Regulating Innovation in Microfinance

Microfinance is a socio-financial innovation that has increased financial inclusion in the majority of countries for the past three decades. However, changing technology and demographics mean that the future of microfinance depends on innovation by microfinance institutions (MFIs) in product design, application processes, and financial operations. This paper seeks to determine how microfinance regulation directly impacts MFI innovation and, thus, the sustainability of financial inclusion in majority countries. This paper applies the results from interviews with stakeholders in Pakistan, India, and Bangladesh, including regulators, funders, credit bureaus, and CEOs of microfinance institutions. We propose that microfinance regulation can support long-term financial inclusion via microfinance innovation by allowing MFIs to access equity partnerships and diversified capital sources and leverage opportunities derived from the mobile banking revolution for loan repayments. This paper provides unique insight into the perspectives of key stakeholders in comparable countries, something that previous research has not considered.