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> Posted by the Smart Campaign

Next Thursday we’re launching the Client Voices project, our four-country research investigation that went to the source and directly asked clients about their experiences with financial providers and their thoughts on what constitutes good and bad treatment.

The four studied countries are Benin, Georgia, Pakistan, and Peru. You might have seen our spotlighting the release of the Benin and Pakistan country reports here on the blog in the fall. On Thursday, we’re sharing those for Georgia and Peru, as well as a “synthesis report” that summarizes and analyses the key findings, takeaways, and recommendations across the four comprehensive country reports.

We have a few launch event opportunities for you to participate in. But first, we wanted to give you a glimpse into what’ll be released on Thursday…

Transparency. One of the overarching findings across the studied countries was that clients have an inadequate understanding of the basic aspects of their microfinance products. For example, in Benin, Pakistan, and Peru, 50 percent, 49 percent, and 43 percent of respondents indicated that they either somewhat or didn’t at all understand loan terms at the time of taking out their loan. Even when institutions are following mandated disclosure rules, this lack of understanding persists.

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> Posted by Brenda Santoro and Ahmed Dermish with Kim Wilson

In uncertain times do developed economies have the resiliency in their financial inclusion processes to withstand rapid change without risking systemic stability and consumer protection?

Modern, nationally integrated systems, high-capacity supervision, and flexible policymaking are helping Germany turn the refugee crisis into an economic opportunity.

The German Federal Financial Supervisory Authority, commonly known as BAFIN, this fall relaxed requirements for opening a bank account. The new rules allow accounts to be opened with a stamped document from an appropriate German authority, such as BAFIN, along with a picture and personal information. Transitional rules are in effect until the approval of the law, expected this year. A directive in the European Union, which will begin in September 2016, will require similar access to bank accounts across the EU.

Citizens of developed countries may not appreciate the role a bank account plays in providing access to basic financial services. A bank account is more than a place to secure our money – in nearly every country, it provides high social and economic value. When a bank says we are trustworthy, even for a simple bank account, doors open for many services we take for granted such as access to electronic payments, basic utilities, housing contracts, education or small business loans. This works because banks use a vetting process to ensure they know exactly who we are, often referencing a nationally issued document such as a passport or driver’s license. For us, the account becomes another form of identity. For the banks, it ensures the correct people have access to funds. With a passport and a bank account, the world is our oyster, an entrée into other services and for the bank, it is an entrée into cross-selling and more profits as they learn more about us.

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> Posted by Jeffrey Riecke, Senior Associate, CFI

The CFI is excited to welcome Sharlene Brown, who joins us as the Executive Director of the Microfinance CEO Working Group, where she will oversee the Working Group’s ongoing efforts to support the development of its member organizations and the microfinance industry at large. I had the opportunity to ask her about her work thus far, how she views the ever-changing inclusive finance industry, and where the Working Group fits in. 

How did you first get interested in microfinance?

I was born in Jamaica and raised in Brooklyn, New York, so depending on the time of day and where I am, I might say I’m from Jamaica, or Brooklyn, or Brooklyn by way of Jamaica. Regardless, from a young age I knew I wanted to be able to give back. During an opportune economics course at Wellesley College, I came across Professor Yunus’ work and began to connect the dots between my own internal drive and burgeoning interest in investing and social responsibility, and the money management practices I had seen in my own community. ROSCAS, susus, juntas, or whatever you choose to call informal savings and credit groups, were the way that my family largely built their resources and foundation in the United States. So, early on I recognized that these types of non-traditional financial services can work well.

Where did this take you after graduating from college?

I followed an urge to challenge U.S. corporations on their bad behavior and joined Domini Social Investments, an investment firm focused on triple-bottom-line investments. Following a few years at Domini, I stayed in the socially responsible investment space and worked with the U.S. Sustainable Investment Forum, a member association for social investors. I also had an introduction to a New York-based group called Shared Interest, which supports microfinance in South Africa. There I created a social impact framework to help them balance their partners’ social results alongside financial performance.

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> Posted by Joshua Goldstein aka Mr. Provocative

There are no final victories when it comes to providing equal opportunities for groups that have suffered from historic discrimination and exclusion. This is true in the United States. This is true everywhere else in the world.  Attitudinal barriers that belittle and marginalize, originating in class, racial, or religious prejudice, may triumphantly come down in one generation only to be resurrected in the next – or even sooner if some shock to the body politic is great enough.

Thus, watchdog groups like the Center for Financial Inclusion’s Smart Campaign, the Southern Poverty Law Center, and the Anti-Defamation League can never call it quits and declare victory. Backsliding into bigotry is more likely the rule than the exception with our tribal species.

