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> Posted by Ana Ruth Medina Arias, Lead Specialist for Latin America and the Caribbean, the Smart Campaign

“The risk is to regulate by anecdotes and not by evidence.” – Mariela Zaldivar, Deputy Superintendent, the Superintendency of Banking, Insurance and Private Pension Fund of Peru (SBS Peru)

In recent years, Peru has called for our attention not only for being at the top of the Global Microscope’s international country rankings for the most conducive environment for financial inclusion, but also for its historic collaborative effort to establish a fully-interoperable nationwide digital payments platform (Bim) to support the supply of financial services. But buckle up, there is more.

The country’s regulator, the Superintendency of Banking, Insurance and Private Pension Fund of Peru (SBS Peru), has taken client protection very seriously, and despite already having very robust systems (on grievance redress and dispute resolution, for example), it continues to lead with groundbreaking policy changes based on evidence and research to ensure that regulation is aligned with the needs and capabilities of the end client. The Smart Campaign is proud to have collaborated with the SBS on these policy changes.

Client Voices was a research project of the Smart Campaign that directly asked clients in four countries (Peru, Benin, Georgia and Pakistan) about their experiences with financial providers and what they thought constituted good and bad treatment. In Peru, the project was made possible through strong support from the SBS, which was involved from the very beginning, providing substantive inputs to all project phases. However, their engagement did not stop there. The SBS is also committed to implementing the client protection recommendations arising from the project.

Here is how the SBS turned the major findings of the research into an opportunity for policy improvement in the area of financial consumer protection.

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> Posted by Elisabeth Rhyne, Managing Director, CFI

Client of Akiba Bank in Tanzania

Around the world today, financial service providers, technology entrepreneurs and policy makers are engaged in building a financial system that reaches out to previously excluded people, such as lower income people, very small businesses, rural dwellers, and women. Although this work is carried out in the name of the consumer, all too often, scant attention is paid to the real needs and desires consumers and very small enterprise owners have.

With that in mind, here is a thought experiment. A thought experiment is an “exercise of the imagination used to investigate the nature of things.” The question for this experiment is this:

Imagine that consumers were the creators of the inclusive finance system. What would such a system look like?

What characteristics would emerge if the needs, desires and preferences of the target customers of financial inclusion were the driving force to shape their services? The observations here are drawn from consumer research conducted or commissioned by the Center for Financial Inclusion, including research in Peru, Pakistan, Georgia and Benin for the Client Voice project of the Smart Campaign, in Kenya and India for our project on financial health, in India and Mexico for our study of financial capability, and again in Kenya and India for two CFI Fellows’ projects on the role of human touch in the digital age. I offer ten propositions based on this research.

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> Posted by the Smart Campaign

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For a brief moment on Monday, all eyes in Tbilisi, Georgia were on the Smart Campaign and its findings on the well-being of microfinance clients. The Campaign presented its Client Voices report in a high-profile event at the Georgian Parliament. Joining the event were 12 Members of Parliament from both majority and minority factions of the Government; leadership from the Central Bank, Ministry of Finance and Ministry of Agriculture; a multitude of microfinance practitioners; press and three television stations. This was the first time government representatives of the majority party, minority party, executive branch, industry, and Central Bank all got together to talk about how microfinance clients are treated. Needless to say, it was immensely encouraging to witness this demonstrated interest in the fair and responsible treatment of microfinance clients in Georgia.

The Client Voices project is a four-country research investigation that directly asked microfinance clients about their experiences and treatment. Along with Georgia, the studied countries are Benin, Pakistan, and Peru. Georgia was selected because its market hosts strong and representative institutions conducive to consensus building, and the industry’s decision-makers are currently working to update its regulatory and legal framework. The launch of the Client Voices report positioned the market to act on the project’s recommendations.

The event was co-hosted by the Business and Economic Center (BEC), a non-partisan, not-for-profit institution that works to facilitate understanding and discussion among MPs around financial, economic, and business topics. Following opening remarks by Natia Katsiashvili, Executive Director of BEC, and Giorgi Volski, MP and Chairman of the majority Georgian Dream faction (think Majority Leader in the U.S. House of Representatives), the main findings from the Client Voices project were presented. Here are a few of the key findings:

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> Posted by Elisabeth Rhyne, Managing Director, CFI

thumb_1AD39CA9BC7E44C4A28241B598E34908The following post was originally published on The Guardian.

With 700m new accounts opened between 2011 and 2014, more people than ever have a bank or mobile money account. But many of the new consumers are in poor countries, and people with low incomes are often more vulnerable to abuses when they borrow, save or send money.

