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United Nations Capital Development Fund


... Method: Investing in human and institutional capacity ... institutional capacity and constraints. 2. Develop Nationally Owned Policy, Strategy and Action Plan. ... – PowerPoint PPT presentation

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Title: United Nations Capital Development Fund

Panel Discussion on Regulation of Microfinance
Initiatives Supporting the Development of
Regulatory Frameworks for Microfinance Financing
for Development Office, UNDESA New York City 10
April 2007
United Nations Capital Development Fund
Presentation Overview
  • UNCDF Investing in the LDCs.
  • UN Advisors Group on Inclusive Financial Sectors.
  • Brief Survey of Initiatives Supporting Regulatory
    Frameworks for Microfinance.
  • UNCDF.
  • GTZ.
  • USAID.
  • ADB.
  • Microfinance Networks.
  • Microfinance Consensus Guidelines Guiding
    Principles on Regulation and Supervision.
  • Financial Access Initiative.

UNCDF Investing in the LDCs
  • UNCDF makes investments in the Least Developed
    Countries (LDCs)
  • Currently working in 28 Least Developed
  • Total population approximately 625 million.
  • Average GDP approximately US 317 per person per
  • Current investment portfolio about 125 million.
  • Our Mission Reduce poverty in these countries
    and help them achieve the Millennium Development
    Goals (MDGs).
  • Our Method Investing in human and institutional
    capacity at the local and national levels and
    funding and supporting Local Development
    Programmes and Microfinance Institutions (MFIs).
  • Our Approach Long-term outlook seeking local
    and national capital formation and human
  • Our Capital Flexible, high risk and innovative.

UNCDF Methodology
UNCDFs Sector Development Approach for building
inclusive financial sectors
  • 1. Conduct Financial Sector Assessment.
  • Gather data on access to financial services to
    establish a baseline and measure results.
  • Evaluate legal, regulatory, and policy
    frameworks, and financial services infrastructure
  • Evaluate human and institutional capacity and
  • 2. Develop Nationally Owned Policy, Strategy and
    Action Plan.
  • Legal, regulatory, and policy environments.
  • Financial Service Providers (FSPs) required to
    provide products and services and to strengthen
    financial sector.
  • Financial services infrastructure requirements.
  • FSP investment requirements.
  • Coordinating, implementing, and monitoring

UNCDF Methodology
  • 3. Execute National Action Plan.
  • Establish Investment Committees.
  • Composed of government representatives,
    development partners and other financial industry
  • Solicits investment proposals for broad range of
    MFIs, FSPs and other industry participants.
  • Review process is competitive and transparent.
  • Make investments in microfinance institutions
    (MFIs), FSPs, financial services infrastructure
    providers, and other industry participants.
  • Investments may be grants, loans, or equity.
  • Human and institutional strengthening and
    capacity building emphasized.

UN Advisors Group on Inclusive Financial Sectors
  • UNCDF also hosts the Secretariat of the UN
    Advisors Group on Inclusive Financial Sectors.
  • Established in June 2006 for a term of 2 years.
  • Seeks to increase global access of poor and low
    income households and micro and small enterprises
    to a broad range of financial products and
    services on a sustainable basis.
  • Consists of 25 representatives from the UN, World
    Bank, IMF, CGAP, African Development Bank,
    Central Bank of West Africa, Government Savings
    Bank of Thailand, World Council of Credit Unions,
    Accion International, Goldman Sachs, ABN-Amro,
    Deutsche Bank, Visa International, among other
  • Significant opportunity to raise global public
    awareness regarding financial inclusion and to
    place inclusive finance on the global development

UN Advisors Group on Inclusive Financial Sectors
  • UN Advisors Group on Inclusive Financial Sectors
    and Regulation.
  • Of the four Working Groups established, one is
    focused exclusively on the issues of Regulation
    and Supervision.
  • Institutions represented in the Regulation
    Supervision Working Group include CGAP (Chair),
    IMF, World Bank, UN DESA, Central Bank of West
    African Banks (BCEAO), Visa International, Aga
    Khan Agency for Microfinance, Central Bank of
    Malaysia, World Council of Credit Unions, Foreign
    Ministry of Affairs of Luxembourg, and World
    Savings Bank Institute.
  • The Regulation and Supervision Working Group is
    currently preparing to conduct a Regional
    Conference on Regulation to be held in early 2008.

