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> Posted by Sucheta Dalal, Founding Trustee, Moneylife Foundation

World Consumer Rights Day is March 15. To celebrate, this week we’ll be sharing posts that explore the importance of client protection and initiatives that strengthen responsible practices in providing financial services. Given the tremendous growth of mobile phone-based financial services, it’s fitting that the theme of this year’s day is “fix our phone rights.”

India’s independent legal system and an activist judiciary are touted as the key to its vibrant democracy. However, those who have had to deal with India’s expensive and excruciatingly slow legal system know otherwise. Justice delayed is justice denied – this is especially true for the poor, the disempowered, and the middle class in India, who have to wait for decades for a judgment to be delivered. Add to this the fact that many laws are complex, the language obtuse and technical, new statutes are enacted without repealing old ones, and you get a picture of how the system really works.

In the past two decades after India embarked on an economic liberalization process, it also set up a slew of “independent regulators” to regulate capital markets, insurance, pensions, telecom, electricity distribution, etc., with full powers to receive complaints and act on them. All this means that citizens are constantly struggling for help in finding the right remedy or appropriate forum to resolve their grievances.

For instance, a person with a complaint against a bank can approach a banking ombudsman and get a fast and inexpensive resolution. But a consumer court, set up under a separate statute, would offer far better results if one were to complain about being missold an insurance policy or mutual fund. However, very few people know the difference. Ignorance about the laws governing information technology, social media, or privacy issues is even more endemic.

In response to a stream of queries and requests for support and counseling on legal issues, Moneylife Foundation set up a Legal Resource Centre (LRC). The LRC is not a legal aid centre in the sense that it does not draft lawsuits, file complaints, or argue cases for people. There are government-supported legal aid cells attached to Indian courts as is the norm in many countries.

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> Posted by Siddhartha Chowdri, Program Manager, Disability Inclusion, India, CFI

While attending the recent Techshare disability inclusion conference in New Delhi I was invited to attend a “High-Level Meeting on Inclusive Financial Service.” This meeting aimed at starting an intensive national dialogue on the use of technology in making banks in India more accessible to persons with disabilities (PWDs). This unique summit was organized by G3ICTthe Indian Banks’ Association (IBA)Xavier’s Resource Centre for the Visually Challenged (XRCVC), IBM’s Human Ability and Accessibility division, and the Centre for Internet and Society in Mumbai.

Ambassador Luis Gallegos, Chairman of G3ICT, Mohan Tanksale, Chief Executive of IBA, Sam Taraporevala, Director of XRCVC

Through the course of the afternoon many dignitaries shared their views and strategies on financial inclusion for PWDs. Senior leaders of the IBA (Mr. Mohan Tanksale) and the Reserve Bank of India (Ms. Sadana Verma and Mr. KC Anand) discussed the advances in regulation that have made banking more accessible to the blind and were extremely passionate about making the case to all financial institutions in the country that there is a legitimate business case for using available technologies to become more accessible.

After hearing the perspective of the banks and regulators the discussion turned to the technology providers. Mr. Nagesh Nayak of NCR gave us all a great lesson on how not to be accessible. NCR had the mandate to develop talking ATMs to enable visually impaired persons to access their accounts. He showed us a video that let us understand how the first talking ATMs did not actually improve access. For example, the ATM would ask the blind user to choose an option but then not say the options out loud. Then Mr. P. Ramachandran who flew in from IBM’s research headquarters in Austin, Texas explained how IBM’s Human Ability and Accessibility group is using technology to empower employees with various disabilities to make significant contributions to their business. If the likes of NCR and IBM can be so proactive in promoting accessibility and provide tools and case studies, then hopefully the financial service providers of the world will not be too far behind.

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> Posted by Amy Jensen Mowl and Ben Sprung-Keyser, Institute for Financial Management and Research (IFMR), Chennai and Harvard College

There is revived interest in the role of informal credit in India, with researchers using a variety of innovative tools to study informal products and their delivery channels. While the majority of informal loans may come from professional moneylenders, such lenders are not the only source of informal credit for micro and small entrepreneurs. Indeed, for households, non-bank credit is provided by a wide range of players, including moneylenders, unregulated pawn brokers and chit funds, employers and local shopkeepers, and caste and kin networks.

