The regulation of micro lending in Botswana

Abstract

The debates on whether or not to regulate micro lending have shifted to finding the appropriate regulatory models. This is because countries are in agreement that being part of the greater financial services sector, micro lending plays an important role in the economic and social development of the citizens as it enables the poor to have access to credit and better their lives. To this end, Botswana has not fallen short of this global trend. Micro lending regulation plays an important role in maintaining the financial safety and soundness of any country’s financial sector. If not properly regulated, the micro lending industry can lead to undesirable incidents like financial crisis and suicide cases as it was the case in the State of Andhra Pradesh of India where borrowers were over-indebted leading them to commit suicide. Since there is not a perfect regulatory model, countries have over the years formulated regulatory frameworks for micro lending. Some of the laws failed and created more problems than they were in fact intended to solve like the 2010 financial crisis in India. In 2008 Parliament of Botswana enacted the Non-Bank Financial Institutions Regulatory Authority Act in order to regulate (NBFIs), including micro lenders. The primary purpose of this study is to scrutinize the mechanisms in place for the regulation and supervision of micro lenders in Botswana in light of those set internationally and subsequently deducing their effectiveness or lack thereof. The comparative analysis will focus on South Africa and India’s State of Andhra Pradesh.