The Smart Campaign, a consumer movement, surveyed 4,000 microcredit borrowers in four countries. Their responses were documented in a report, It’s My Turn to Speak.

The study looked at Peru and Georgia, where there is relatively good protection for consumers, and Pakistan and Benin, where protection is less robust.

Some good news emerged: most people are satisfied. Borrowers rated their microlenders as good as, and sometimes better than, schools, hospitals, and governments. Grievous abuses were few – about 3 percent of those surveyed.

But there were cautionary tales. Too many borrowers don’t understand what they are getting into. “I borrowed blind,” one Peruvian woman was quoted as saying in the survey.

In Benin, Pakistan and Peru, only about half the respondents said they fully understood the terms and conditions of their loans. In all four countries, only a quarter knew the interest rate of their latest loan. This can lead to nasty surprises.

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> Posted by Caitlin Sanford, Bankable Frontier Associates, and Alexandra Rizzi, the Smart Campaign

“Sandra” from Lima described her experience talking to a loan officer:

“You don’t understand anything [the microfinance staff members] says, because of how fast he talks.  It is almost as if his tongue is twisted. You end up not understanding in the end. [He says] ‘But ma’am I’ve explained it to you, why can’t you understand? I’ve been very clear.’”

New Client Voices research from the Smart Campaign and Bankable Frontier Associates (BFA) finds that although microfinance providers may be complying with disclosure regulations, clients are not adequately absorbing information about their financial products.  A regulatory compliance-based approach to consumer protection in which providers focus on meeting minimum disclosure requirements risks losing sight of the main objective of transparency— that clients understand what they are signing up for. With clients inadequately informed about many aspects of microfinance, even in countries with strong transparency regulations like Peru and Georgia, the Client Voices findings demand a radical rethinking of transparency.  Namely, emphasis should widen from what information is provided to how much clients understand.

In the Client Voices project we solicited input from clients about what they consider good and bad treatment in their interactions with microfinance service providers, and assessed the prevalence of consumer protection problems in Benin, Pakistan, Peru, and Georgia.  We found that clients in all four countries have an inadequate understanding of the basic attributes of their microfinance products.  Although most clients do receive some information about their loan products, overall they report low levels of understanding of their loan terms and conditions, regardless of education level.  In Benin, Pakistan, and Peru, 50 percent, 49 percent, and 43 percent of respondents respectively report that they understood loan terms only somewhat or not at all at the time of taking out the loan. Self-reported understanding of loan terms and conditions is highest in Georgia, where 79 percent reported understanding the terms and conditions. Read the rest of this entry »

> Posted by the Smart Campaign

What do microfinance clients in Peru think about their experiences with financial services? A few weeks ago the Smart Campaign released its Client Voices reports, a four-country research investigation that directly asked microfinance clients about their experiences. After previously spotlighting Benin, Georgia, and Pakistan on this blog, today we’ll take a look at findings from the fourth country in the project, Peru.

The research was carried out by Bankable Frontier Associates (BFA) and IPM Research. A qualitative research phase was first conducted, which included focus group discussions, individual interviews, and a photography exercise to allow clients to visually describe how they view good and bad treatment. The quantitative survey that followed included a sample of 1,000 current and former microfinance clients.

What did the clients say? In Peru, a well-regulated market, a different set of problems emerged from those we found in less-protected Benin and Pakistan. While severe abuses have been curtailed, emerging problems in Peru tended to arise from aggressive competition for customers.

Overall, clients in Peru are satisfied with their providers, suggesting that they’re benefitting from the industry’s well-regulated, competitive market and effective credit reporting system. Less than 10 percent of respondents rated their experiences with microfinance providers as either “bad” or “very bad”. In an exercise where respondents ranked various formal institutions in terms of how they treat clients, microfinance providers scored above commercial banks.

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> Posted by the Smart Campaign

What’s the state of client protection in Georgia? A few weeks ago we launched our Clients Voices project, a four-country research investigation that directly asked clients about their experiences with financial providers and their thoughts on what constitutes good and bad treatment. The four countries studied in the project are Benin, Pakistan, Peru, and Georgia. After previously spotlighting Benin and Pakistan on this blog, today we’ll take a look at some of the research findings specific to Georgia.

The research was carried out by Bankable Frontier Associates (BFA) and IPM Research. In the qualitative research phase, they used focus group discussions, individual interviews, and a photography exercise to understand what constitutes good and bad treatment by MFIs from the clients’ perspective. The quantitative survey that followed included a sample of 800 current microfinance clients and 200 former clients.

What were the results?