Interested in the range of alternative informal credit options available to businesses, we decided to take a fresh look at informal credit products in a major wholesale fruit and vegetable market in Chennai. The result: we found a market for alternative finance that revolved around merchants associations and the provision of common credit.

Two Associations, Two Loan Products, Two Outcomes

Amongst the collective loan products we examined, those offered by the Tomato Wholesaler Welfare Association (“tomato association”) and the Banana Merchant Welfare Association (“banana association”) were most notable. Like most voluntary trade associations in India, both associations function to protect and advance the common business interests of the members, share information, provide mutual assistance, and distribute gifts during festivals and ceremonies.

In addition to these basic functions, we found that the associations had credit and savings features, with mixed results. In the case of the tomato association, the individual wholesalers had devised an intricate mechanism for the collective pooling of resources amongst 50 members. All wholesalers who wish to join are required to pay a 10,000 rupee deposit and contribute an additional 50 rupees a day in membership fees. This financial arrangement lasts for five years, and so members are not permitted to withdraw their contributions before that time lapses. Instead, wholesalers in need of funds may borrow from the group at a rate of three percent per month. The tomato association deducts a small amount of interest income for operating costs and divides the interest income equally among individual members. One wholesaler explained that he had accumulated more than Rs. 200,000 in interest over the course of the last four years.

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> Posted by Laura Galindo and Alexandra Rizzi, Senior Associate and Deputy Director, the Smart Campaign

A few days ago a post on this blog detailed debt collections practices in the United States. The Smart Campaign, led by Jami Solli of Consumers International, is working to shed light on provider practices in microfinance through exploratory research in Peru, India, and Uganda.

Once a client becomes seriously delinquent and moves into default, the possibilities for serious consequences for the client arise. Yet little is known about how microfinance institutions treat clients at these later stages. What alternatives do providers offer to clients who are in protracted arrears? How are clients treated when they are defaulting on multiple loans? What do clients experience during this difficult and stressful stage? And after the default, are client debt obligations resolved? Is there a concerted effort to rehabilitate or re-include defaulters?

In September, the Smart Campaign kicked off a research project to explore what happens to clients who default. The project focuses on how microfinance practitioners treat defaulting clients. It is scanning for best practices around the world – like debt mediation projects in Europe and middle-income countries – and examining practices in detail through interviews with practitioners and regulators in Peru, India, and Uganda. Interviews were also conducted with credit bureaus, debt collections agencies, consumer advocacy/protection groups, and researchers specialized in those markets. These countries were chosen, in part, because of their variation in credit bureau infrastructure and the hypothesis that this would have significant impact on provider practices.

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> Posted by Center Staff

The Reserve Bank of India (RBI) Committee on Comprehensive Financial Services for Small Businesses and Low Income Households released its much-anticipated final report today. This pathbreaking document sets out an ambitious vision of universal access to financial services within an exceedingly short time frame (by January 1, 2016). The report’s detailed framework to guide financial inclusion policy represents a significant shift towards flexibility in terms of institutional frameworks and product development. It details recommendations in the areas of electronic payments, access to savings and credit, insurance, and consumer protection. It also proposes a comprehensive monitoring framework to track progress.

We look forward to a robust dialogue among Indian financial inclusion actors as they digest the 265-page report.

You can access the report here.

> Posted by Eric Zuehlke, Web and Communications Director, CFI

Client protection (and the Smart Campaign) had a big year in 2013 in India, with five Indian MFIs becoming client protection certified and the release of the Implementing Client Protection in Indian Microfinance report.

Following the Andhra Pradesh crisis in 2010, client protection became a priority in India across microfinance stakeholders including the Reserve Bank of India, industry associations such as MFIN, Sa-Dahn, and DFIs, and investors such as IFC, the World Bank, Oikocredit, and SIDBI. In 2011, the Smart Campaign began a two-year capacity-building program with support from Accion and the International Finance Corporation to move MFIs from endorsement of the Client Protection Principles to actually improving their practices.

