The legal framework and supervision and regulation of MFIs are important mainly because they facilitate sound growth and improve the capacity of MFIs to leverage funds in the market and provide competition. However, ADB will ensure that legal and regulatory systems will not discourage financial innovations, stunt institutional growth, and prevent emergence of a diverse set of dynamic institutions. Depending on country contexts, ADB will also support development of self-regulation and performance standards for MFIs. Institutional development ADB, in consultation with its DMCs, has identified institutional capacity building as an important requirement for sustainability and expanding outreach. 28 Strong institutions with good governance are required to provide quality services to the poor on a permanent basis.
Financial viability is critical for expanding the outreach.
Only viable financial institutions involved in microfinance can ensure permanency of services to an increasing number of the poor and contribute significantly to poverty reduction. Thus, financial viability of the institutions committed to serve the poor is seen as a tool to achieve the primary objective of outreach. For the same reasons, the strategy emphasizes institutions providing a broad range of financial services to the poor and low-income households, and microenterprises. However, ADB needs to support institutions to develop and offer products and services compatible with the socioeconomic characteristics of the poor to improve their access to permanent services and to reach the poorest of the poor. ADB s institutional development activities will focus largely on existing MFIs and other financial institutions with a commitment to provide microfinance services to the poor.