Proportional regulation and risk-based supervision over microfinance institutions: market discussion outcomes

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Small players will not have to provide business plans / strategies to gain access to the microfinance market, while major players will enjoy 3-5 years’ deferral before this business plan requirement becomes effective. These are the outcomes of microfinance entities’ discussion of the consultation paper ‘Improving microfinance regulation’, developed as part of the Concept of Proportional Regulation and Risk-based Supervision over Non-bank Financial Institutions.

The consultation paper for discussion detailed the regulator's proposals relating to differentiated requirements for market admission of microfinance institutions, the business reputation of the management and owners, the procedure for reporting submission and its content, the procedure for calculation of required ratios and their required values, and improvements in supervision of small market participants through self-regulatory organisations (SROs).

To finalise the discussion, the Bank of Russia presented a roadmap featuring an easing in regulatory requirements on business reputation of small companies’ management and owners, as well as business plan / strategy submission given the immaterial operational risks of such companies.

MFCs, CCCs or ACCCs will have an extended deadline (up to three years) before they will be obliged to comply with regulatory requirements for business plan / strategy submission when requesting market access, as well as for those relating to business reputation. In the long term (up to five years), major market players will see a change in the reporting submission procedure, and the establishment of regulatory requirements for risk control systems at major microfinance companies with control and compliance supervision to be assigned to the Bank of Russia.

Current legislation already provides for proportional regulation of microfinance institutions: major market players (or those with a sizeable scope of authority) are singled out as a separate group the Bank of Russia supervises on a regular basis. Regulatory compliance of small market players in the microfinance market is supervised through SROs of the market segment, with the Bank of Russia stepping in if non-compliance is reported.

15 October 2018

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