UN Advisors Group on Inclusive Financial Sectors
At the UN Advisors Group meeting in Amsterdam,
CGAP, as the Chair of the Regulation Working
Group, defined the different components of
Regulatory and Supervisory reform work
Diagram Source CGAP
UN Advisors Group on Inclusive Financial Sectors
The Regulation Working Group also noted that
there are multiple actors involved in one or more
of these components.
UN Advisors Group on Inclusive Financial Sectors
  • The major conclusions of the Regulation Working
    Group were
  • This is a very crowded space with multiple
    actors and institutions.
  • Donor coordination is a huge challenge.
  • to avoid undercutting each other.
  • to avoid inconsistent advice.
  • All actors need to think carefully about their
    comparative advantage.
  • specialized expertise is needed but in short
  • practitioners have vital role to play, but not
    always seen as neutral.
  • different actors have different influence on
    decisions makers (varies by country).

Source CGAP
UN Advisors Group on Inclusive Financial Sectors
  • Within this context, the Regulation Working Group
    concluded that its overall objectives should be
  • Raise public awareness about the importance of
    inclusive finance among policymakers, central
    bankers, and government officials.
  • Advocate for appropriate regulatory and
    supervisory policies that encourage and support
    inclusive financial sectors.
  • Identify new areas where further discussions are
    needed with governments, regulators and
  • Focus on particular regulatory and supervisory
    risks which potentially constrain access to
    financial services and products.
  • Recently provided input to "Five Key Messages for
    Four Key Audiences statements of best practices
    for expanding access to finance for the poor
    targeted at regulators, governments, development
    partners and the private sector.

UN Advisors Group on Inclusive Financial Sectors
  • The Key Messages to Regulators include
  • Financial inclusion should be a major objective
    of financial regulation. The role of regulators
    is to establish environments that allow a diverse
    range of institutions to provide a wide variety
    of financial products and services.
  • Regulators must be flexible in their approach
    they must mitigate risks, without limiting access
    to financial services.
  • Regulators must assure appropriate supervision
    of both financial service providers and their
    supporting industries, such as telecommunications.
  • Regulators must exercise caution that anti-money
    laundering and related regulations do not block
    access to financial transfers that are critical
    for poor people.
  • Broad-based access to financial services
    requires an enabling regulatory environment for
    telecommunications and technology infrastructure.

Brief Survey of Initiatives Supporting Regulatory
Frameworks for Microfinance.
Country-level Diagnostic Work
  • UNCDFs microfinance sector development approach
    is built upon the premise that microfinance
    institutions and other financial service
    providers (FSPs) serving the poor should over
    time become an integrated part of the formal
    financial sector.
  • Sector development programmes are designed to
    identify and respond to new opportunities, and
    address constraints that keep a financial sector
  • One component of the sector development approach
    is the evaluation of a countrys legal,
    regulatory and policy frameworks, as well as
    financial services infrastructure requirements.
  • Since early 2003, sector assessments have been
    carried out in Nepal, Sierra Leone, Senegal,
    Madagascar, Democratic Republic of Congo, Malawi,
    Angola, and Liberia.

Country-level Diagnostic Work
  • Nepal Country Case Study
  • A 2006 financial sector assessment of Nepal
    conducted by UNCDF showed no immediate regulatory
    constraints to building an inclusive financial
  • But Nepals Central Bank requested guidance on
    regulating the growing microfinance sector. Thus
    within the context of a 30 million programme to
    build an inclusive financial sector in Nepal,
    capacity building of the regulator is an integral
  • Assistance will be provided to help the
    government develop an appropriate policy/strategy
    and to the Central Bank to develop criteria for
    determining which institutions should be licensed
    and regulated and which institutions might only
    have a reduced reporting requirement.
  • This project will be launched in 2007 and
    co-funded by UNCDF, UNDP and the World Bank.

Country-level Diagnostic Work
  • Liberia Country Case Study
  • One of the findings of a 2004 financial sector
    assessment was that the present legal and
    regulatory environment creates several
    constraints for the development of the
    microfinance sector
  • Low ceiling on interest rates (18 effective)
    made it unlikely that any commercial bank would
    enter the lending side of the microfinance
  • High reserve requirements of 50 and 18 for LD
    and USD discouraged domestic resource (savings)
  • Unclear guidance on the percentage of portfolios
    permissible for cash collateral was being
    provided by Liberias Central Bank.
  • Since the financial sector assessment was
    conducted, the government has taken positive
    steps towards liberalizing the financial sector.

Country-level Diagnostic Work
  • Microfinance Regulation and Supervision Project
    In the West African Monetary Union (BCEAO)
  • The Central Bank of West African States (BCEAO)
    is the common central bank for 8 countries
    (Benin, Burkina Faso, Côte dIvoire, Guinea
    Bissau, Mali, Niger, Senegal, and Togo).
  • The 2.3 million project is being financed by a
    consortium of donors including UNCDF, CGAP, and
    SIDA. Project goals include
  • Improving the regulatory framework to strengthen
    MFI governance and management and refine the
    regions approach to supervision.
  • Strengthening the effectiveness of supervision,
    including licensing new entrants, supervising
    ongoing operations, and imposing sanctions.
  • Improving understanding of the financial sector,
    institutional risks, and overall performance of
    MFIs in the region.

