MFI s
develop products which leverage off this asset class
Although the regulations in Pakistan have some aspects which seem to potentially increase
financial inclusion the gold waiver for example other requirements on MFI s may result in
less freedom for MFI s to innovate For example the regulations in Pakistan require that MFI s
establish the repayment capacity of the borrower8 This regulation has the potential to restrict
the provision of loans only to those who have the documented ability to repay the loan Given
that microfinance and other financial inclusion initiatives have been developed to provide an
alternative source of symmetric information i e social collateral and community references
this regulation has the potential to restrict access to credit to the middle classes who have
documented income The regulation is drafted in a way which reflects the intention for
consumer protection and as such may reflect an overall aversion to over indebtedness since
the 2009 crisis in neighbouring India
Overall the regulations in the three countries of interest contain enough differences to illustrate
that different countries require different outcomes from their regulatory initiatives Despite this
the regulations currently in place in the countries of interest have resulted in differences in
innovation within MFI s Bangladeshi regulation restricts innovation by creating a high paper
based administrative burden and creating a climate of subsistence in that MFI s are not allowed
to even donate money without government approval On the other hand Indian MFI s are able
to innovate in some ways such as through access to credit via securitisation of loans but not
in other ways such as through product design approval or distribution At the other extreme
7 Regulation R 14 Prudential Regulations for Consumer Financing State Bank of Pakistan 2011
8 Regulation R 15 Prudential Regulations for Consumer Financing State Bank of Pakistan 2011
the regulations in Pakistan greatly assist MFI s through encouraging equity partnerships
innovation in collateral requirements and innovation in technological leverage to expand
microfinance services to the most remote communities However even the example of
regulation in Pakistan leads to questions regarding why more MFI s in Pakistan do not seek
the kind of innovation that companies such as Tameer do9
4 Interview Results
The interviews were conducted across MFI s large and small self regulatory institutions
ratings agencies NGO s and the regulators10 Despite the diversity of perspectives
consistency can be seen in the results in most cases The trends in the effects of the law on MFI
operations are understood by all players and so the results of the interviews were simpler to
compile than if each perspective presented a different opinion This section presents a summary
of the results of the interviews
4 1 Bangladesh
Interviews in Bangladesh provided a contrast to the other countries examined because the
motivation of the regulator is completely different Unlike Pakistan where the regulator seeks
long term financial inclusion through a variety of strategies in Bangladesh the regulator
primarily seeks consumer protection from rogue microfinance firms and the regulations are a
direct reflection of this focus This highlights the fact that the overall strategic perspective of
the regulator has a great effect on MFI innovation and ultimately on financial inclusion through
microfinance
The interviews in Bangladesh revealed that although it is the birthplace of modern
microfinance Bangladesh hasn t innovated in product design product delivery or credit source
for three decades The result is that despite the world s highest per capita outreach 13 of the
population has a microfinance loan MIX 2015 products for financial inclusion have not
adapted to changing market conditions or consumer attitudes Interviews revealed a large
9 Tameer Microfinance Bank is the leader in innovation of products delivery processing technological leverage and
access to credit http www tameerbank com
10 The regulators in question are the State Bank of Pakistan the Reserve Bank of India and the Microfinance
Regulatory Authority in Bangladesh
disconnection between the innovations that MFI s would have liked to make and the role that
the regulator saw MFI s playing in financial inclusion
Bangladesh is where the joint liability group loan originated As such the trend away from this
well ingrained system has been much slower than in other countries Although there has been
a trend away from group loans by the large MFI s the core products are still loan products
without any kind of specialisation or flexibility of loan terms Most MFI savings accounts are
still effectively unavailable to depositors except with BURO Interviews with BURO and other
MFI s revealed that BURO is the only MFI which has managed to maintain financial
sustainability through integrating microsavings as a source of capital However interviews
with the regulator revealed that the cap for savings has been set at 25 of capitalisation to
protect consumers from financial loss and there is no intention to adapt these regulations to a
changing capital funding structure for financial inclusion institutions
One of the key issues in Bangladesh is the need for diversification of capital sources At the
current time the regulator says there are no issues in the sector On the other hand MFI s say
they need to be able to mobilise more savings than just 25 50 of capitalisation11 Regulation
in Bangladesh effectively ensures that most MFI s rely on donations for their establishment
operations and expansion This is because MFI s are unable to access capital from the capital
markets unable to undertake equity partnerships and unable to mobilise large amounts of
microsavings Given these restrictions MFI s operate reliant on hand outs from PKSF and
other donors When MFI s are reliant on donations for the achievement of their organisational
goals i e financial inclusion it is intuitive that their behaviour is tuned to maximising the
donations they receive This system stifles MFI innovation because it is natural that donors
support MFI s who achieve financial inclusion to the most vulnerable in society and don t
necessarily support the kind of investment in technology infrastructure and human resources
that innovation requires
Two of the key issues in Bangladesh are that regulation has not supported the creation of a
Credit Information Bureau nor allowed for dialogue through a self regulatory organisation
The regulations currently allow MFI s to mobilise only 25 of savings to fund business operations as per MRA
Act 2007 Grameen Bank can take deposits and in 2009 had a ratio of 142 for client savings to loan portfolio
Total deposit balance does not exceed 80 of total loans outstanding at any time There are conditions which need
to be followed in order to receive voluntary deposits including that they cannot exceed 25 of the total
capitalisation of the organisation Detail is given about how to administer deposits and the conditions to follow
Interviews revealed that the regulator has no intention of supporting a Credit Information
Bureau and that MFI s view the idea as one which will increase competition and customer
stealing As such there is consensus in Bangladesh that a Credit Information Bureau is not
going to be initiated despite great success with the same system in neighbouring Pakistan and
more recently in India In addition the lack of a strong self regulatory body means that there
is no dialogue between the regulator and the MFI s and this has direct flow through effects
on regulation which supports consumer protection at the expense of financial inclusion