To bolster this glum supposition is this example of the ongoing difficulties facing another beleaguered minority: Twenty-five years after the passage of the Americans with Disabilities Act (ADA), there is new evidence about employment discrimination from researchers at Rutgers and Syracuse University.

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> Posted by Jeffrey Riecke, Senior Associate, CFI

Typhoon Haiyan, one of the strongest tropical cyclones ever recorded, struck Southeast Asia in early November 2013, creating unspeakable devastation. In the Philippines alone, where the typhoon’s wrath was concentrated, over six thousand people lost their lives. One microfinance institution, ASA Philippines, sprang into action only a day after the typhoon hit, demonstrating not just microfinance’s social mission, but also how providers in the industry are evolving to support their clients through more than just credit.

Typhoon Haiyan affected 16 provinces where ASA Philippines had operations, spanning 72 branches and 104,708 active borrowers amounting to a loan portfolio of roughly 365 million Philippine Pesos (~US$7.5 million). Fast forward to the present, about two years later, ASA Philippines has almost a 99 percent collections rate and the institution is thriving. How did the institution manage this crisis? Hint: It wasn’t because of merciless collections practices.

The day after Haiyan hit, ASA Philippines’ president traveled to Tacloban, a city that was largely destroyed by the typhoon, to visit the local ASA Philippines office. For the staff, the president’s presence underlined the ambitious and important relief work ahead of them. Under normal operating circumstances, ASA Philippines’ offices are open 24/7, reflecting the institution’s motto of BWYC: Be with Your Clients. ASA Philippines works towards a culture of immediate response, during the typical day-to-day operations, and during times of tragedy. I recently spoke with a few ASA Philippines staff members and they drew a link between support for clients and client trust. Clients will remember the first person that helps them, I was told. This connection fosters trust and connection, which in turn supports efforts to repay loans.

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> Posted by Elisabeth Rhyne, Managing Director, CFI

The following post was originally published last Friday on MasterCard’s Inclusion Hub.

When the Basel Committee speaks, everyone involved in the financial world pays attention. In their new report, it attempts to come to terms with financial inclusion.

As the global regulatory framework for banks, Basel III has no doubt featured in side conversations at Davos. Banking authorities around the world must make shifts to maintain the Committee’s concern with financial system stability, while opening the way for financial inclusion to advance. The new report is called “Guidance on the application of the core principles for effective banking supervision to the regulation and supervision of institutions relevant to financial inclusion.

….If that title grabs you, you might be one of those people who can actually read the document’s carefully worded prose.

In response to the guidance, I would like to share four broad observations, not so much about the specific guidance – which is generally sound – but about the challenges involved in adapting the work of banking authorities to the new world of financial inclusion.

The guidance is uneven in its coverage of new types of financial inclusion providers

The report goes deep on microfinance. It discusses, but has not yet fully explored, digital financial services, big data and new forms of consumer credit.

The implicit assumption throughout the report is that the biggest financial inclusion challenge is credit risk coming from small lenders. This underplays the extent to which financial inclusion also involves large non-financial corporations like telecoms companies and major retail chains. The techniques these players deploy may require supervisory approaches different than those for smaller institutions.

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> Posted by Center Staff

2015 was a year full of great reads (and listens). As we enter 2016, we wanted to take a look back at last year and what we were most excited to explore.  Through our work writing the FI2020 Progress Report, which assesses global progress in five key areas of financial inclusion, we benefited from important research from many in the financial inclusion field.  As part of this effort, we were eager to update our FI2020 Resource Library with the most informative reports and research outputs.  We encourage you to check it out – and in the meantime to review the highlights listed below.  The organizations responsible for these reports cover a wide array of stakeholder types, from support organizations, to telecommunication companies, to financial service providers – proof that progress in financial inclusion is being driven by many.

What Happens to Microfinance Clients Who Default? (January)
The Smart Campaign
Author: Jami Solli
This report looks in-depth at the enabling environment, the practices of providers, and customer experiences in Peru, India, and Uganda, to understand what happens when microfinance clients default on their loans. We were especially interested in the paper’s findings that demonstrate that effective credit bureaus give financial service providers the confidence to treat customers who default more humanely.

Money Resolutions: A Sketchbook (January)
CGAP
Author: Ignacio Mas 
This working paper explores the underlying logic for how people make money resolutions, including how people organize their money and make decisions about financial goals and spending. The paper focuses on peoples’ approaches to making financial decisions – rather than evaluating the decisions themselves – identifying the inner conflicts they face in the process.

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> Posted by the Smart Campaign

Transparency sounds simple – in business, government, relationships, and most areas of life. Take the business of offering financial products and services. As a provider, you inform prospective and current clients of everything they need to know about your product.  As a client, you use this information to make sound decisions about buying and using said product. Consequently, providers can claim full disclosure and hope to benefit from increased loyalty of clients. Clients have the information to make educated decisions and rest easy knowing exactly where that provider stands.

