Client Protection - Summary of Status by Country
The Consumer Protection Library represents an initial effort to pull together information from other languages and diverse sources including law, public policy, banking, and microfinance. These profiles have been assembled by ACCION interns and university students collaborating in the research process and present an overview in English of the legal and regulatory frameworks for consumer protection in each country as well as a description of the banking associations and microfinance networks and their main initiatives.
These profiles are not exhaustive and have not been reviewed by country experts. If you notice a gap or error in any of the profiles, we would very much appreciate your comments about how they can be improved. In this way we can work together to expand our understanding of the variety of client protection strategies and initiatives that are being pursued in different parts of the world. Additional country profiles will be forthcoming. If you would like to request a profile on a specific country, please email cforster@accion.org.
Bolivia’s banking system has long suffered from corruption and weak regulation. There has been little political will or other resources dedicated to the creation of a framework for consumer protection. This is especially in light of the country’s current political landscape featuring a stark division between President Evo Morales and his opponents as the president tries to pass a new constitution. Many recommendations to improve client protection for financial services in Bolivia have been made by local and international organizations. However, the status of consumer protection in Bolivia is weakened by little or no state action on this issue and scarce initiative on behalf of banks to self-regulate.
The principal banking networks of Bolivia have not set client protection standards.
No agreement has been made between banks and the regulatory authorities about the creation of a financial services ombudsman.
The instructions that have been erected to protect clients are sector-specific and leave out financial services.
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Since the end of the war in the former Yugoslavia in 1995, the international community has invested considerable resources in the region’s economic reconstruction. Microfinance has been a key part of the economic revival of this area, particularly in Bosnia and Herzegovina (hereafter Bosnia), although the legislative and regulatory systems in this fledgling nation are currently weak, as a consequence of inadequate post-conflict reform. Concerted action and cooperation between regulators, MFI networks and other stakeholders to advance consumer protection issues have been minimal. Although Bosnia has made positive strides toward strengthening consumer protection in microfinance, progress will be somewhat limited until further reform strengthens the capacity of the state.
Bosnia and Herzegovina is composed of two largely autonomous administrative entities (see below) which are independently responsible for most policy formulation and implementation within their respective borders. