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> Posted by Rafe Mazer, Financial Sector Specialist, CGAP
CGAP recently launched a Mystery Shopping Technical Guide, based on our experiences sending lower-income consumers to seek financial products in markets as diverse as Ghana, Kenya, Malaysia, Mexico, Peru, and the Philippines.
The method of training actual consumers to conduct mystery shopping has proven helpful to understand the challenges they face in achieving financial access and receiving quality product advice. In several markets we found that sales staff often restrict information on fees and charges and do not provide consumers with the lowest cost product option that matches their needs. For example, in Mexico and Peru we saw sales staff who neglected to offer low-fee savings products available at their institution, while in Ghana sales staff never mentioned the APR of a loan, as they are required by law to do. In Malaysia, insurance sales staff did not use the mandatory Customer Fact Find Form which helps assess customers’ needs and product suitability.
These findings are not surprising to those who study client protection and financial advice, and studies in markets such as the U.S. and India have found similar issues with sales staff. All of this raises a fairly important question of “Can we fix financial advice from frontline bank staff?” Or is the incentive to mis-sell too great and monitoring a sufficient number of individual sales practices too burdensome? This is a discussion I have had with regulators. How do you use policy to drive behavior change in a market? The short answer is that it’s not easy; the long answer is that behaviorally-informed policies, product regulation, and market monitoring tools can help.
But what about the committed leadership of organizations that have signed on to the Smart Campaign (which include providers we have visited during these mystery shopping exercises)? If mystery shopping shows that sales staff do not always keep the customer’s best interests in mind, can we fix this with provider or industry-level changes in sales practices or perhaps through sales staff training? I would like to take advantage of this forum to hear from providers who have implemented policies to fix sales staff misconduct so we can start to document good practices for monitoring sales staff behavior. To help kick things off, here are a few ideas from my side, based on our mystery shopping work:
> Posted by Elisabeth Rhyne, Managing Director, CFI
Sub-Saharan African countries may be leading the world in mobile money and growth in access to accounts, but the state of financial consumer protection in Africa is in urgent need of attention.
In the EIU Global Microscope’s 2014 overall rating of the policy environment for financial inclusion, African countries scored very close to the global average (44 SSA vs. 46 Global out of a possible 100). However, these countries were substantially below the average on consumer protection indicators – market conduct (27 SSA vs. 43 Global) and grievance redress (35 SSA vs. 45 Global).
These numbers have human consequences. The Smart Campaign commissioned research in two African countries – Benin and Uganda – which revealed the frequently harsh environment in which microfinance is conducted. In Uganda, research on what happens to clients who default showed that, lacking regulatory oversight and the calming influence of credit reference bureaus, lenders in Uganda feel compelled to resort to practices such as rapid confiscation of a borrower’s assets. They are afraid that if they do not act quickly, the borrower may flee. In the research on client experiences from Benin, clients reported major gaps in trust and transparency. For example, many reported being surprised by fees that were not explained or expected, having no place to turn when problems arose, or being publicly shamed for late payments.
The research pointed to very low trust on both sides between providers and customers. In fact, in Smart Campaign conversations with African microfinance institutions about consumer protection, one of the most frequently asked questions is, “Who will protect us (the lenders) from them (the borrowers)?”
> Posted by the Smart Campaign
What are microfinance clients’ thoughts on fair treatment from financial services providers? We explored this question in the context of Benin in a previous post, spotlighting results from the Smart Campaign’s Client Voices project. Now, let’s turn to another country investigated in the project: Pakistan.
The Client Voices project went directly to current and former microfinance clients and asked them about their experiences with their financial providers as well as their thoughts on what constitutes good and bad treatment. The project included qualitative and quantitative research in four diverse markets: Benin, Pakistan, Georgia, and Peru. Research partner Bankable Frontier Associates (BFA) began its investigation in March 2014. It conducted surveys, focus groups, in-depth discussions, and photo association exercises.
So, what did we find in Pakistan?
