Microfinance regulation in Bangladesh - a long path to progress

David Cracknell

Few issues are as emotive in the Bangladesh microfinance industry as regulation. It is important, however, to identify the predominant rationale for action, which the author takes to be depositor protection.
Confusion exists concerning the relationship between the issues of depositor protection, legal form, commercialization and professionalization on the one hand, and regulation on the other. This lack of
clarity inhibits action. This article opens by presenting a background against which regulation appears increasingly necessary, but suggests that other mechanisms may be more appropriate for many MFIs.
It presents various models for protecting depositors, but cautions that any regulatory framework must be assessed for practicality and the cost of supervision and enforcement. The article suggests that
commercialization may be appropriate for some MFIs. It concludes that many of the steps taken towards creating a regulatory framework are in the interests of all stakeholders.