The potential of microfinance in poverty reduction, economic growth and development coupled with the emergence of fast growing Microfinance Institutions (MFIs), has effectively put the issue of microfinance on the political agenda of most developing countries. Consequently, the supervisory authorities have taken active measures to ensure an efficient and effective microfinance delivery through the development of an appropriate regulatory and supervisory framework, based on the peculiar features and associated risks. The challenge that supervisors face is how to accommodate or reasonably encourage microfinance within a framework of generally accepted norms and prudential standards. In general, the Guidelines that adequately address the features and risks of microfinance would effectively support the orderly development and sustainability of the institutions to enable them achieve microfinance objectives of financial inclusion and poverty alleviation.

The implementation of the Microfinance Policy over the past six (6) years and the experience gained, underscore the need for the review of the existing Regulatory and Supervisory Guidelines. This second edition addresses current realities and developments in the sub-sector. This document is, therefore, aimed at promoting innovative, rapid and balanced growth of the industry, leveraging on global best practice in microfinance banking. These Guidelines recognize the distinctiveness of micro clients, ownership structure of the institutions, their credit methodology, and the central position of savings/deposits in the intermediation process. It also adopts measures to ensure the soundness and safety of the institutions, and the protection of depositors, especially low-income clients. Also, it defines institution types, loan documentation, portfolio classification, loan loss provision and write-offs, amongst others, and provides the basis for the establishment, operations, regulation and supervision of microfinance banks, and institutions.