Clients report satisfaction with financial providers, but do not have long-term relationships with them. In Pakistan, a country with a relatively advanced client protection environment, 85 percent of clients reported that they are either very or somewhat satisfied in their borrowing and savings experiences. In fact, only 5 percent of clients reported experiencing a consumer protection problem. (This compares to roughly 13 percent of clients in Benin.) However, clients in Pakistan usually only stay with their provider for a short period. On average, the studied clients had been borrowing with their current provider for just one year. Our research suggests that MFIs are weak at fostering long-term relationships with their clients compared to the other institutions, like savings groups, NGOs, and private schools. When asked about the future, clients indicated they’d rather start fresh with a new provider or discontinue borrowing altogether. Reasons cited included rigid repayment structures, lack of respect/empathy from loan officers, and being publicly disparaged in front of their neighbors.
Next week, CFI will launch the first-ever FI2020 Week. From November 2-6, 2015, over 25 partners across the globe will organize conversations exploring the most important steps to achieving financial inclusion.
FI2020 Week will bring together diverse stakeholders to conduct interactive and participatory events, each of which will produce calls to action. The range of participants will include banks, insurance companies, payment companies, telecommunication companies, policymakers, regulators, NGOs, microfinance institutions, investors, financial inclusion support organizations, financial capability experts, and fintech companies, from around the world. All of these participants will focus on the question, “What is an important action needed in your country (or industry segment) to advance financial inclusion?”
We want YOU to join us! Throughout the week, many FI2020 Week partners will hold webinars – an opportunity for those who will not be attending in-person FI2020 Week events to participate in a variety of interesting conversations. The webinars cover a full range of topics, from client protection in mobile money use, to incorporating financial capability into product design. Check them out below and register now to join hundreds of people around the world in FI2020 Week.
Client Protection and Technology: The GSMA Code of Conduct for Mobile Money Providers
Hosted by: GSMA
Date: November 4, 2015
Time: 9:00 am – 10:00 am EST
This session will discuss how the GSMA – the global association for mobile network operators – is working with its members to ensure that mobile money services are safe, reliable, and secure, and that customers are treated fairly. The Code of Conduct for Mobile Money Providers includes eight high-level principles addressing topics such as safeguarding customer funds, AML/CFT, training and monitoring of staff and agents, reliable service provision, security, and fair treatment of customers. This session will provide a brief background to the Code of Conduct initiative and outline the plan for implementation of the Code. It will be useful for regulators, financial inclusion specialists, consumer protection advocates, and any other stakeholders who are interested in understanding what mobile operators are doing to ensure the safety, reliability, and fairness of mobile money services.
> Posted by the Smart Campaign
What are microfinance clients’ thoughts on fair treatment from financial services providers? The Smart Campaign’s Client Voices project went to the source and asked clients what they think. Clients were consulted on what they believe constitutes good and bad treatment and their experiences with microfinance providers.
The Client Voices project, a qualitative and quantitative investigation, covers four country markets: Benin, Pakistan, Georgia, and Peru. Today we are releasing the results from Benin and Pakistan, and this post focuses on the results from Benin. Stay tuned for another post on Pakistan soon.
Over the past six years, the Smart Campaign has worked extensively with financial institutions, regulators, networks, rating agencies, and other financial inclusion industry actors to strengthen client protection policies and practices. But until now, we had not heard directly from clients. To embed the process in the local scene and ensure it would be actionable, in each country, the Campaign convened a group of researchers and market leaders to provide local insight and guide the research. In March 2014, the Campaign and its research partner Bankable Frontier Associates (BFA) began investigative efforts, which included focus groups, in-depth interviews, photo association exercises, and surveys.
So, what did we find in Benin?
The government of China is launching a mandatory credit scoring system in 2020 and since the publishing of a piece on the system by the American Civil Liberties Union (ACLU) last week, it’s become a topic of passionate discussion. It remains to be seen how the system will work, but in reading a released State Council planning document, it seems likely that credit scores will be determined by more than just financial behaviors. While the creation of a country-wide credit reporting system potentially presents big benefits to lenders and borrowers, it’s essential that such a system doesn’t unfairly discriminate or breach citizens’ privacy. Below are the opening excerpts from the ACLU post and from a Tech in Asia post, which weighs in on the ACLU’s points and offers additional food for thought.