However it is clear that consumer protection cannot be had without the presence of financially
independent and strong MFI s who seek to provide financial inclusion In this way regulation
which is focussed solely on the end goal loses sight of the means to achieve the goal
Interviews in Bangladesh revealed a strong disconnection between the regulator s perceptions
that the industry is fine and that consumers must be protected at all costs and the perceptions
of MFI s that they want to be able to innovate yet the regulation doesn t allow them to Based
on the interviews conducted as part of the current study it can be clearly seen that regulation
in Bangladesh has a direct impact on MFI innovation and is stifling an industry which seeks
to adapt to the changing financial inclusion landscape In addition interviews revealed that
regulation ensures that microfinance in Bangladesh is completely reliant on donations which
means that a change in donor priorities is all that is needed for the financial inclusion of millions
of people to disappear
The Indian microfinance environment has been shaped by the increasing dialogue between the
regulator and the self regulatory institution Microfinance Institutions Network MFIN As a
result current regulations more closely reflect the requirements of MFI s than they did
previously However there is still disagreement between the regulator and MFI s in terms of
how MFI s should function within the space of financial inclusion and this is reflected in
discrepancies raised in the interviews
There is ongoing dialogue between the RBI12 and MFIN13 which enables regulation to reflect
some of the needs of the industry such as achieving their financial inclusion goals However
despite some regulations adjusted through industry dialogue many regulations which would
12 Reserve Bank of India
13 Microfinance Industry Network the self regulatory body in India
facilitate future innovation in product design and delivery such as mobile banking have been
flatly refused by the regulator14 Hence the situation in India is one where regulation permits
innovation in some ways while restricting it in other ways which hamper long term financial
One of the key innovations which allows MFI s greater diversification in credit sources is the
possibility for the securitisation of microfinance loans The challenges associated with this
initiative differ from those faced when loans in developed countries are securitised and re sold
One of these issues is the difference in maturity between the three year securitised loan
portfolios and the one year microfinance loans In developed countries this hasn t stopped the
securitisation of credit card debt which indicates that there might be a possibility for 12 month
microfinance loans as well Large MFI s in India are developing securitisation products which
they can sell to the market to fund operations and share the risk of the loan portfolios There
are strong innovations in this area because most microfinance loans are only a 12 month term
while the securitised products are for 3 years requiring some inspired financial engineering to
fix the maturity disparity and ensure they are marketable products
Despite the move towards innovation in establishing diversified options for credit MFI s are
restricted from making a profit unless they are able to keep operating costs below 10 15
Hence there is limited strategic investment in MFI s from domestic and international
companies as MFI s are rarely able to prove that they are financially viable businesses worth
investing in or partnering with There is currently a margin cap of 12 Interviews with the
MFIN indicated that 1 was required to cover bad loans and 1 for possible profit That only
leaves a 10 margin for operating costs an unachievable task considering the costs of
servicing the target market MFI s say this is leading to mission drift however interviews with
14 Interviews with the RBI found that they perceive the idea of mobile phone banking with an attitude that it will
simply result in the creation of an unregulated eMoney as happened in Kenya Other countries have been proactive
about ensuring this doesn t happen but the RBI has indicated that they will avoid that trend Time will tell whether
this proves to be true
15 Given that microfinance borrowers are often rurally dispersed illiterate women in majority countries the cost of
providing financial services to this sector is relatively more costly than to a comparative group of urban middle class
in the same countries If MFI s are seeking to keep costs below 10 it is very difficult for them to provide loans to
the target market as they are so costly to service Ordinarily the costs are able to be passed on to the end users who
are willing and able to pay for the cost of financial services Aggarwal et al 2012 However if the margins are
restricted to 10 MFI s are incentivised to provide loans to those less costly to serve namely the middle class The
term used to describe this trend is mission drift and it has been applied to situations of regulated interest rate and margin
caps and widely covered in the academic literature in papers by Brau and Woller 2004 and Kiweu 2011 to name a
the RBI16 indicated that from their perspective the 12 margin is enough for MFI s to run
efficient businesses and serve the poor Hence dialogue between the industry and regulator are
ongoing with outcomes which suit all stakeholders remaining the long term goal
The interview with the regulator in India revealed that it has no intention to allow mobile phone
repayments or branchless banking because it does not want to create unregulated eMoney
However it also has no intention of considering the way Pakistan is developing a system to
allow for regulated eMoney despite the countries being neighbours The regulator wants to
avoid the creation of eMoney as happened in Kenya as a result of the mobile phone money
transfer system Hence there are regulatory restrictions on operating in a cashless way The
result is that MFI s can only increase outreach through the traditional model of branches and
loan officers which is naturally more expensive than operations which can use technology in
a systematic way
Interviews with MFI s indicated that they believe they are not able to develop products which
leverage off technology because of restrictive regulation and this is a big limitation in product
innovation It is intuitive that if the regulator declines to nurture a system of branchless banking
then MFI s aren t able to develop the infrastructure or product design to implement such
innovation Interviews with the regulator indicated that it sees no reason to support branchless
banking when all it illustrates is a divergence from what MFI s should be doing which is
providing loans to the poor Naturally with such different perspectives on the role of branchless
banking in financial inclusion it is no wonder that the regulators and the industry are at odds
over this matter
The current government of India has put in place the Sampurna Vittiya Samaveshan Total
Financial Inclusion program which is designed to extend low cost bank accounts to an
additional 200 million under served women Access to a bank account is a key first step in
financial inclusion and although it doesn t allow the potential business benefits that
microfinance does it does provide a framework from which customers can become active
financial members of society Despite the continued interest rate cap for microfinance loans
MFI s in India have bounced back from the regulatory and sector crisis of 2009 and seem to be
gathering momentum for long term financial inclusion
16 Reserve Bank of India


