International Development Planning Review

Merilee Grindle and the reform of financial institutions: The case of micro-finance regulation in El Salvador

International Development Planning Review (2008), 30, (4), 421–440.

Abstract

Micro-finance regulation is widely regarded as a potential step towards reducing financial exclusion. On the other hand, practitioners argue that regulation increases mission drift. This article explores how the policy process shaping legal frameworks governing micro-finance activity helps explain the content of micro-finance regulation and how it is implemented. Using El Salvador as a case study, policy change is presented as an ongoing process in which the choices available for agents are heavily influenced by contextual factors. Findings suggest that the lack of political incentives to change existing economic structures in El Salvador, combined with a sharp imbalance of power within the policy community shaping regulation, have produced a regulatory framework with limited scope. This scenario is consistent with the financial authorities' interest in creating barriers to entry into the formal financial system. The article concludes by identifying factors that determine the emergence of good financial institutions; that is, institutions that promote development.

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Cabello, Mateo Garcia