“China’s Nightmarish Citizen Scores Are a Warning For Americans”
> By Jay Stanley, Senior Policy Analyst, ACLU Speech, Privacy & Technology Project
China is launching a comprehensive “credit score” system, and the more I learn about it, the more nightmarish it seems. China appears to be leveraging all the tools of the information age—electronic purchasing data, social networks, algorithmic sorting—to construct the ultimate tool of social control. It is, as one commentator put it, “authoritarianism, gamified.” Read this piece for the full flavor—it will make your head spin. If that and the little other reporting I’ve seen is accurate, the basics are this:
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> Posted by Haset Solomon, Communications and Operations Associate, the Smart Campaign
I rarely think about the cost of convenience. I often use my phone’s navigational system, seeking turn-by-turn directions, but I usually don’t consider the trail of data I’m leaving behind – and even if I do, I decide the benefit outweighs the cost. We live in an age where leaving myriad digital footprints is almost inescapable. Increasingly, we hear of big data analytic companies that “liberate data” or “democratize data” for the purpose of improving products and services or making them more widely available. There are true benefits to advancing our society’s data capabilities and unearthing new patterns and insights. (The phone that tracks my travel can give me advice on promising restaurants nearby.) But the costs can be high. Here in the U.S., the anonymity of “meta” data sets is continually being challenged. Fortunately, in this country consumer advocacy groups and institutions such as the Electronic Privacy Information Center (EPIC), Bureau of Consumer Protection at FTC, and Consumer Financial Protection Bureau (CFPB) are working to address and remedy breaches of privacy and data rights.
In most of the world, similar institutions are nonexistent or under-developed. The fast uptake of technology has opened up large population segments to new possibilities, while leaving them vulnerable. Digital financial services users in developing countries are often choice-less and voiceless on how their data is used.
> Posted by Center Staff
The latest edition of the Financial Inclusion 2020 News Feed, our weekly online magazine sharing the big news in banking the unbanked, is now available. Among the stories in this week’s edition are a new publication from GSMA that outlines operational guidelines for mobile money providers offering interoperable services, the Bank of Ghana issuing logos to licensed microfinance institutions so that they’re discernible from unlicensed ones, and, in the United States, the Department of Housing and Urban Development (HUD) working with the Consumer Financial Protection Bureau (CFPB) to target incidences of redlining (the practice of lenders charging minorities more for products or excluding them from services altogether). Here are a few more details:
- Account-to-account mobile money interoperability can bring significant benefits to providers and customers if conducted correctly, but weak implementation can bring a slew of negative ramifications; the new GSMA report highlights key requirements for effective interoperability and actions for providers to realize them.
- To combat unlicensed microfinance institutions frauding clients in Ghana, the government revealed a new system of logos to be issued to licensed MFIs, helping clients know which institutions they can and can’t trust.
- At a recent conference, officials from HUD and CFPB, citing recent cases of redlining, announced they had signed a memorandum of understanding to work together in sharing information and investigating mortgage lending discrimination.
For more information on these and other stories, read the latest issue of the FI2020 News Feed here, and make sure to subscribe to the weekly online magazine by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.
Have you come across a story or initiative you think we should cover? Email your ideas to Eric Zuehlke at firstname.lastname@example.org.
> Posted by Haset Solomon, Associate, the Smart Campaign, and Sonja E. Kelly, Fellow, CFI
Earlier this year we shared a puzzle: microfinance institutions reported that they had age caps on credit products, but we couldn’t figure out what data or rationale was backing them. Leveraging the Smart Campaign’s endorser network of over 2,000 microfinance institutions, we set out to get to the bottom of this puzzle. What we found in our survey surprised us.
Consistent with our research in the Financial Inclusion 2020 (FI2020) publication Aging and Financial Inclusion: An Opportunity, 61 percent of respondents indicated that they have age caps at their microfinance institutions. Indeed, it is common-place for institutions to place age caps on their credit products. The practice is not limited to one country or region – respondents to the survey came from 45 different countries across every region. As we analyzed the survey, we figured there is either a global phenomenon of discrimination against older people or everyone has a very good reason for their actions that we have been missing.
When asked what the age cut-off is at each respondent’s institution, the responses ranged between 55-80 years, and the average age was 65. Our research earlier this year, however, found that this age cut-off is not always consistently applied within each institution. New customers may have an earlier age cut-off, whereas customers with an existing relationship with an institution may be given an additional few years to apply for a new loan.
So, why do institutions impose these age caps on credit products? We received two competing answers:
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