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Does Regulation Influence Microfinance Institutions to Be More Client-Responsive?

Author

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  • Zakir Morshed

    (Torrens University Australia Business School, Torrens University Australia, 196 Flinders St, Melbourne, VIC 3000, Australia)

  • Mohshin Habib

    (Swinburne Business School, Swinburne University of Technology, John Street, Hawthorn, VIC 3122, Australia)

  • Christine Jubb

    (Swinburne Business School, Swinburne University of Technology, John Street, Hawthorn, VIC 3122, Australia)

Abstract

The regulation of microfinance services is likely to have a wide-ranging influence on the microfinance sector, particularly on institutions and their clients. This paper reveals the impact of a specific regulatory regime, the “Microcredit Regulatory Authority Act, 2006”, enacted by the Bangladesh government to monitor and supervise nonprofit nongovernment organizations (NGOs). We analyzed survey and interview data provided by clients of both nonprofit microfinance institutions (MFIs) registered under the Act and nonprofit institutions that are unregistered, all lending only to women. Client-level analysis using fixed effects for specific MFI membership is applied, focusing on the role of regulation by comparing protections as consumers of financial intermediations in terms of financial literacy, awareness, and status of clients of registered and unregistered MFIs. We found compelling evidence of a positive association between the financial status, financial literacy, and financial awareness of clients of registered MFIs, but not unregistered MFIs. These findings support the need for MFIs to implement consumer protection measures and inform their consumers about key issues to achieve improved client outcomes.

Suggested Citation

  • Zakir Morshed & Mohshin Habib & Christine Jubb, 2020. "Does Regulation Influence Microfinance Institutions to Be More Client-Responsive?," IJFS, MDPI, vol. 8(4), pages 1-24, October.
    • Handle: RePEc:gam:jijfss:v:8:y:2020:i:4:p:63-:d:431771
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