In September of 2000, the UN General Assembly and 189 nations adopted the Millennium Declaration (A/RES/55/2) at the Millennium Summit. This Declaration led to the Millennium Development Goals (MDGs), which 189 nations and 23 international organizations agreed to achieve by the year 2015. The first goal is to eradicate extreme poverty and hunger. By 2015, the UN hopes to reach its first target of reducing extreme poverty and hunger by half.
One of the most powerful tools for the eradication of poverty is microfinance. Microfinance institutions (MFIs) provide financial services to the poor, who might not otherwise have access to these services in traditional financial institutions. The microfinance movement developed in the 1970s, when Dr. Muhammad Yunus started making loans to poor women in Bangladesh. Microfinance institutions have greatly increased their loans during the past twenty years. Yunus found that when he provided credit to poor women, they were able to successfully invest in small enterprises. These enterprises enabled the women to improve their financial condition.
Microfinance institutions (MFIs) now provide a wide range or services, from insurance to savings acounts. While all of these services are important, microcredit is perhaps the most critical. Microcredit is the extension of credit to impoverished people. In developing countries, it is also important to private sector development.
As 1) the international community attempts to eradicate poverty by supporting the efforts of microfinance institutions, and 2) MFIs become international institutions, there is an increasing need to regulate MFIs. Such regulatory controls should include both protecting customers and preventing MFIs from assuming risk. See Manfred Zeller, The Safety Net Role of Microfinance for Income and Consumption Smoothing, in SHIELDING THE POOR; SOCIAL PROTECTION FOR THE DEVELOPING WORLD 217 (Nora Lustig ed., 2001). Like a traditional financial institution, if an MFI plays a large role in a country, the MFI can also significantly affect a country's economy. It is a mistake, however, to think that countries can easily apply the laws and principles that govern traditional financial institutions to MFIs. Id. For example, minimum capital requirements may not be possible for microcredit institutions which do not take deposits. Also, interest rate caps may hinder an MFI's ability to cope with the transaction costs of making many smaller loans. Thus, there is a need to develop appropriate regulations applicable to MFIs. The aim of this research guide is to provide resources for researchers interested in regulating MFIs. This guide will highlight international organizations that have instituted microfinance initiatives and will recommend secondary sources regarding microfinance and regulation of MFIs.
Disclaimer: This Guide is for informational purposes only and is not meant to provide legal advice in any form.