International Conference on Rural Finance Research: Moving Results into Policies and Practice International Conference on Rural Finance Research: Moving Results into Policies and Practice The Impact of Regulatory Policies on Provision of Financial Services to the Poor

Objective of the study, relevance to conference and theme To assess how regulation impacts the delivery of micro-finance services to the poor in rural areas and the lessons for policy makers seeking to design supportive policy frameworks.

Hypotheses, key research questions studied What has helped to shape regulation? What has helped to shape regulation? Does micro-finance work better with or without regulation? Does micro-finance work better with or without regulation? Does regulation increase the cost of service delivery and typically leave out the poor? Does regulation increase the cost of service delivery and typically leave out the poor? How can one design regulation to better serve the poor? How can one design regulation to better serve the poor?

What shapes regulation? Underlying philosophy Underlying philosophy State State Civil Society Civil Society Genesis of the sector institutions Genesis of the sector institutions Policy Policy Culture Culture Operations Operations

What shapes regulation? Balancing competing demands Access and Outreach Access and Outreach directed subsidized lending vs a financial sector approach) directed subsidized lending vs a financial sector approach) Poverty Alleviation Poverty Alleviation loan size, interest rates, collateral loan size, interest rates, collateral Types of Services Types of Services loans loans Savings Savings Transfer services Transfer services

What Shapes Regulation? Competing Perspectives Regulatory Authorities Regulatory Authorities Protection of Depositors Protection of Depositors Security (branch operations) Security (branch operations) supervision mechanisms supervision mechanisms Micro-Finance Providers Micro-Finance Providers Cost of operations Cost of operations Sustainability Sustainability Repayment Repayment Collateral Collateral

What shapes regulation? Balancing Competing Demands Rural vs Urban Rural vs Urban Poor vs Non-poor Poor vs Non-poor

Does regulating the sector leave out the poor? Disadvantages Cost of operations increases (MCR, CAR, PAR) Cost of operations increases (MCR, CAR, PAR) Proportion of assets in high-return loan portfolio Proportion of assets in high-return loan portfolio Taxation Taxation Interest rate barriers Interest rate barriers Reporting requirements Reporting requirements Volume of funds? Volume of funds?

Does regulating the sector leave out the poor? Advantages Types of services Types of services Protection of clients Protection of clients Source of financing Source of financing Cost of financing Cost of financing Loan size Loan size Interest rate ceilings Interest rate ceilings

Projected Growth of Selected Micro-Finance Institutions in Pakistan

Does micro-finance work better with or without regulation? Bangladesh Little or no regulation Bolivia Special regulatory category Colombia No special pathway Mexico Focus on Co-operatives India Financial Inclusion Indonesia Directed subsidized credit lines and financial system approach

InstitutionGenesis Market Share Bangladesh BRAC and Grameen Special license to operate but mostly NGOs 35% IndiaICICI Mainstream commercial banks via Self-Help Groups BoliviaBancoSol First private commercial micro- finance bank transformed from NGO to Bank IndonesiaBRI From cooperative to state owned bank to limited liability corporation to public company Brazil Banco do Nordeste Mainstream commercial bank 200,000 clients

Market Share of Micro-Finance in Pakistan

Where is growth coming from?

Where is growth likely to come from? Transformation of NGOs into banks Transformation of NGOs into banks Niche micro-finance banks Niche micro-finance banks