The Impact of Regulatory Framework on Microfinance Institutions Performance: Focusing on a comparison between Bolivia and Colombia

Abstract

The aim of this paper is to investigate the regulatory environment of microfinance industry, specifically focusing on a comparison of two Latin American Countries which are Bolivia and Colombia. After the advent of microfinance from the 1970s with the funding and technical assistance from the United States, the role of Microfinance Institutions (MFIs) has been emphasized as a development tool to combat extreme poverty by providing micro-financial products to small borrowers who have been marginalized from traditional banking services. In case of Bolivia, the regulatory and supervision environment targeting its specialized MFIs is highly advanced and a lot of Bolivians have benefited from the micro-financial services whereas Colombia has showed low maturity level in terms of their regulated and specialized MFIs. This thesis highlights the governments approach on microfinance sector in these two countries and figures out the differences. Through a comparative analysis between Bolivia and Colombia, this thesis ultimately aims at finding out how the introduction of financial liberalization factors and appropriate regulation framework for MFIs has affected the development of microfinance industry in each country. In the end, this study shows how the creation of an adequate regulatory framework is critical in creating a favorable environment to make it easier for NGOs to become regulated financial intermediaries. For this, specific case studies of Bolivia and Colombia are covered and its analysis is fundamentally based on the theory of Historical Institutionalism (HI) which considers institutions as a means of retracing sequences of social, political and economic changes over time.