- 17 -
Box 5. Laws, Regulations and Supervisory Authority for MFIs in Selected Countries
Laws, regulations and supervisory authority for MFIs vary widely in Africa. In some countries, there
is a dedicated microfinance law while, in others, the formal microfinance sector is subject to
provisions of commercial banking law, cooperative law and/or nonbank institutions law. Lower level
regulation is carried out by the central bank and/or the Ministry of Finance. Supervisory authority also
differs; in some countries central banks and/or the Ministry of Finance are solely responsible while in
others, ministries in charge of cooperatives are involved.
In Benin, along with other West Africa Monetary Union (WAEMU) countries, there is a dedicated
microfinance law, which covers saving and loan cooperatives (SLCs). SLC activities are regulated by
the PARMEC law, adopted in August 1997. The authority to grant licenses to new SLCs is vested in
the Ministry of Finance and the regulations specify well-defined procedures and requirements for
applications to establish new SLCs. The regulations of microfinance activities of associations (and all
microfinance institutions other than SLCs) and their prudential rules are governed by the ministerial
decree and the framework agreements (convention-cadre) signed with the Ministry of Finance at the
time of inception of their activities. The supervision and monitoring of microfinance institutions is
conducted by the Microfinance Unit (MU) of the Ministry of Economy and Finance with cooperation
from the regional central bank (BCEAO). While the inspection activity, both on-site and off-site, of
the MU has intensified over the years, the unit is constrained by limited resources. The MU
inspections center around a number of criteria to assess the situation of the MFIs, including
governance, physical security and internal control, accounting, financial management, compliance
with prudential ratios, and credit management.
In Ghana, activities of rural credit banks (RCBs) are regulated under the Commercial Bank Act with
some specific provisions such as different minimum capital requirements and limitations on their
activities such as foreign exchange operations. S&Ls, on the other hand, are regulated under the
Nonbank Financial Institutions Law, again with certain specific restrictions. In addition, a new law is
under preparation for credit unions. The current regulatory framework provides a strong licensing
system for the formal sector, formal registration for the semi-formal sector, and relative laisser-faire
for informal institutions. For supervisory purposes, given the high costs of supervising a large number
of RMFs and the limited supervision capacity of the Bank of Ghana, the central bank’s response has
been to use regulatory requirements to offset the limits of prudential supervision, including through
appropriate high reserve requirement for RCBs, minimum capital requirements for NBFIs, and self-
regulation of credit unions by their apex body.
In Guinea, microfinance activities are regulated by central bank instructions at present, while a
microfinance law is being prepared. Licensing and supervision are being conducted by the central
bank. The regulation is adapted to three main types of institutions: credit only MFIs, MFIs that collect
deposits and lend to members only, and MFIs that collect deposits and lend with no membership
restriction. To ensure compliance with the prudential regulations, the central bank relies on off-site
and on-site audits of MFIs. However, this supervision effort is impeded by institutional capacity
constraints. The MFIs have experienced difficulties in compiling the necessary information and data,
and the central bank has lacked sufficient trained staff to carry out the supervision. To address these
constraints, the Guinean authorities could benefit from donor support to develop reliable information
and data base, the necessary skilled staff, and an appropriate reporting and monitoring system to
strengthen the prudential supervision of the microfinance sector.
In Tanzania, formal microfinance institutions are subject to the provisions of the banking regulatio
and supervision while semi-formal institutions are subject to the Cooperative Societies Act and are
supervised by Ministry Cooperatives. The licensed, regulated and supervised institutions are all the
banks and nonbank financial institutions. Although the other institutional providers of microfinance
the SACCOs and NGOs—are registered under the Companies Act and had entered the sector before
the recent entry of banks, they are currently not subject to prudential regulations.