Microfinance India Summit 2013

Left to right: Alexandra Rizzi (Smart Campaign), Girish Nair (IFC), Matthew Titus (Sa-Dhan), Alok Prasad (MFIN), Veena Mankar (Swadhaar), Victoria White (Accion), Hema Bansal (Smart Campaign), and Amit Gupta (Smart Campaign)

The results of this Accion-IFC-Smart Campaign project are presented in the Smart Campaign’s State of Practice Report Implementing Client Protection In Indian Microfinance, launched at the Microfinance India Summit 2013 in Delhi, India in December. By examining client protection through the lens of the seven Client Protection Principles, the report takes a comprehensive look at the status of client protection in India, including areas where progress has been made and areas that still need improvement.

Based on self-reported questionnaire results and 18 in-depth Smart Assessments, the report presents areas where there has been marked improvement in client protection practices in India, and a few areas that require additional attention. High scores were reported for the principles of Responsible Pricing, Ethical Staff Behavior, and Appropriate Collections Practices. This is in part due to MFIs incorporating Code of Conduct trainings and providing guidelines for staff behavior. Less progress has been made in Complaints Resolution.  Even when MFIs have a complaint policy, this is often not communicated to clients and many staff members aren’t trained on how to handle customer complaints. Privacy of client data remains an issue as well as most MFIs don’t recognize client data protection as a major issue and clients are not educated on how to keep their passbooks safe. The lack of external regulation on these issues magnifies this trend.

A major focus since the 2010 crisis has been avoiding over-indebtedness. According to the report, “Both RBI directives and the Smart Campaign emphasize evaluating borrowers’ repayment capacity and loan affordability. Out of the total MFIs assessed, around 70 percent of the institutions demonstrated adequate analysis of their clients’ capacity to repay.” Over the past two years, MFIs have started to provide a wider range of products and regulations mandate that institutions offer a variety of repayment options.

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> Posted by Jeffrey Riecke, Communications Assistant, CFI

The new year is welcomed the world over by resolutions from those yearning to be healthier, wealthier, and wiser. The connection between wealth and financial inclusion may be obvious. And being financially included may even make you wiser, if we consider the cognitive benefits described in Sendhil Mullainathan and Eldar Shafir’s recent book Scarcity. But it’s the link between health and inclusion that I want to talk about. According to a study of individuals in the U.S. with outstanding debt, about half of those with financial problems experience negative health effects as a result. Of the affected, about half cite stress as one of their ailments. Stress is associated with significant health problems, including increased blood pressure, gastrointestinal issues, obesity, depression, and anxiety.

Rural Thanjavur, India

Financial problems might be among the most common causes of stress in our day and age. But if you’re one of the 2.5 billion people around the world excluded from financial services, the sources of your financial stresses are likely a bit different from borrowers in the U.S., and the stakes possibly higher.

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> Posted by Ashutosh Misra, Principal Consultant, Interactive Forum on Indian Economy

New modes of payments, such as electronic cards, mobile money, and internet-based payments, are in some cases causing financial exclusion for those who prefer, or are only able to pay in cash. This is the major finding of a study commissioned by the European Foundation for Financial Inclusion (EUFFI) on the impact of new payment systems on financial exclusion in the U.K., France, Italy, Poland, and Sweden.

The report is of interest to India for three main reasons: the Reserve Bank of India’s emphasis on financial inclusion when granting new bank licenses; Indian banks expanding their use of electronic payments and non-branch interaction with customers; the Indian government’s focus on promoting direct electronic transfer of social benefits. The five European nations of the study are smaller than India in size and population, but they’re ahead technologically and in financial services market development. Nonetheless, millions of their citizens are restricted from having a bank account and hence do not have access to many new payment technologies. Also, significant populations are unable to perform transactions using the new technologies or would prefer to use traditional methods. If the new payment systems can be so disruptive there, India has miles to go before electronic payments can become the norm here.

