Beyond the Washington Consensus, Access to Finance, Microfinance, and International Banking Regulation

Abstract

International banking regulation comprises, inter alia, transnational quasi-legal standards concerning the capital adequacy of internationally active banks, though their usage is normally much wider. These standards originate from the Basle Committee on banking supervision. The main rationale for their emergence has been the fashioning of national and transnational regulatory systems that are adept at preventing systemic crises and protect bank depositors from bank failures. This chapter suggests that, in addition to systemic stability and depositor protection, international capital adequacy standards may be utilized to facilitate access to finance. The degree of access to finance is a major criterion of financial sector development (FSD). FSD is generally viewed as an essential ingredient of sustained economic growth and thus a very effective means to foster development and fight poverty in developing countries. The first step in utilizing International capital adequacy standards to facilitate access to finance is through the assignment of lower capital requirements to private development finance loans under the Basle framework, in order to reflect their very low default rate. Relevant lending should be facilitated through the intermediation of centralized country schemes or specialized corporate vehicles that on-lend funds to the end lenders, regardless of whether these are mainstream financial institutions or microfinance Institutions. The suggested amendment of the Basle framework would give international banking institutions a clear incentive to be involved in the private development finance business and lend funds at lower interest rates.

Keywords: Post-Washington Consensus, Capital Adequacy Standards, Banking Regulation, Private Development Finance, Microfinance, Access to Finance

JEL Classification: F34, G15, G18, G21, N2, O16