“A bad liver cannot be compensated by good lungs”: This statement by Dr. Philipp Heldt-Sorgenfrei summarizes what supervisors should consider when assessing a financial institution. As an example, even though a risk-taking capacity might be in good shape, the operational efficiency might prevent the overall body from operating well and realizing its maximum potential.

Dr. Heldt-Sorgenfrei conducted a one-week hands-on training about on-site and off-site supervision for the microfinance team of the Palestine Monetary Authority (PMA). Focus of the training this time was the offsite analysis and its conclusions for an onsite inspection. The applied training methodology consisted of a parallel assessment and conclusions-drawing from sector data by the trainer and the supervision team. During the week, the group exchanged results and conclusions from the analysis and used the opportunity to address the “big picture”: The main motivations or justifications to address the one or the other finding – or not!

Why the emphasis on the health of the microfinance sector? Are steady growth rates and healthy profitability not sufficient indicators – are some of the demanded prudential and non-prudential requirements not going a little far, causing costs that clients have to carry? Thinking in the mid- to long-term, and facing both a big credit gap and a growing population, the sector’s mission also is: To grow. Without a healthy foundation however, growth will not be stable, MFIs more vulnerable to a volatile market and financial inclusion goals at risk. Therefore, the PMA pays close attention to the actual health of the MFIs, which currently also is: The structural capacities to grow sustainably.

In conclusion, while the regulator’s primary role is to create conditions which allow MFIs to fulfil their social mission, its concern also is a responsible conduct as well as smooth growth of the market. The PMA thus emphasizes the need of structural readiness before a quick and far-reaching expansion of the portfolio and product range. Growing unready can mean: “all you achieve is a growth of problems”.

By Denise Woelpern and Thomas Rahn