Shazia works for UPLIFT, a small NGO, and when you join her at the start of this lesson, she is wondering how to explain to a group of women what it means to be a legal entity. Maybe you would also find this difficult! Yet it is really important to know something about the law and how it affects business activities and particularly financial service providers in the country in which you live or are working.
This lesson will introduce you to the way laws determine what legal form businesses and, in particular, financial service businesses can take. It explores the differences between societies, cooperatives, not-for-profit organisations, non-bank finance companies and banks and assesses the pros and cons of each as a structure for providing micro financial services.
You will learn why financial service providers are often strictly controlled by government authorities. If people lose their savings, they quickly lose confidence in financial institutions and badly run financial services can soon lead to economic instability. So most countries have a system of prudential regulation designed to monitor and control the risks that financial institutions run.
So which legal form should a microfinance provider choose? Join Shazia as she considers a number of existing or proposed microfinance schemes and tries to decide which type of business would be best for each one.