Money & Banking
Regulation and supervision of MIVs: An urgent task for central banks and regulators globally

The microfinance crisis of 2010 underlines the urgent need for balanced but effective regulation/supervision in India with regard to microfinance investment vehicles (MIVs). The powers that be in home and host countries should attend to these issues in an expeditious manner

Hugh Sinclair’s recent book has been controversial for many reasons but as I have said in my previous articles (Why blame the MFIs alone?; Should not microfinance investment vehicles be judged by the same standards set for retail MFIs?; and Does Sinclair’s Open Challenge (to the Global Micro-Finance Industry) Make His Claims True?), many of his assertions (concerning the microfinance investment vehicles or MIVs) have solid irrefutable evidence in the public domain. Thanks to Hugh Sinclair for alerting us on how MIVs actually operate in real time!


That said, ever since I read Hugh Sinclair’s book, I have been intrigued by the MIV phenomenon. And true to my nature, I started some research on MIVs using the Luminisi database ( While the database is a good start to having information on MIVs, however, even there, I found little information on specifics regarding regulation/supervision of these MIVs. In fact, as I searched around, I realized that there is very little credible information on how (many of these) MIVs are regulated and supervised in real-time. And this indeed becomes a matter of concern when you consider the fact that a significant number of MIVs (as many as 43 of the 100) are incorporated either in Luxemburg, Mauritius and/or Cayman Islands (as is evident from the data given in Table 1 below).


It must also be noted with interest that there are very few MIVs incorporated in large microfinance markets like India. What needs to be appreciated here is the fact that most of the MIVs have registered domicile in countries that offer little potential for microfinance—in very broad terms, over 75% of the MIVs are registered in (home) countries that have very little micro-financing in the first place. Whether or not, this is a case of regulatory arbitrage is a question that begs an answer indeed.


This apart, it should be noted that MIVs have been incorporated as very diverse legal entities and this again raises the aspect of regulatory arbitrage. Therefore, without any doubt, the onus is perhaps on the regulators in the recipient countries to understand from where exactly is the (foreign) money flowing into the microfinance sector (in their respective countries) along with the motivations for such investment.

In fact, during the Indian microfinance crisis, I realized that India’s central bank (Reserve Bank of India) perhaps did not have (in one place) all the requisite information with regard to foreign equity and debt flow into the Indian microfinance sector. And as I have previously mentioned, (and as Mix Market has so eloquently put it), it is the unique combination of significant equity flows (and debt funds) from abroad with local banking funds and their subsequent and continuous investment as “microfinance loan assets” that created the perfect storm for the Indian microfinance crisis. It is precisely this that regulators have to guard against globally.


So, what needs to be done in tangible terms by regulators in host (recipient) and home countries?


First, the central banks in the recipient (host) countries must become the focal point for foreign investment (debt and equity) flows into microfinance. When this information is dispersed and scattered, it becomes rather difficult to gauge what is happening, what the key trends are in terms of MIVs who are investing, which MFIs attract significant investments and why and so on. Therefore, it is imperative that the central bank in every recipient country becomes fully aware of foreign debt and equity investment into their MFIs. And for this to happen in real-time, the central bank must allocate specific staff (team or unit) within a department to focus on this (perhaps, even exclusively in countries like India that have a huge untapped microfinance market).


Second, the primary work of this team (or unit) should be to help create a reliable and valid database with regard to foreign investments (equity and debt) in microfinance.  Such a database, apart from providing statistical information on foreign fund flows, should also help to answer questions such as (but not limited to) the following:

  1. Which MIVs (or investors) are putting money into the (local) microfinance sector? Why?
  2. What are the MIV’s antecedents in terms of ownership, governance and management? What is their primary motivation for operating in microfinance? What is the reason for registering the MIV in a specific place (home country)? What are the implications for microfinance in both home and host (recipient) countries?
  3. Which MFIs have received the maximum inflow and why? Is there anything with regard to their model that attracts foreign investment?
  4. What impact will these investments have on the microfinance in the host country—in terms of over-indebtedness and related client protection issues?

Third, whenever the potential for regulatory arbitrage exists, balanced coordination among regulators is necessary and this needs to be achieved across home and host countries. Together, the regulators would need to look at issues such as (but not limited to) the following:

  1. Who (in the home country) regulates and supervises the various MIVs that have significant investments in the various host (receipient) countries?
  2. What does regulation of these MIVs mean? Is it effective in terms of ensuring safety of investor funds and/or good governance and prudent management at the MIVs?
  3. Does regulation subject MIVs to minimum standards in governance, management, systems, etc and are these adhered to and followed in practice? Are there key issues with regard to ownership, governance and management at MIVs that need attention?
  4. What about minimum requirements for reporting and disclosure by MIVs to their regulators?
  5. What about supervision of MIVs? Are there on-site and off-site mechanisms? How effective are these?
  6. Plus other questions

The Bank for International Settlement (BIS) could perhaps be entrusted with this enormous task—of helping to create a coordination mechanism among central banks as well as facilitating the establishment and implementation of regulatory and supervisory standards for MIVs globally—as they have the ability, expertise and perhaps objectivity to get involved in something like this.