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innovation and value to the consumer (Tigo, Ghana2). On the other end of the spectrum, however, there has been one dramatic failure3 (EcoLife, Zimbabwe), in which 20% of the adult population was impacted overnight due to the immediate cancellation of the product. What lessons can be learnt from this experience?

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Electric Scooters: Innovation or Disruption?

Electric Scooters: Innovation or Disruption?

dangers and/or benefits greater than posed by the “micro-mobility” industry. It is incumbent upon the City leadership to act promptly to protect its citizens while still encouraging and promoting innovation. FINDINGS Finding 01: Dockless scooters are spread out in great numbers on San Diego City sidewalks without approval from the City.

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eVinci™ Our Next Disruptive Technology Micro Reactor

eVinci™ Our Next Disruptive Technology Micro Reactor

regulating behavior of the heat pipes and the solid core enables inherent load following. The resultant product can deliver reliable, affordable, fl exible and clean energy, with a new level of safety and operability. With the notion of creating a nuclear battery, the eVinci micro reactor is envisioned to be built and fueled within

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Some Legal and Regulatory Issues Relating to Microfinance

Some Legal and Regulatory Issues Relating to Microfinance

Some Legal and Regulatory Issues Relating to Microfinance Mike Dennis Department of State. UNCITRAL Colloquium. Vienna, January 12‐13, 2011. Historical Regulatory Issues Unique to Microfinance • Microfinance often ignored by banking sector. • Tradeoff between outreach and sustainability. • Not practical (and no need) for non‐depositing taking MFIs to be governed by prudential ...

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