Question

Why is provision of payment services complicated for microfinance institutions (MFIs)? What is a possible solution that helps MFIs to offer payment services?

. Why are regulations designed for commercial banks not suitable for MFIs?

Answer 1

Payment services are complicated for microfinance institutions because these services require very highly sophisticated technology and many of MFIs do not have sufficient budget to acquire these highly sophisticated technological infrastructure. The regulatory requirments are very strict for providing payment services. As the core expertise of MFIs is to lending so they find it difficult to offer expertise in payment services.

Possible solution for MFI to offer payment services would be first to have a separate regulatory framework for them. There should be separate rules and regulations for MFIs to offer payment services. MFIs should get support from the local governments and regulators in the form of capital so that they find it easy to launch and operate payment services.

Regulations designed for commercial banks are not suitable for MFIs for simple reason that commercial banks have expertise in all banking services like borrowing, lending and payments whereas MFIs expertise only in Lending. therefore, the regulations designed for commercial banks are not suitable for MFIs.