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

Mathurin Founanou and Zaka Ratsimalahelo
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Mathurin Founanou: UGB - Université Gaston Berger de Saint-Louis Sénégal, CRESE - Centre de REcherches sur les Stratégies Economiques (UR 3190) - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE]
Zaka Ratsimalahelo: CRESE - Centre de REcherches sur les Stratégies Economiques (UR 3190) - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE]

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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)
Date: 2016-01-01
New Economics Papers: this item is included in nep-ban and nep-mfd
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