Colleagues and friends, we simply cannot afford another microfinance crisis anywhere else in the world. Or put differently, we should neither allow MIVs to behave as irresponsibly as they did in India (in the years preceding the 2010 microfinance crisis) nor permit them to be as indifferent as they have been in the case of LAPO, Nigeria. That they have not learnt from the past is very evident from the following news item (19 July 2012):


“NIGERIAN microfinance banks may soon be recapitalised to the tune of $30 billion about (N4.7 trillion), as nine investors have announced their willingness to inject more fund into the sector. The $30 billion fund that may come in the form of grants to the banks would be provided by Blue Orchard; Alietheia Capita, Bank of Agriculture (BOA); Patners for Development, Nigeria Capital Development fund, French Development Agency, Proparco, PlaNet Finance, and African Development Bank (AfDB).ii


And the moment I saw this news item, I said it is about time that we start to seriously look into how MIVs operate with the objective of bringing in balanced and transparent regulation and supervision for these MIVs. While not an easy task, it is something that needs to be attended to with speed, efficiency and significant coordination among regulators across home and host countries! Otherwise, we will continue to debate issues with regard to microfinance crisis situations in terms of MFIs alone—something that would be tantamount to treating the symptom rather than the real cause of the disease. Let us make no mistake about that!


To summarize, some may argue that regulation/supervision of MIVs is not important but take a look at what happened in India in 2010 (Andhra Pradesh Micro-finance Crisis; and Lessons from the commercial micro-finance model in India). Without any doubt, the 2010 Indian microfinance crisis provides a good basis for why there is an urgent need for balanced but effective regulation/supervision with regard to MIVs. And Hugh Sinclair’s (brave) book again clearly demonstrates a (serious) regulatory gap vis-à-vis MIVs. Therefore, given the above and also given the regulatory arbitrage aspects discussed here in this article, there is no doubt that MIVs require minimum (standards of) governance, management, systems and disclosure—through balanced regulation and effective supervision. This will ensure that they are not only accountable to end-user clients (like low income people in host countries) but also to the primary investors (in their home countries), whose hard earned money certainly needs to be safeguarded (and not frittered away).


I sincerely hope that the powers that be in home and host countries start to attend to these issues mentioned in an expeditious manner…


(Ramesh Arunachalam has over two decades of strong grass-roots and institutional experience in rural finance, MSME development, agriculture and rural livelihood systems, rural and urban development and urban poverty alleviation across Asia, Africa, North America and Europe. He has worked with national and state governments and multilateral agencies. His book—“Indian Microfinance, The Way Forward”—is the first authentic compendium on the history of microfinance in India and its possible future.)

iI do believe that there are more MIVs than those listed in the Luminis database.

ii Source: Quoted from Microfinance banks may receive N4.7tr grant from nine investors, by Joke Akanmu, Abuja, 19 July 2012 (






4 years ago

Somewhere we should draw a line as to what extent and for what purposes we should depend on foreign funding. Countries which have up to Rs25 lakh per capita public debt(Government borrowing) are offering 'soft' loans for various purposes to India. High time we had a re-look at our priorities. Where possible we should try and use our internal resources. This applies to gold, this also applies to borrowing for lending under Microfinance initiative. For the later, there is no better way than revitalising Indian Cooperative Movement.Immediate response would be, cooperatives are contaminated by political interference. Space allows me only to mention that inside politics should be seen as a better option than interference in every policy by foreign lender.

A breather after the slide as the bulls will try to fight back

Volatile move ahead unless the support of 4,967or resistance of 5,230 is broken for the direction to reverse

S&P Nifty close: 5,099.85
Market Trend
Short Term: Down     Medium Term: Down     Long Term: Down
After a gap down open the Nifty collapsed, as was envisaged in the last piece, to a low of 5,032 points on the last day of the July F&O contract expiry. The market opened with an upside gap on the first day of the new settlement (Friday) on the ECB announcement of defending the euro but it gave up a sizeable portion of the gains at close. The Nifty finally closed 106 points (-2.02%) in the red. The volumes were also significantly higher than last week implying that there was some panic bull liquidation. 
The sectoral indices which outperformed were CNX FMCG (+1.07%), CNX Pharma (+0.43%) and CNX MNC (+0.33%) while the gross underperformers were CNX PSU Bank (-9.70%), CNX Realty (-7.38%), CNX Infra (-4.81%), CNX Metal (-4.45%) and CNX Auto (-3.18%). The histogram MACD has moved lower but is still above the median line. One has to watch this closely because if it drops below the median line the bulls will then be under tremendous pressure.
Here are some key levels to watch out for this week 
• As long as the S&P Nifty stays above 5,098 points (pivot) the bulls can breathe a bit easy though the short-term trend is down.
• Support levels in declines are pegged at 5,033 and 4,967 points. 
• Resistance levels on the upside are pegged at 5,165 and 5,230 points.
Some Observations
1. As expected, the Nifty cracked from around the 20th of the month and is now trying to recover some lost ground. 
2. The “gap area” between 5,164 and 5,169 will be the immediate hurdle for the bulls to watch out for.
3. 5,153, 5,190 and 5,227 are the Fibo retracement levels of the recent sharp fall from 5,348-5,032. These should act as resistance in rallies.
4. We saw the Nifty complete the 50% retracement (5,059) of the rise from 4,770-5,348 points while the 61.8% retracement level is pegged at 4,991 points.
The bulls will try to regain lost ground but they will face their first test in the 5,153-5,169 area. If they are able to survive above this range for a few days then they can look forward to pushing the market higher towards the Fibo resistance levels mentioned above. However, the strategy should of selling when the markets approach these levels as the short-term trend is down. Some volatility can be expected in the next week and if the market is somewhere close to the support/resistance levels mentioned above, then expect the direction to reverse.
(Vidur Pendharkar works as a consultant technical analyst & chief strategist at


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