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> Posted by Rafe Mazer, Financial Sector Specialist, Government & Policy, CGAP
It’s a great time to be working on consumer protection. Even while risks change or expand in scope as new products evolve and access increases, it seems that there are just as many talented researchers and new approaches to making consumer protection work emerging. Some of the most important breakthroughs are coming from consumer and behavioral research. This includes insights into what sales staff really do and why (see, for example, this infographic on a recent World Bank/CGAP/CONDUSEF audit study in Mexico), how consumers make financial decisions—not always for purely economic reasons, and what the context of low resources or scarcity means for financial behavior.
The next step is to take these research insights and turn them into improved consumer protection policies in emerging markets. CGAP’s recent publication, Applying Behavioral Insights in Consumer Protection Policy, describes a range of current and potential ways we can bridge the research and policy fields. But what about providers? What can we take from the recent behavioral insights emerging for the Client Protection Principles?
> Posted by Jeffrey Riecke, Communications Associate, CFI
Understanding the cash flows and money management practices of the poor is a requirement for effectively designing financial services. Complex income scenarios and impossibly-thin budgets make finances for many poor people complex. It takes time and resources to capture such information in a meaningful way. Insight into these practices was sought in the ambitious Kenya Financial Diaries project, which included biweekly interviews with 300 lower-income households in Kenya over the course of one year. Results from the project were released earlier this week.
The Kenya Financial Diaries, a joint research project by Bankable Frontier Associates and Digital Divide Data, comprehensively tracked the transactions of households across Kenya using a customized, “intelligent” questionnaire. The questionnaire was tailored to each household’s composition, income sources, and financial devices used. As new information became available, the questionnaire adapted accordingly. Along with the quantitative records on their financial lives, researchers interviewed household members on their perceptions, stories, and life events affecting their finances.
> Posted by Jeffrey Riecke, Communications Associate, CFI
A proactive step for client protection was recently taken in Laos when the country’s Microfinance Association (MFA) established an industry code of conduct focused on client protection. Laos’ code centers on the client protection principles and the accompanying Smart Certification standards, which designate how institutions can instill fair client treatment in their practices. The code was developed by the MFA following a Smart assessor training in late 2013, and was reviewed by the Campaign to ensure accurate reflection of the client protection principles and standards. In April, the code was presented at an MFA member meeting, where all members present committed to embedding it throughout their institutions. This new code fills an important gap, given that client protection regulation for financial services is not well developed in the country.
Established in 2007, the Microfinance Association and its members represent a growing share of the country’s industry. Members include MFIs, as well as donors, training institutes, and individual experts and advocates. The 32 MFIs that are members make up roughly 50 percent of Laos’ formal microfinance industry by number of clients.
> Posted by Hema Bansal and Pallavi Sen, the Smart Campaign and MFIN
On June 16th the Microfinance Institutions Network (MFIN) was officially recognized as the Self Regulatory Organization (SRO) for non-bank financial company (NBFC) microfinance institutions in India. With this, MFIN not only became the first network to attain such recognition in India, but also in Asia and perhaps in the world.
An SRO is an organization that has been authorized by a statutory regulator or a government agency to exercise control and regulation on its behalf over certain aspects of an industry. Established in 2009, MFIN is an association of NBFC-MFIs acting as their primary representative body. As an SRO, MFIN will essentially support the RBI in ensuring compliance to regulatory prescriptions and the Industry Code of Conduct.
Subsequent to the Andhra Pradesh crisis, the RBI had instituted a subcommittee of the Central Board of the Reserve Bank under the chairmanship of Shri Y. H. Malegam to study issues and concerns in the microfinance sector in India. The committee submitted its report in January 2011, thereby providing concrete recommendations and guidelines for the creation and recognition of microfinance NBFCs in India. Except for setting in place an SRO, all the other recommendations of the committee were implemented by the RBI in 2012. These other guidelines included establishing a credit bureau, the Guidelines on Fair Practices Code for NBFCs, and additional guidelines on loan size, target clientele, interest rates, transparency, collection practices, and multiple lending. With MFIN recognized as an SRO, the RBI is now implementing the last remaining Malegam Committee recommendation.
> Posted by Nadia van de Walle, Senior Africa Specialist, the Smart Campaign
According to a recent Overseas Development Institute (ODI) report, of every eight dollars sent to Africa, a whole dollar is lost to accompanying transaction fees. This loss, estimated by ODI to be between $1.4 and $2.3 billion annually, is particularly significant given that remittances comprise a significant share of African states’ economies and are rapidly increasing; the World Bank estimates they totaled around $32 billion in sub-Saharan Africa (SSA) in 2013 and may reach $41 billion by 2016. These numbers attracted The Economist to ask, “Do the middlemen deserve their cut?”
Looking at these practices through the lens of the Smart Campaign’s Client Protection Principles, we question whether they are in keeping with responsible pricing. These charges can’t be explained by distance. In fact, large amounts of remittances are intra-country or intra-Africa, transmitted from urban to rural areas or by migrant workers from one country to another. Remittance corridors within Africa have some of the highest charge structures in the world. The 12.3 percent average charge for sub-Saharan Africa compares to a global average (without SSA) of 7.8 percent.
> Posted by Alexandra Rizzi and Alyssa Passarelli, Deputy Director and Communications and Operations Assistant, the Smart Campaign
The Smart Campaign has worked tirelessly for over five years to embed the Client Protection Principles into the microfinance sector, and increasingly, the broader financial inclusion community. Yet until now, the Campaign has had minimal input from the very clients whose well-being drives the entire movement.
In order to better understand the concerns and experiences of the individuals who use microfinance, the Campaign has launched a client voice research and learning project. Through listening directly to clients, market stakeholders can raise awareness, dialogue with each other to identify potential issues, and in turn integrate this learning into their work. The Smart Campaign has a unique role in shining a light on potentially harmful or negative experiences that low-income users of financial services have had and bringing those experiences to the attention of those who can do something about them.
To conduct this project, the Campaign will be working with Daryl Collins and her team at Bankable Frontier Associates (BFA). BFA has conducted extensive global research with low-income households, including projects with an explicit focus on consumer protection. The client voice project will be conducted in four markets – Pakistan, Benin, and two others to be chosen this summer. The markets are selected based on geographic diversity as well as engagement by local stakeholders with the Smart Campaign. In Pakistan and Benin for example, the project is working closely with the Pakistan Microfinance Network and the Alafia Consortium, who have helped convene local stakeholders to give feedback on project design, research locations, and results. This ensures that the research has input and support at all stages from local expertise and will be used by those who are best placed to take action in response to the findings.