> Posted by Sonja E. Kelly, Director of Research, CFI

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As we have watched events unfold in Iran, it has become increasingly clear that major problems with stability and security of funds in the financial system is a driver of civil unrest and political instability.

Over the last few weeks more than a dozen people have been killed and thousands have been arrested in demonstrations across the country. These demonstrations have involved tens of thousands of people in the most significant public display of opposition that the government has seen in a decade. The magnitude of this unrest is significant, and global concern is growing.

Last weekend, The Washington Post highlighted a solitary and representative video that has been fueling protests. In the video, sent over the popular messaging app Telegram, an older woman sits in her hospital bed and describes the loss of her entire savings and her inability to pay her medical expenses. She explains that three years ago, a poorly-regulated financial institution closed and she never recovered all the funds she had been keeping safe there. “Why has no one given my money back?” she cries.

Amid the protests, access to Telegram was suspended, with government officials suggesting the platform had bolstered civil unrest. But the stories still continued.

Massive numbers of Iranians say their savings have been lost because of the collapse of poorly regulated or fraudulent institutions. According to Suzanne Maloney of the Brookings Institution, “Banks are shutting down without any kind of notice, and it’s creating a huge political and economic backlash at a local level.”

The backdrop to these protests is notable. The Iranian President’s recent budget proposal decreases subsidies to the poor at a time when the spending power of Iranians is also declining. In the city where the protests began, Mashhad, eggs increased in price by 40 percent, and other basic goods increased in cost as well. Poor financial health – not being able to meet day-to-day expenses, respond to emergencies, or take advantage of opportunities – has been shown to be a significant source of stress. It is no wonder that such strain has translated into anger and unrest in the country.

While we do not assess Iran as part of our publication, The Global Microscope, the methodology does recognize that clear regulation and the capacity to enforce such regulation are clear drivers of financial inclusion. If fraudulent or poorly regulated institutions are able to open and close without protecting and safeguarding consumer funds, how can customers trust the financial system? How can well-meaning and legitimate institutions hope to gain customers willing to engage with them?

The client protection principles, Smart Certification, and the many tools developed by the Smart Campaign offer a wealth of resources for inclusive finance stakeholders in any country, including Iran, to ensure that financial clients are being treated responsibly, which of course supports the long-term sustainability of financial institutions and markets.

While situations like these are complex and often have many causes, we hope that those working toward peace and understanding will consider the strength of the financial sector regulator and the framework for client protection in the country in addition to assessing buying power and price inflation.

We also hope that this might serve as an important case example for the importance of emphasizing quality financial products as a part of broader financial sector, economic, and social development.

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