Evolution and Effects of the Legal and Regulatory Framework on Microfinance in Brazil

Abstract

This article argues that a strong legal and regulatory framework can contribute to the expansion of microfinance in Brazil. First, it outlines the regulatory framework in the enhancement of microfinance in the country; it then reviews different patterns of regulation and supervision for the success of this microfinance. The findings suggest mixed results; a stringent regulatory regime and rules have limited the growth of most microfinance institutions, and the segment has become very dependent on public funding. There is a need for the right balance between freedom for the sustainable growth of microfinance institutions, and a correct dosage of monitoring to maintain public confidence in them. The article outlines the defining characteristics of the Brazilian microfinance sector and discusses the possible gaps in the current regulatory framework, as well as the best practices that could contribute to an effective supervision and regulation of microfinance in Brazil.