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

Mathurin Founanou and Zaka Ratsimalahelo ()
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Mathurin Founanou: University Gaston Berger de Saint-Louis
Zaka Ratsimalahelo: Université de Bourgogne Franche-Comté, CRESE

No 2016-03, Working Papers from 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.

Keywords: Microfinance; adverse selection; moral hazard; incentive mechanisms; regulation; smart subsidy. (search for similar items in EconPapers)
JEL-codes: G10 G21 G28 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2016-03
New Economics Papers: this item is included in nep-ban and nep-mfd
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Persistent link: https://EconPapers.repec.org/RePEc:crb:wpaper:2016-03

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