Peer-to-Peer Financing for Development : Regulating the Intermediaries

Private actors channel capital to inhabitants of developing countries through a growing variety of intermediaries. Some of those intermediaries operate much like conventional charities, some operate more like for-profit financial institutions, yet others combine features of these models. The last category is growing fast. It also holds the promise of integrating foreign aid and private development finance to bring diversification opportunities for investors, new funding for development, and creative ways to improve development outcomes. Considering the potential reach of such hybrid finance, determining the appropriate regulatory framework for it is an important challenge, which joins policy debates about regulating financial innovation, consumer financial protection, and revitalizing foreign assistance after the global economic crisis. This paper takes up that challenge by canvassing the regulatory frameworks currently applied to charities, banks and investment intermediaries; identifying the problems with the regulatory discontinuities created by the status quo; and suggesting reforms