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United States Microfinance: Regulating to Promote Growth?

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  • Aruna Chandra
  • Thankom Arun

Abstract

This study draws on 20 in-depth interviews with microfinance institutions, practitioners, analysts/policymakers, and academics, along with a review of literature to understand and assess the state of the microfinance industry in the United States in terms of its salient features, critical issues and regulatory landscape, using the microfinance chain of funders, providers and customers as an organizing framework. Global microfinance is used as a baseline comparison where relevant. The study finds that the microfinance industry (MFI) in the United States is very much in a nascent microcredit stage, populated with microfinance institutions that are largely nonprofit, non-depository, credit only institutions, with some of the larger MFIs forming symbiotic partnerships with commercial banks in order to overcome the banking challenge. Their target market, funding sources and governance issues that stem from the MFIs’ existence at the nexus of banking and development are discussed. The current state of microfinance regulation in the United States is assessed in light of the costs and benefits of regulation as well as its unintended consequences. We suggest a tiered/gradual growth promoting regulatory approach that would allow an MFI to transform gradually to offer more comprehensive services, while making allowances for the industry’s developmental state.

Suggested Citation

  • Aruna Chandra & Thankom Arun, 2011. "United States Microfinance: Regulating to Promote Growth?," NFI Working Papers 2011-WP-28, Indiana State University, Scott College of Business, Networks Financial Institute.
    • Handle: RePEc:nfi:nfiwps:2011-wp-28
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    References listed on IDEAS

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    3. Mersland, Roy & Strøm, R. Øystein, 2010. "Microfinance Mission Drift?," World Development, Elsevier, vol. 38(1), pages 28-36, January.
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    5. Pascaline Dupas & Jonathan Robinson, 2013. "Why Don't the Poor Save More? Evidence from Health Savings Experiments," American Economic Review, American Economic Association, vol. 103(4), pages 1138-1171, June.
    6. John P. Caskey, 1992. "Bank representation in low-income and minority urban communities," Research Working Paper 92-10, Federal Reserve Bank of Kansas City.
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