Microfinance activities and the Core Principles - Basel Committee issues final paper

August 18, 2010: The Basel Committee on Banking Supervision today issued the final version of its paper entitled Microfinance activities and the Core Principles for Effective Banking Supervision. The Basel Core Principles for Effective Banking Supervision (the Core Principles) are the global de facto standard for sound prudential regulation and supervision of banks.

Mr 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”.

Besides illustrating the general applicability of the Core Principles to the supervision of microfinance activities, the paper highlights key differences from conventional retail banking. Recognising the distinct regulatory challenges and the broader policy goals faced by supervisors engaged in overseeing microfinance activities, the supervisory guidance, as set out in the paper, is intended to point out areas where some degree of flexibility in implementing the Core Principles to microfinance supervision is appropriate. 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.

In developing the guidance, the Committee reviewed the range of supervisory practices and approaches in countries from different regions and with different income levels. A comprehensive view of these practices on regulating and supervising microfinance activities is also included in the paper.

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