Many developing countries and countrieswith transitional economies are considering whether and howto regulate microfinance. These guiding principles areformulated for the regulation and supervision ofmicrofinance. This document is divided into five sections.The first section of the paper discusses terminology andpreliminary issues. The second section outlines areas ofregulatory concern that do not call for"prudential" regulation. The next sectiondiscusses prudential treatment of microfinance andMicrofinance Institutions (MFIs). The fourth section brieflylooks at the challenges surrounding supervision, and thefinal section summarizes some key policy recommendations.