Country-level Diagnostic Work
  • GTZ
  • GTZ supports microfinance operations in more than
    40 countries, combining technical assistance to
    MFIs with financial sector reform that affects
    the institutional environment of MFIs.
  • GTZ advises central banks and banking supervisory
    agencies, and (in some countries) the ministries
    responsible for supervising MFIs.
  • Some of these projects include
  • Uganda Financial Systems Development Project -
    developed and implemented a regulatory and
    supervisory framework for MFIs.
  • Honduras Financial Sector Development Project -
    assisted supervisory authorities in tailoring
    regulation and supervision to MFIs.
  • Kyrgyzstan Strengthening and Development of
    Rural Financial Market - developed a legal
    framework for the co-operative sector.

Source GTZ website
Country-level Diagnostic Work
  • A variety of USAID projects have supported
    regulatory reform for microfinance.
  • These projects are usually in conjunction with
    implementing partners such as Development
    Alternatives International (DAI) or IRIS.
  • Some of the countries in which USAID has helped
    to support projects regarding microfinance
    regulatory reform are Armenia, Bolivia, Ecuador,
    Georgia, Jordan, Malawi, Mexico, Nepal, Nigeria,
    Philippines, and Zambia.

Source USAID website
Country-level Diagnostic Work
  • Asian Development Bank (ADB)
  • Provides assistance in the form of loans and
    technical assistance to member developing
  • Some of ADBs microfinance regulatory/supervisory
    activities include
  • Uzbekistan Financial Services for the Poor
    Project aims to develop an enabling policy,
    legal and regulatory supervisory framework for
    savings and credit unions.
  • Azerbaijan Microfinance Sector Development
    Project seeks to develop microfinance
    regulations and collateral framework.
  • Laos PDR, Mongolia, Nepal, and Sri Lanka Rural
    Finance Sector Development Programme - supports
    the creation of an enabling policy for a
    regulatory and supervisory framework for rural
  • Published 2000 study The Role of Central Banks
    in Microfinance in Asia and the Pacific that
    examined the role and operations of central banks
    in microfinance development in Bangladesh, China,
    India, Indonesia, Kyrgyz Republic, Nepal,
    Pakistan, Papua New Guinea, Philippines, Sri
    Lanka, Vanuatu, and Vietnam.

Source ADB website
Advocacy and Awareness Building
  • Microfinance Networks
  • Microfinance Centre for Central Eastern Europe
    and the New Independent States (MFC)
  • International, grass-root network of 90 MFIs from
    the region.
  • Along with other Regulation initiatives, it
    conducts an annual "Policy Forum on Microfinance
    Law and Regulation.
  • The main purposes of the annual Policy Forum are
    to benchmark the progress of the countries in
    which initiatives to create favorable environment
    for microfinance are taking place or that took
    place during the previous year and to increase
    the awareness of policy makers from countries not
    yet selected for MFC Initiatives.

Source MFC website
Policy Analysis Standard Setting
  • Microfinance Consensus Guidelines Guiding
    Principles on Regulation
  • and Supervision.
  • Published by CGAP.
  • Captures a broad consensus on best practices in
    regulation and supervision of microfinance. The
    guidelines summarize these principles for
    government regulators and others engaged in
    moving microfinance into the formal financial
  • Some major principles that have been agreed
  • Problems that do not require the government to
    oversee and judge the financial soundness of
    regulated institutions should not be dealt with
    through prudential regulation.
  • In some countries, legal changes are needed to
    make it clear that NGOs and other private bodies
    may conduct a lending-only business without
    having to be prudentially licensed and regulated.
  • Depending on practical costs and benefits,
    prudential regulation in some cases may not be
    necessary for MFIs that take cash collateral.

Source CGAP
Policy Analysis Standard Setting
  • Financial Access Initiative
  • A joint project of Yale University, Harvard
    University, New York University, and Innovations
    for Poverty Action (IPA).
  • Formed in 2006 as a research consortium focused
    on improving access to financial services for the
    worlds poor through research on innovation,
    regulation, and financial policy.
  • Of the three main activities that will be
    conducted, one focuses on policy around
  • Aims to describe policy options for central
    bankers and regulators in a high-level but
    accessible format.
  • Focus will be on recent experiences across
    countries, regulatory constraints, and
  • Outputs will be independent, rigorous guides for
    regulatory policy with an emphasis on direct
    effects and trade-offs of policy choices.

Panel Discussion on Regulation of Microfinance
Initiatives Supporting the Development of
Regulatory Frameworks for Microfinance Financing
for Development Office, UN DESA New York City 10
April 2007
United Nations Capital Development Fund
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