To regulate or not? Microfinance growth and collapse in Ghana
Regulating microfinance is an art of balance between protecting depositors and enabling financial inclusion. Experimentation with microfinance in the late 20th century fostered innovative approaches to financial inclusion of low-income populations around the world. Ghana was a pioneer in regulations that enabled microfinance in some types of licensed institutions, while tolerating other forms. In the early 21st century, for-profit microfinance took off in ways not intended by early promoters. This review paper analyses the consequences of waiting too long to rein in proliferating profit-oriented microfinance companies and failing to build capacity for regulation, resulting in lost deposits, public mistrust, and a painful delicensing exercise. It also draws on some recent empirical research to indicate implications for public perception and key success factors, leading to a recommendation that regulation be accompanied by measures to build capacity for successful transformation and supervision of microfinance institutions for both financial inclusion and sustainability.