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

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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])

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 hal-01376900, HAL.
    • Handle: RePEc:hal:wpaper:hal-01376900
    Note: View the original document on HAL open archive server: https://hal.science/hal-01376900
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    References listed on IDEAS

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    Keywords

    Microfinance; adverse selection; moral hazard; incentive mechanisms; regulation; smart subsidy;
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