For financial inclusion, access to basic banking services must be complemented by the right to use traditional means of payment, such as cash, if that’s the customer’s desired payment form. The EUFFI study finds that cash is often the only means of payment for those at risk of exclusion, but shows it is becoming harder or more expensive to pay in cash. On the other side of this, many merchants still aren’t able or don’t want to accept cards. An example of this shared in the report is unsuccessful asylum seekers in the U.K. who can get financial support from the government only in the form of plastic payment cards. These cards are credited weekly, and enabled to purchase essential goods from a restricted subset of shops. This inability to pay in cash results in hostile behavior towards asylum seekers in some shops and supermarkets.

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> Posted by Hemang Mandalia, Software Engineer, Investment Banking, Credit Suisse

The Financial Inclusion 2020 project at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”

This is the third in a series of several posts from this year’s Credit Suisse Virtual Volunteers, where research and insights across a variety of financial inclusion areas will be shared.

This brief tale begins with an investment scheme from a corporation called Sahara that claimed to seek “financial inclusion” through investments from the unbanked, but at the same time sought regulatory exclusion for its practices. Sahara provided investment opportunities to the rural nooks and corners of India that were overlooked by most major banks – but it is alleged to have falsified records and subverted Indian regulations.

Sahara India Pariwar is an enormous Indian conglomerate with headquarters in Lucknow, Uttar Pradesh. Its diversified business has interests in finance, infrastructure and housing, media, entertainment, retail, manufacturing, and information technology. Sahara has also been the main sponsor of the Indian national cricket team for several years, cricket being so popular it is often referred to as a religion. The link to cricket has helped Sahara establish itself as a household name.

Sahara’s financial services companies are said to have 100 million depositors and investors in villages and small towns, often from rural unbanked areas. As for the group’s investment products, Subrata Roy Sahara, chairman of Sahara, indicates they serve small investors who are outside the banking system.

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> Posted by Vikas Raj, Senior Investment Officer, Accion Venture Lab

Last week, Raghuram Rajan was officially inaugurated as the 23rd Governor of the Reserve Bank of India. Rajan’s appointment has been greeted by a near obscene amount of excitement and adulation here in India, even by the standards of an often excessive Indian press. The front page of The Economic Times on Thursday (image at right) has Rajan sliding across the page, James Bond-style, rupee-barreled gun in hand. I am very much looking forward to seeing Janet Yellen or Larry Summers do the same.

Rajan’s academic credentials and work experience are indeed impressive – his previous position was chief economic adviser to the Prime Minister, and before that he was chief economist for the International Monetary Fund – but his main claim to fame is correctly predicting in 2005 that risky credit markets in the U.S. could lead to a global financial crisis. That position brought him much derision at the time, including from the likes of Larry Summers, but have of course since proven to be prescient.

But regardless of the strength of his professional and academic background, Mr. Rajan faces a herculean task as the new RBI Governor of a nation facing some serious economic crosswinds. India’s economy is growing at its most tepid pace in four years, its stock market has tumbled in recent months, and inflation continues to rise unabated. Perhaps most strikingly, the rupee has devalued versus the dollar by nearly 20 percent over the last four months. In the meantime, a national election is coming in the spring, which has effectively made consensus and compromise in the always partisan Indian government nonexistent. It will take all of Rajan’s skill to right the ship.

For those of us in the financial inclusion industry here in India, expectations are doubly high. India’s broader travails as an economic laggard affect us deeply, and Rajan’s initial statements and actions as Governor imply, at least, that he is willing to make big changes to help solve short-term monetary ills. If the initial reaction is any indication, Rajan’s presence and changes could actually help – the rupee rose 2.1 percent against the dollar and the Sensex index jumped 2.5 percent on Thursday. Getting India back on track is crucial for the financial inclusion space – low economic growth and persistent inflation hurt low-income populations in many different ways, including leading to fewer construction and manufacturing jobs and higher food prices.

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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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