Answer to Question #312112 in Finance for Sam

Question

 State and explain three microfinance credit and savings principles   

Answer 1

1) Objectives, independence, powers, transparency and cooperation

An effective system of banking supervision will have clear responsibilities and objectives for

each authority involved in the supervision of banks. Each such authority should possess

operational independence, transparent processes, sound governance and adequate resources, and be accountable for the discharge of its duties. A suitable legal framework for

banking supervision is also necessary, including provisions relating to authorisation of banking establishments and their ongoing supervision; powers to address compliance withlaws as well as safety and soundness concerns; and legal protection for supervisors.

Arrangements for sharing information between supervisors and protecting the confidentiality of such information should be in place.

2) Permissible activities

The permissible activities of institutions that are licensed and subject to supervision as banks

must be clearly defined and the use of the word “bank” in names should be controlled as far

as possible.

3) Licensing criteria

The licensing authority must have the power to set criteria and reject applications for establishments that do not meet the standards set. The licensing process, at a minimum, should consist of an assessment of the ownership structure and governance of the bank and its wider group, including the fitness and propriety of Board members and senior

management, its strategic and operating plan, internal controls and risk management, and its

projected financial condition, including its capital base. Where the proposed owner or parent organisation is a foreign bank, the prior consent of its home country supervisor should be

obtained.