> Posted by David Grace, Managing Partner, David Grace & Associates

As noted in a recent blog post by Beth Rhyne of CFI, supervisors need to upgrade their skills if they are going to keep pace with an additional 2-3 billion people over the next decade potentially entering financial services for the first time.

The financial inclusion movement is taking shape at the same time that banking supervisors globally are searching for more “forward-looking” indicators to help them detect early problems in institutions and financial systems. Whether it’s the subprime crisis in the United States and Europe, or over-indebtedness problems in Bosnia and Southern India, many of the early warning signs were evident in consumer abuses before they showed up on the balance sheets and capital ratios of institutions. As such, one of the best avenues for supervisors to improve their quantitative-focused prudential oversight is to start putting greater emphasis on qualitative-based consumer protection indicators.

Through a World Bank-sponsored program in the Eastern Caribbean to improve the quality of supervision of non-bank financial institutions, the Smart Campaign inspired consumer protection supervision to become integrated into new prudential examination procedures.

While it’s understandable that central banks are trying to effectively allocate their own scare resources to the greatest asset concentrations in commercial banks, the practical effect is that savings of rural and economically vulnerable populations are often left at risk. This challenge is being tackled in the Caribbean and afield by a combination of forming consolidated commissions to oversee non-banks (i.e., Barbados, Eastern Caribbean, Moldova) or moving such institutions under central bank supervision (i.e., Trinidad & Tobago, Jamaica).

In the video included here, Smart Campaign Steering Committee members Kate McKee of CGAP and I recently discussed integrated prudential and consumer protection on-site exam in the Eastern Caribbean.

Image credit: The Smart Campaign

Have you read?

Giving Clients a Fair Deal: Actionable Recommendations for Effective Client Protection

Client Protection and Microfinance: Crossing a Threshold

35 Central Banks Commit to Financial Inclusion