Microfinance Principles Overview

Front

What is the main focus of Principle 5 in microfinance?

Back

Principle 5 focuses on major acquisitions and investments by banks, ensuring they meet prescribed criteria and do not expose the bank to undue risks.

Front

What are the two types of acquisitions by ODTIs that may require a tailored supervisory approach?

Back

1. Acquisition of assets and liabilities of a competing microfinance provider as part of a merger/consolidation. 2. Acquisition of an entity providing non-financial services related to microfinance.

Front

What does Principle 6 emphasize regarding capital adequacy?

Back

Principle 6 emphasizes setting prudent minimum capital adequacy requirements that reflect the risks undertaken by banks, particularly for internationally active banks.

Front

What is the challenge in defining regulatory capital for cooperative ODTIs?

Back

The challenge lies in the fact that capital invested by members can generally be withdrawn, making it difficult to classify as higher-quality regulatory capital.

Front

What factors may warrant a higher Capital Adequacy Ratio (CAR) for non-bank deposit takers?

Back

1. Lack of investors/owners able to respond to capital calls. 2. Inexperienced management and staff. 3. Rapid growth of microfinance organizations. 4. Less diversified loan portfolios. 5. Faster deterioration in portfolio quality.

Front

What is the purpose of Principle 7 in microfinance?

Back

Principle 7 requires banks to have a comprehensive risk management process to identify, evaluate, monitor, and control material risks.

Front

Why is specialized knowledge important for supervisors in microfinance?

Back

Specialized knowledge is important because microfinance does not have a long track record, and new providers may grow quickly, putting strain on management and systems.

Front

What does Principle 8 focus on in terms of credit risk management?

Back

Principle 8 focuses on ensuring that banks have a credit risk management process that considers the institution's risk profile and includes prudent policies for managing loans and investments.

Front

How should credit risk management for microlending differ from conventional retail lending?

Back

Credit risk management for microlending should use different tools and consider the unique risks associated with microlending, including product design and client profiles.

Front

What is a key requirement for financial institutions providing microcredits according to the regulatory framework?

Back

Financial institutions must have written manuals and policies for the screening, approval, monitoring, and collection of microloans.