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Regulation of Microfinance Institutions in Developing countries: an incentives theory approach

Author

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  • Mathurin FOUNANOU

    (University Gaston Berger de Saint-Louis)

  • Zaka RATSIMALAHELO

    (Université de Bourgogne Franche-Comté, CRESE)

Abstract

We analyze the optimal policy of regulation of microfinance institutions in developing countries, where investment funds are insured by the government and customer deposits. We used a mixed model, combining adverse selection and moral hazard to characterize a class of optimal incentive schemes applied in presence of government funds and in non-government funded. We also analyse the effects of prudential regulation of deposits on the profitability of MFI and social welfare, and we compare prudential and non-prudential regulation. The incentive scheme that we propose can be regarded as a "smart subsidy" mechanism that contributes to the economic and social development.

Suggested Citation

  • Mathurin FOUNANOU & Zaka RATSIMALAHELO, 2016. "Regulation of Microfinance Institutions in Developing countries: an incentives theory approach," Working Papers 2016-03, CRESE.
    • Handle: RePEc:crb:wpaper:2016-03
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    References listed on IDEAS

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    More about this item

    Keywords

    Microfinance; adverse selection; moral hazard; incentive mechanisms; regulation; smart subsidy.;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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