Global banking regulators have released final principles for the supervision of microfinance activities.

The Basel Committee on Banking Supervision issued the final version of its paper on Monday illustrating the application of the existing Basel principles for prudential regulation and bank supervision to microfinance activities.

The paper also highlights key differences between microfinance and conventional retail banking, and points out areas where deviation from its principles may be warranted where microfinance is concerned. “Such a tailored approach will enable countries to strike the right balance between the risks posed by microfinance and the supervisory costs as well as the role of microfinance in fostering financial inclusion,” it says.

A few of the core principles apply equally to both sorts of activities, but the paper suggests that many of them, such as those dealing with permissible activities, licensing criteria, capital adequacy, the management of various risks (credit, market, liquidity, operational, and interest rate, risk), dealing with impaired assets, among others, should be tailored specifically to the microlending business.

Nout Wellink, chairman of the Basel Committee and president of the Netherlands Bank, noted that, “given the unique characteristics of microfinance and the range of practices on regulating and supervising this line of business, the guidance will assist supervisors in applying the core principles in a manner that is commensurate with the type, complexity and size of depository microfinance activities conducted in their jurisdictions”.

IE