Debt distress among microfinance borrowers is on the rise, sufficiently so that it may be characterised as a crisis for the sector. This is driven by factors across the supply- and demand-sides, as well as factors inherent in the nature of the credit cycle, where periodic booms and busts have been present throughout history. To address this, we propose two sets of recommendations for the regulator: a set of recommendations that can be initiated in the short-term and another set that can be initiated over the medium-term. In the short-term, the first action should be assessing the true extent of the distress, thereafter, revisiting microfinance regulations is key, and finally, to balance lenders’ and borrowers’ interests, two programs are proposed. Over the medium-term, we recommend developing the requisite infrastructure for identifying distress and monitoring credit markets more effectively, strengthening supervisory mechanisms, creating a whistleblower forum, and ensuring that self-regulatory organisations (SROs) are strengthened. These recommendations aim to (a) contain the fallout from the present condition of distress/crisis, and (b) minimise the incidence of debt distress among microfinance borrowers in the future.
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