The regulatory and supervisory framework of microfinance: Some evidence from Sudan

Abstract

Islamic microfinance is one of the essential unconventional branch of lending that uses by Islamic microfinance providers for financial and social inclusion to provide financial support for low-income people as well as the extremely poor. Through the in-bodied social inclusion tools, Islamic microfinance can best used to mitigate the negative impact of the extreme poverty. Since financing micro-borrowers and extremely poor are highly risk, the need for efficient and effective regulatory and supervision of microfinance frame work is very important. This research investigated Sudanese Islamic microfinance regulatory and supervisory framework. Despite of the exerted efforts by Sudanese government through providing favorable climate and the establishment of Islamic financial intuitions and establishing structured microfinance framework, the results showed that Sudanese microfinance regulatory framework is not providing best outreach. Despite the continuous increasing of the ceiling portfolio by the regulatory authority until reached 12% from 4% since the first issued rules in 2006, the actually utilization is insignificant at the end of the year 2013. This might be due to several reasons such as bad basic infrastructures, ineffective follow up by the regulator of the microfinance providers, Islamic microfinance deliberately ignoring the rural areas clients’ because of the high risk, the framework lack of the building capacity tools for clients as well as for the microfinance providers staff. The results of this research gives strong policy implications for both to Islamic microfinance regulator and providers to carry on real revision and evaluation for the efficiency and effectiveness of the current operated microfinance frame work in Sudan. These results might be useful for Islamic microfinance regulators and providers in Muslims countries and interested providers in the West the benefit from the nullified factors that render the regulatory framework ineffective.