The development of the microfinance industry has often taken place within institutional and legal environments that are not designed to support the expansion and sustainability of these services. In the absence of available information on institutional reform options, especially for those non-licensed organizations offering microfinance services, the regulators’ reactions have taken three basic forms:

• Disinterest ("benign neglect") 
• Direct intervention in the providers’ management using existing interventionist legislation 
• Enactment of ad-hoc legal adjustments including special laws for microfinance

These approaches have not helped investors, MFIs or their clients. In some cases, laws have directly obstructed the implementation of international financial best practices among providers. Financial investors are hesitant to partner with or invest in MFIs because of uncertainty about the legal status of the organization or the legality of the investment. Finally, the lack of supportive policies, laws and regulations hinder providers’ ability to offer – and clients to access – dependable savings, transfer and insurance products. As a result, these providers remain largely dependent on various forms of financial support from donors, are not legally allowed to mobilize deposits, and face little incentive to transform themselves into viable and independent institutions that are integrated into national financial structures. There is a growing realization that a transparent microfinance policy environment, supported by a flexible set of laws and regulations, will discourage fraud, improve the quality of investments in MFIs, ensure operational transparency and forge critical links to the broader financial market. In the medium to long run, if microfinance is to be fully integrated within the formal financial sector, supportive legal and regulatory frameworks are necessary.

The Microfinance Regulation and Supervision Resource Center is an excellent source of information on legal and regulatory environments for microfinance. It includes:

         •      Enactment of ad-hoc legal adjustments including special laws for microfinance
         •      Snapshots of regulatory environments in 50 different countries
         •      Links to laws and regulations  
         •      Opinion pieces on microfinance regulatory environments  
         •      A reference library