Overwhelmingly, microfinance clients in Georgia are satisfied with their MFIs. The large majority of respondents rated their experiences as “good” or “very good,” with only 5 percent of all respondents expressing a “bad” or “very bad” experience. In Georgia, clients appear to value maintaining a long-term relationship with MFIs. Sixty-six percent are happy with their institutions and stay with them for a long time. In the quantitative survey, approximately 60 percent of respondents had taken multiple loans with the same MFI over time. This is in contrast with findings in Pakistan showing that clients maintain short-term relationships. Microfinance institutions’ service and treatment was ranked as matching or exceeding that of commercial banks. Clients repeatedly ranked microfinance organizations as among the institutions (both financial and non-financial) that treated them best.

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> Posted by Caitlin Sanford, Bankable Frontier Associates, and Alexandra Rizzi, the Smart Campaign

Caitlin Sanford presenting at the Client Voices launch event last week.

Caitlin Sanford presenting at the Client Voices launch event last week

“A ciega lo hacía…hacía mis préstamos a ciega.” – “Mariana”, microfinance client in Peru

“I was blind… I took out the loans blind.”

Mariana is a 42 year old single mother living in the outskirts of Lima. Microfinance loans have helped her to start a business, put herself through school as an adult, and even leave her philandering husband. When we met her, Mariana’s main financial goal was to pay tuition for her daughter, “Yessica”. (Names have been changed to protect identity.)

However, Mariana had fallen behind in her microfinance payments after the family was a victim of an extortion scheme that caused the loss of most of the family’s savings. Mariana felt that her microfinance provider (MFP) was indifferent to her plight, and was surprised to learn that she would have to pay late penalties associated with her loan. She said, “They did not inform me very well… the girls [MFP employees] that call you for the loan say, yes, we will give you this loan, and this and that, and they don’t explain in much detail… They give you the payment schedule, but then [if you have a problem] you will be surprised.” As Mariana describes it, she took out these loans “blind” because she did not understand the interest rate or fees.

Although she struggles with her existing credit payments, Mariana is constantly tempted by offers for new loans. She says that representatives from MFPs, banks, and retail stores often stop her in the street or call her cell phone offering loans. Recently, Mariana bought anti-theft insurance on the street because the salesperson was persuasive, but Mariana does not know how she would make a claim if she were to be robbed.

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> Posted by the Smart Campaign

What are microfinance clients’ thoughts on fair treatment from financial services providers?

Today the Smart Campaign is proud to present the results from the Client Voices project, a four-country research investigation that directly asked clients about their experiences with financial providers and their thoughts on what constitutes good and bad treatment.

Today’s release includes the main synthesis report as well as country reports from Georgia and Peru. The Campaign has already released comprehensive country reports for the other two countries in which research took place, Benin and Pakistan.

The Campaign commissioned Bankable Frontier Associates (BFA), as research partner on the project, to talk with thousands of lower-income microfinance clients face-to-face in the four diverse country markets. The intent was to hear from clients in an open-ended way, without pre-judging their concerns, and then to follow-up this qualitative work with quantitative surveys to determine how representative the concerns expressed were. The intensive research captures, first-hand, clients’ interactions with the institutions that lend them money and keep their savings, and are therefore instrumental in their lives.

Through the project, the Campaign sought to learn whether assumptions made about what constitutes problematic treatment of poor clients (such as those embodied in the Client Protection Principles) rightly reflected what clients themselves worry about. The research was conducted so that it might serve as a catalyst for improvement in client protection by financial service providers, regulators, industry associations, consumer advocacy groups, and others – not only in these four countries, but as guidelines for the protection of lower-income clients around the world.

Here is some of what we found.

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> Posted by the Smart Campaign

Next Thursday we’re launching the Client Voices project, our four-country research investigation that went to the source and directly asked clients about their experiences with financial providers and their thoughts on what constitutes good and bad treatment.

The four studied countries are Benin, Georgia, Pakistan, and Peru. You might have seen our spotlighting the release of the Benin and Pakistan country reports here on the blog in the fall. On Thursday, we’re sharing those for Georgia and Peru, as well as a “synthesis report” that summarizes and analyses the key findings, takeaways, and recommendations across the four comprehensive country reports.

We have a few launch event opportunities for you to participate in. But first, we wanted to give you a glimpse into what’ll be released on Thursday…

Transparency. One of the overarching findings across the studied countries was that clients have an inadequate understanding of the basic aspects of their microfinance products. For example, in Benin, Pakistan, and Peru, 50 percent, 49 percent, and 43 percent of respondents indicated that they either somewhat or didn’t at all understand loan terms at the time of taking out their loan. Even when institutions are following mandated disclosure rules, this lack of understanding persists.

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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.