Rise in microfinance poses new regulatory problems

As new business models emerge in the microfinance space – leading to greater capabilities for servicing the unbanked – the cracks of regulatory pressure and operational risks are widening in both the developed and developing world

The provision of small loans to the impoverished has long been the remit of microfinance institutions (MFIs). Most organisations have emulated Grameen Bank, pioneered in 1976 in Bangladesh by the Nobel peace prize-winner Muhammad Yunus, aiming to use extensive local knowledge to help social development rather than operating on strictly commercial grounds.

Yet, while the traditional microfinance industry has largely been subsidy reliant, the past decade has seen a rising level of investor