1 Activities:  Grants  Borrowings  Deposits Activities:  Loans  Lease financing  Deposits  Collateral interest Impact of Legal and Regulatory Framework on Microfinance Donors, banks, and general public Small and micro enterprises Microfinance institutions $

2 Impact of Legal and Regulatory Framework on Microfinance Donors, banks, and general public Small and micro enterprises Microfinance institutions Activities:  Grants  Borrowings  Deposits Activities:  Loans  Leasing  Deposits  Collateral wEstablishment procedures wRegulations on operations as financial institutions wAccounting standards and procedures wTax laws and regulations wSecurities law wLegal framework for ownership and security interests

3 wEstablishment Procedures: yRecognition as legal entity yReporting requirements yBankruptcy law and procedures Impact of Legal and Regulatory Framework on Microfinance Donors, banks, and general public Small and micro enterprises Microfinance institutions Activities:  Grants  Borrowings  Deposits Activities:  Loans  Leasing  Deposits  Collateral

4 wRegulations on Operations as Financial Institutions: yDoing banking business, making loans, taking deposits - Licensing as bank or specialized financial institution yMinimum capitalization, governance and other barriers to entry yRisk-based prudential supervision yReporting requirements yParticipation in clearing and payment systems wWhat regulatory policy should recognize: (i) Types of MFIs in the continuum, and (ii) threshold levels of activities that trigger need for regulation or supervision Impact of Legal and Regulatory Framework on Microfinance Donors, banks, and general public Small and micro enterprises Microfinance institutions Activities:  Grants  Borrowings  Deposits Activities:  Loans  Leasing  Deposits  Collateral

5 wAccounting Standards and Procedures: yInternal and MIS reports yExternal reports and audited financial statements yTax returns and reporting Impact of Legal and Regulatory Framework on Microfinance Donors, banks, and general public Small and micro enterprises Microfinance institutions Activities:  Grants  Borrowings  Deposits Activities:  Loans  Leasing  Deposits  Collateral

6 wTax Laws and Regulations: yProvisioning expense and loan write-offs yLeasing law - depreciation expense and tax treatment yCascading taxes on financial transactions Impact of Legal and Regulatory Framework on Microfinance Donors, banks, and general public Small and micro enterprises Microfinance institutions Activities:  Grants  Borrowings  Deposits Activities:  Loans  Leasing  Deposits  Collateral

7 wSecurities Law: yBlanket assignment of receivables yCreation and issuance of financial securities yRegistration of security issues Impact of Legal and Regulatory Framework on Microfinance Donors, banks, and general public Small and micro enterprises Microfinance institutions Activities:  Grants  Borrowings  Deposits Activities:  Loans  Leasing  Deposits  Collateral

8 wLegal Framework for Ownership and Security Interests: yDocumentation and registration of ownership rights yCreation and enforcement of security interests yForeclosure laws Impact of Legal and Regulatory Framework on Microfinance Donors, banks, and general public Small and micro enterprises Microfinance institutions Activities:  Grants  Borrowings  Deposits Activities:  Loans  Leasing  Deposits  Collateral

9 Impact of Legal and Regulatory Framework on Microfinance COLLATERAL Formats and Instruments COLLATERAL Formats and Instruments PersonalGuaranteePersonalGuaranteeAssignmentforSecurityAssignmentforSecurity Pledging or Pawning(perfected security interest) Pledging or Pawning(perfected security interest) Chattel Mortgage (attached security interest) Chattel Mortgage (attached security interest) of Claims and Rights of Claims and Rights of Movable Property of Movable Property of Real Property of Real Property