Cost implications of microfinance regulation: lessons from Ghana

The paper examines the impact of the costs associated with regulation on Microfinance Institutions in Ghana. To achieve the paper objective, we use a unique set of field data from 25 Microfinance Institutions from different regions of Ghana and opinions gathered from the managers of the sampled MFIs. We find that regulation increases an array of doing business costs that MFIs tend to pass to their micro-clients by increasing the interest rates. Furthermore, we find that the costs of regulation have adverse effects on outreach: reduction in percent of female borrowers. These findings are corroborated by the comparison analysis we conducted on Ghanaian MFIs that report to the Mixmarket. Regulatory instruments need to be well designed to achieve their dual roles of providing sound financial services and protecting micro-clients without jeopardizing the outreach mission of the MFIs.