Regulation and supervision of microfinance institutions: an example of cooperative credit society

FOUNANOU, Mathurin/M and RATSIMALAHELO, Zaka/Z (2012): Regulation and supervision of microfinance institutions: an example of cooperative credit society. Published in: in Onafowokan O. Oluyombo (eds.) "Cooperative Finance in Developing Economies" (May 2012): pp. 64-80.

Abstract

We study the optimal regulation of a cooperative credit society which has private information on the intrinsic quality of its loan portfolio (adverse selection) and where the cooperative’s choice of effort to improve this quality cannot be observed by the regulator (moral hazard). We characterize the optimal contracts offered by the regulator to the credit cooperatives. We have been able to show that the optimal contracts depend on 3 main factors namely: on the accuracy of the supervisor’s signal, the likelihood of facing a high quality credit cooperative, and the cost of supervision.

• Item Type: MPRA Paper
• Language: English
• Keywords: Microfinance, Informational asymmetry, optimal incentive contract, regulation, supervision
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation; G - Financial Economics > G1 - General Financial Markets > G10 - General; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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