Global microscope on the microfinance business environment 2012

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Representatives in early 2012, and is likely to be
passed by the Senate later this year.
l New rules issued by the BSP and effective July
1st 2012 outlaw the use of fl at interest rate
calculation methods for regulated institutions.
Unregulated NGO-MFIs and co-operatives are
encouraged to follow suit but the BSP lacks the
authority to require them to do so.
l In early 2012, the seven largest microfi nance
providers, which together serve about 70% of the
estimated 1 million micro-borrowers in the country,
signed a memorandum of agreement on the
creation of the credit bureau called the
“Microfi nance Data Sharing System (MiDAS)”.
Initially, MiDAS is meant to focus on negative
information, or delinquent borrowers, with the view
later on of establishing and implementing
programmes aimed at client rehabilitation. The
business requirements of MiDAS are unique to its
users, the microfi nance institutions, with a special
feature that allows for Barangay (town or village)
level search for delinquent borrowers. It is the
intention of the founders to expand the coverage of
the credit bureau to other MFIs as well in the future.
■ Sri Lanka
Key characteristics of the microfi nance business
environment:
l The government is a key player in the delivery of
microfi nance services. According to the “Mahinda
Chintana”, the ten-year development framework
covering the fi rst term of the existing government,
approximately 65% of microcredit is supplied
through the government.
l Sri Lanka’s regulated microfi nance sector
consists of the Regional Development Bank; the
Samurdhi Bank Societies; Co-operative Rural
Banks; the Thrift and Credit-Co-operative Societies
of the SANASA network; NGO-MFIs; and other
fi nancial entities including commercial banks and
fi nance companies.
l The existing regulatory framework in the
microfi nance sector is weak and implementation is
lax. For example, pawn brokers (Pawn Brokers
© The Economist Intelligence Unit Limited 2012
<strong>Global</strong> <strong>microscope</strong> on the microfi nance business environment 2012
Ordinance of 1942), money lenders (Money
Lending Ordinance of 1918), and Rotating Savings
and Credit Associations (ROSCAs) known as cheetus
in Sri Lanka (Cheetu Ordinance of 1935) are all
regulated by existing long-standing laws, but
implementation and regulation is weak.
l The lack of a cohesive regulatory and supervisory
framework for the microfi nance sector remains a
barrier to the development of the sector.
l Although MFIs do not deliberately mislead
clients, much can be done to improve the way MFIs
calculate and communicate prices.
Key changes and impacts since last year:
l The microfi nance sector has been in limbo for
the past couple of years awaiting the passage of
the Microfi nance Act by parliament. Until the Act is
passed, unregulated MFIs are operating in a legal
vacuum.
l Donor funds to the microfi nance sector are
diminishing. This is attributed, in part, to the
upgrading of Sri Lanka by the World Bank to a
lower-middle income country in late 2010.
l The Finance Business Act passed in 2011 is likely
to have a negative impact on the microfi nance
sector. Entities not licensed under this Act are
prohibited from using the word “Finance” in their
name, creating a hurdle for new NGOs and entities
registering the phrase “microfi nance” in their
titles. The Act also prohibits the mobilisation of
public deposits unless the entity is licensed under
the Banking Act or Finance Business Act.
■ Thailand
Key characteristics of the microfi nance business
environment:
l Microfi nance in Thailand is generally a
government-sponsored activity. Thailand’s “Village
Fund”, one of the world’s largest microcredit
schemes, leaves little room for the development of
private sector provision of microfi nance. Non-state
providers of microfi nance currently cannot
compete on cost.