ABSTRACT
This chapter compares microfinance institutions (MFIs) with mainstream banks to discuss analogies and differences relevant for regulatory purposes. It focuses on the differences between mainstream banks and MFIs in the loan process since credit risk represents the typical bank and microfinance main risk. The chapter discusses the 'small versus large banks' debate in the context of microfinance to assess whether it can bring new elements to the table. Some pioneer MFIs have introduced credit scoring in order to speed up and improve their underwriting models along with, in some cases, lowering costs. Banks are traditionally identified as the undertakings conducting both the activity of accepting deposits and of granting loans, as also reflected in the EU definition of 'credit institution'. The FSB defines shadow banking as 'credit intermediation involving entities and activities outside of the regular banking system' and aims at identifying the same for stability and systemic risk concerns.
