Impact of Legal and Regulatory Framework on Microfinance

1. $ Impact of Legal and Regulatory Framework on Microfinance Microfinance institutions Donors, banks, and general public Activities: • Grants • Borrowings • Deposits Activities: • Loans • Lease financing • Deposits • Collateral interest Small and micro enterprises

2. Impact of Legal and Regulatory Framework on Microfinance Donors, banks, and general public • Regulations on operations as financial institutions • Establishment procedures • Activities: • Grants • Borrowings • Deposits • Accounting standards and procedures Microfinance institutions • Tax laws and regulations • Activities: • Loans • Leasing • Deposits • Collateral • Securities law • Legal framework for ownership and security interests Small and micro enterprises

3. Impact of Legal and Regulatory Framework on Microfinance • Establishment Procedures: • Recognition as legal entity • Reporting requirements • Bankruptcy law and procedures Donors, banks, and general public • Activities: • Grants • Borrowings • Deposits Microfinance institutions • Activities: • Loans • Leasing • Deposits • Collateral Small and micro enterprises

4. Impact of Legal and Regulatory Framework on Microfinance • Regulations on Operations as Financial Institutions: • Doing banking business, making loans, taking deposits - Licensing as bank or specialized financial institution • Minimum capitalization, governance and other barriers to entry • Risk-based prudential supervision • Reporting requirements • Participation in clearing and payment systems • What regulatory policy should recognize: (i) Types of MFIs in the continuum, and (ii) threshold levels of activities that trigger need for regulation or supervision Donors, banks, and general public • Activities: • Grants • Borrowings • Deposits Microfinance institutions • Activities: • Loans • Leasing • Deposits • Collateral Small and micro enterprises

5. Impact of Legal and Regulatory Framework on Microfinance • Accounting Standards and Procedures: • Internal and MIS reports • External reports and audited financial statements • Tax returns and reporting Donors, banks, and general public • Activities: • Grants • Borrowings • Deposits Microfinance institutions • Activities: • Loans • Leasing • Deposits • Collateral Small and micro enterprises

6. Impact of Legal and Regulatory Framework on Microfinance • Tax Laws and Regulations: • Provisioning expense and loan write-offs • Leasing law - depreciation expense and tax treatment • Cascading taxes on financial transactions Donors, banks, and general public • Activities: • Grants • Borrowings • Deposits Microfinance institutions • Activities: • Loans • Leasing • Deposits • Collateral Small and micro enterprises

7. Impact of Legal and Regulatory Framework on Microfinance • Securities Law: • Blanket assignment of receivables • Creation and issuance of financial securities • Registration of security issues Donors, banks, and general public • Activities: • Grants • Borrowings • Deposits Microfinance institutions • Activities: • Loans • Leasing • Deposits • Collateral Small and micro enterprises

8. Impact of Legal and Regulatory Framework on Microfinance • Legal Framework for Ownership and Security Interests: • Documentation and registration of ownership rights • Creation and enforcement of security interests • Foreclosure laws Donors, banks, and general public • Activities: • Grants • Borrowings • Deposits Microfinance institutions • Activities: • Loans • Leasing • Deposits • Collateral Small and micro enterprises

9. Impact of Legal and Regulatory Framework on Microfinance COLLATERAL Formats and Instruments Personal Guarantee Assignment for Security Pledging or Pawning (perfected security interest) Chattel Mortgage (attached security interest) of Claims and Rights of Movable Property of Real Property