The Basel Committee on Banking Supervision has issued a consultation paper on the regulatory issues surrounding microfinance.

The report reviews the range of practices used in regulating and supervising such activities. It also contains supervisory guidance for the application of the Committee’s core supervisory principles to microfinance activities.

The report also highlights four key needs for supervising microfinance:

• allocating supervisory resources efficiently, especially where microfinance does not represent a large portion of the financial system but comprises a significant number of small institutions;

• developing specialised knowledge to effectively evaluate the risks of microfinance activities;

• recognizing that managerial practices that differ from traditional banking may suit the microfinance business; and

• the need for regulatory clarity concerning microfinance activities for different institutional types, while retaining flexibility to deal with individual cases.

Comments on the report are due by May 7.