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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 Zahra Khalid, Social Analyst, Pakistan Microfinance Network
Pakistan’s financial sector is due for some client-centric changes. Over the past decade there has been rapid growth in consumer lending as well as an increase in the number of households that have taken on risks and obligations that they do not fully understand due to unfair and deceptive practices coupled with low levels of general and financial literacy.
These trends make the World Bank’s recently released industry-wide diagnostic review of the state of consumer protection and financial literacy in the country all the more relevant, and its recommendations targeting irresponsible practices, such as inadequate price disclosure, gender-based discriminatory lending practices, and lack of dispute resolution mechanisms, increasingly important. Offering key findings, recommendations, and comparisons against World Bank-developed best practices, the review is the first to cover the country’s legal, institutional, and regulatory framework from the consumer protection angle.
> 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.
Microfinance Transparency recently released an interactive video designed to share information about flat and declining interest rates in an engaging new way. It tells the story of “Chantal” and “Auntie-Need-a-Loan.” Auntie doesn’t read the terms and conditions of her loan. Unfortunately, her carelessness leads her to get tricked by loan predators, pay high fees, miscalculate her interest, and miss her loan payments. The concept was created to help industry stakeholders to convey important pricing transparency and consumer protection messages.
In addition to this animation, “Auntie-Need-a-Loan” will be featured in radio public service announcements, training materials and other print materials throughout Rwanda and Malawi.
Check out the full animation here!
Image credit: 17triggers.com
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> Posted by Rosita Najmi, Financial Inclusion Practice, World Bank
“Congratulations,” the young man said, as I entered a favela in Rio. Puzzled, I raised my eyebrows and shrugged my shoulders. “He was congratulating you because you’re a woman.” said the young woman accompanying me on a UNDP assignment. My eyebrows migrated even further north. With a smile, she clarified, “Today is International Day of the Woman.” As we walked on, I turned and yelled over my shoulder with a wave, “Obrigada.”
While I’m passionate about a lot of things, since 2001, I’ve been thinking more about the concept of universal, financial citizenship and the role of women in poverty reduction. I’m sure my colleagues at the World Bank would each have a diversity of views on this topic. However, I think we would all agree upon certain core ingredients, such as (i) access to a suite of quality products and services (including savings, credit, insurance, remittances, payments and beyond), (ii) regulations that ensure consumer protection and transparency, and (iii) individual financial identities and histories that benefit from financial education and security. While this might easily resonate with someone who believes in the larger concept of democratizing development, at this point, you might be asking what “universal” means. That’s where the women (and other vulnerable populations like persons with disabilities, rural populations, and indigenous people) come in. Read the rest of this entry »
> Posted by Beth Rhyne
I had the opportunity last week to inform the philanthropic community about the Smart Campaign through a piece in the Philanthropy News Digest. For those of you who follow the Campaign, the piece may sound familiar. Nevertheless, it’s exciting to be able to get the Smart Campaign message in front of the broad range of people who work in philanthropy.
To read the article, please click here.
> Posted by Siddhartha Chowdri
Over the last couple of months, I’ve noticed this advertisement by the State Bank of India in several newspapers (in many cases on the front page), billboards, and other media throughout the country. Take a minute to try to figure out how much this loan costs and then continue reading. (For those outside India, 1 Lac = 100,000 rupees.)
Over the last four to five years the microfinance industry has been aggressively pushing for greater client protection standards. One place where there has been very specific and measurable improvement is in pricing transparency. This is large part due to the efforts of movements like the Smart Campaign and institutions like MFTransparency.
Although (as many people who work directly with clients know) no matter how well we as institutions disclose and explain prices in standard formats, the only thing that is of concern to the clients is how much they will have to repay on a monthly/weekly basis. Concepts of IRR, APR and time-value of money are not as much of a concern to them as how much money they are going to get and when. Regardless of whether the client is able to understand the full terms of their loan, it is extremely important that those who claim to be in the business of responsible finance stick to their guns and continue promoting full disclosure and transparency. Read the rest of this entry »