Microfinance Regulation and Supervision: a multi-faced prism of structures, levels and issues

Microfinance is a new, varied and intriguing sector for academics, practitioners and regulators. The current debate about financial sector reforms after the global financial crisis, the recent phenomenon of commercialization of microfinance and related criticism including scandals about predatory lending in the sector have stimulated a wide debate on the topic of regulating microfinance at domestic and transnational levels. This paper deals with such challenging topics, analyzing the different and coexisting levels of regulation, the variety of interests touched upon and the inappropriateness of our traditional legal categories, and proposes a framework for the allocation of rulemaking power among such levels. The paper argues for a differentiated approach based on the characteristics, interests, forces and instruments involved at each level and for each issue (e.g., development perspective versus financial regulation, prudential versus non-prudential regulation, financial markets versus consumer protection). The focus of the discussion will be on prudential aspects of financial regulation, but in order to better clarify the reasoning and justify the arguments about the allocation of regulatory power among different levels, the work examines some aspects and examples from other sectors, such as consumer protection.