European Microfinance Network 4 th Annual Conference Microfinance

European Microfinance Network 4 th Annual Conference Microfinance in a Banking Environment Models, Experiences, the Way Forward "Research in European Microfinance” workshop Presentation of the work-in-progress of the Ph. D dissertation Regulating microfinance through a social and economic analysis Simone di Castri Research coordinator and assistant project manager - Microfinance project - International Development Law Organization (IDLO) Ph. D candidate in Law and Economics - University of Bologna

The thesis 1. 2. 3. Overview of the literature on microfinance regulation Comparative analysis of microfinance and its regulations in some developed and developing countries Economic analysis of different regulatory approaches 4. Identifying the guidelines 5. A model to regulate microfinance in Italy 6. Microfinance and social welfare/workfare policies

The questions • overcoming the challenges of social and financial exclusion? • How is microfinance interacting with the financial system and regulation? es. How • impact? • mainstream banking activity’s usual procedures? •

Why this research • There are only studies country-based • There are not studies conducted through the economic analysis of microfinance regulation • Microfinance in Italy is underdeveloped and regulation matters • Law-makers’ approach can not be addressed without a policy analysis that looks at microfinance in the range of the other social welfare/workfare tools

How it has done 2. Comparative analysis to understand markets’ structure • micro financial services demand poverty income inequality capabilities inequality lack of financial services clients/beneficiaries • micro financial services supply providers services served people diffusion constraints • microfinance outreach and impact • financial regulation } capacities of the existing infrastructures

Demand supply poor Characteristics of the demand Different providers for different targets and needs Capacity and potential of the supply Regulation is a main factor affecting the supply side poorest

Supply and regulation Why does regulation is a main factor that affects the supply? • Actors/providers enabled to participate the market • Financial services they are allowed to provide » SUSTAINABILITY, OUTREACH AND IMPACT • Instruments they can use to raise capital » SUSTAINABILITY AND OUTREACH • Governance » SUSTAINABILITY, OUTREACH AND IMPACT

Regulation and the demand How can regulation affect the demand? (indirectly) • Providers can offer more and better services And (directly) • Managing costs and incentives that improve the environment for entrepreneurship

• Comparative analysis markets’ structure to understand » Demand » Supply • Analysis of the regulations to understand how regulation affects the market • Cross analysis to see how regulation can be amended to maximize the efficiency of the existing infrastructures or to push in the market new actors to reach the unserved

Regulation and public policy approaches in EMN countries: some examples of constraints and incentives • France » » • Loi 2001 -420 on “Nouvelles Régulations Economiques” “Borloo” law on social cohesion Tax exemptions Interest caps removed Spain » Saving banks » Public programs » Entitades de Apoyo al Microcrédito • Germany » » • Banks Grunderzentren Public fund for microfinance Ich-AG United Kingdom » » • Italy + USA Community Development Financial Institutions (CDFIs) Small Firms Loan Guarantee Scheme (SFLGS) Phoenix Fund Basic Bank Account

Different approaches - evidences • the role of social intermediaries and business incubators; - see Spain and Germany • the application of or the exemption from the mainstream banking legal requirements to micro finance intermediaries; their inclusion into the range of financial providers; - see France • public programs to provide capital to lend to IMFs and share the risk with them; • the interest caps issue; - see UK and France • valorization of governance requirements; - see UK CDFIs • improving mainstream financial intermediaries’ role in the sector, even through some coercive methods that take into account their accountability towards stakeholders and communities; - UK Basic Bank Accounts and US Community Reinvestment Act • emphasizing the potential of savings banks, cooperative banks and foundations through their inclusion in public programs (establishing public funds to share risks); • the maximization of public subsidies and the incentive for private donors; - see UK OPEN ISSUES • the role of EU and the capacity of European policy to spur microfinance provision in Western EU countries > JEREMIE • implementation of public credit registries; • implementation of evaluation methods for microfinance transparency; • the effects of Basel II

Main problems for this research Lack of studies on – Outreach and impact – Sustainability Lack of – a systematic procedure for studying the implementation of regulation Difficulties in – reaching legal data globally Lack of homogenous and comparable information for a holistic study

Presentation of the work-in-progress of the Ph. D dissertation Regulating microfinance through a social and economic analysis Simone di Castri Research coordinator and assistant project manager - Microfinance project - International Development Law Organization (IDLO) Ph. D candidate in Law and Economics - University of Bologna simone. dicastri@unibo. it