Microfinance Regulation and Social Protection
Background paper to the ERD 2010
Paper prepared for the Conference on “Experiences and lessons from social protection programmes across the developing world: what role for the EU?”, organised by the European Report of Development in Paris, France, 17-18 June, 2010.
Arguably, microfinance provides social protection for the vulnerable by enabling them to access finance, create assets and avoid backsliding into poverty traps. This paper aims to survey the status quo of regulation of microfinance services in Africa and to map out patterns of microfinance regulation. The paper explores the relationship between regulation and outreach in microfinance provision in Africa, with the implication that outreach enhances the provision of financial and social protection for the poor. The performance of Microfinance Institutions (MFIs) depends largely on MFI regulations, which eventually affect social protection in several ways mainly through its effectiveness and outreach. We conclude by pointing out the need for closer engagement between government and microfinance institutions in developing required regulatory legislations in Africa.