Regulators have an impact on financial access through their influence on what institutions can do and how. There is debate around the appropriate role for regulators in setting interest rates, driven by fears that ceilings make it difficult for institutions to cover the costs of providing small loans – and could ultimately hurt the communities that the regulations are meant to help. As more financial institutions seek to provide insurance and deposit facilities, regulation is becoming increasingly important. Prudential regulation seeks to protect consumers of financial services and are particularly critical. Regulation carries costs, however. Institutions must allocate staff time to complying with reporting requirements, and this can be burdensome. Moreover, badly designed regulation can stifle innovation and undermine social goals. Trade-offs between the costs and benefits of regulation need to be navigated. The momentum to institute consumer protection measures has grown, alongside the promotion of financial literacy The original thinking was that financial literacy training is unnecessary (and that the real bottleneck is simply lack of access to capital). There’s still not enough research on the effectiveness of literacy training, but new initiatives are getting going. Key readings: Porteous, David. 2009. “Interest Rate Policy”. Financial Access Initiative Policy Note. Porteous, David. 2009. “Prudential Regulation in Microfinance”. Financial Access Initiative Policy Note.
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