Similarly, in relationships, transparency (read: honesty) is always the best policy. The best practice is always to say everything that’s on your mind. After all, the truth will set you free… Except for maybe when your partner is already overwhelmed with information. Or when what you’re trying to share is incomprehensible. Or when your partner is trying to concentrate on something else. What I’m trying to get at is this: transparency may seem simple, but it’s not. Effective transparency provides information in a way that enables the person receiving the information to understand it and use it.

Inclusive finance providers need to hit the sweet spot – sharing the optimal amount of the most critical information with clients, in an understandable format, at appropriate times. To make matters more challenging, inclusive finance clients are often illiterate, poorly educated, or new to formal institutions.

The good news is that around the world, including in Mexico, the inclusive finance industry is hard at work to embed transparency effectively. In 2014, the Mexican government passed widespread financial reform that emboldened the role of the consumer protection agency, CONDUSEF, and made its rules mandatory for all credit institutions. CONDUSEF was enabled to issue and publicly publish recommendations to financial institutions. In the last year, CONDUSEF imposed important new regulations in areas of transparency and money laundering, and ended up revoking the operating permits of 1,449 non-regulated (SOFOM) institutions that did not meet the standards.

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> Posted by Jeffrey Riecke, Senior Associate, CFI

India has received much fanfare for its financial inclusion efforts in recent years. A few weeks ago we declared it our Financial Inclusion Country of the Year for 2015 in recognition of the major steps it took, which resulted in achieving the greatest improvement in its Global Microscope score between 2014 and 2015. It recently granted new bank licenses that dramatically diversify and grow the country’s services landscape, widely applied new cost-saving technologies like biometric identification, and rolled-out historically ambitious public programs like PMJDY that dramatically reduce the portion of the population that is unbanked.

“Never waste a good crisis” said Royston Braganza, CEO of Grameen Capital India, at the Inclusive Finance Summit in Delhi last month, referring to the Andhra Pradesh crisis of 2010. The recently-released Responsible Finance India 2015 analyses the current state of practice on responsible finance and social performance management in India. In light of that report, Braganza questioned, “Have we learned from our mistakes?”

Responsible finance centers on client protection and market conduct, and has been extended in recent years to include many other good corporate citizenship issues such as employee management, governance, and social performance monitoring.

By way of context, here are a few numbers on the present-day BoP Indian finance landscape:

  • Across MFIs in India’s MFIN network, which represent roughly 90 percent of MFIs in the country, loan books grew by 64 percent in the last fiscal year, compared with 43 percent in the year prior and 4 percent in the year before that.
  • In total, MFI outreach in the country accounts for about 100 million clients.
  • Reportedly, through PMJDY 180 million new bank accounts have been opened over the past year, and adjacent schemes covering insurance, pensions, and credit have been implemented, as well.
  • For the first time in a decade, the RBI granted new bank licenses last year – to Bandhan Bank and IDFC. Bandhan now has 500 branches and over 2,000 service centers across 24 states. Sixty-five percent of IDFC’s first 23 branches are located in rural areas of Madhya Pradesh.
  • Under the RBI’s newly created categories of payment banks and small finance banks, 11 and 10 providers, respectively, have received new licenses, further expanding the network of providers serving the poor.

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> Posted by Sonja E. Kelly, Fellow, CFI

Time Magazine has just named Angela Merkel Person of the Year. In this post I hereby make CFI’s own designation: India is CFI’s “Financial Inclusion Country of the Year.” In the recently released Global Microscope 2015, India was the star performer. It improved its benchmarking score by more than any country (10 points on our scale of 1-100), rising in the ranking to fourth place overall.

The Microscope measures the quality of the policy, regulation, and institutional environment for financial inclusion, scoring 55 countries on 12 indicators, and then ranking them. The 2015 Microscope Benchmarking Model takes the report deeper, and shows year-over-year changes for individual countries (see table). While India is not the top scoring country (that honor has been held by Peru, Colombia, and the Philippines for several years), it is the country that has shown the most dramatic positive change, particularly in five areas: regulatory and supervisory capacity for financial inclusion, prudential regulation, regulation and supervision of credit portfolios, regulation of electronic payments, and market conduct rules.

Global Microscope 2015 Scores for India

2015_microscope_india

For more information see the 2015 Microscope Benchmarking Model. 

What did India do that increased its score in 2015? Building on important groundwork laid in 2013 and 2014, the Reserve Bank of India (RBI), the Prime Minister of India, and the financial sector worked together to implement important reforms.

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The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.
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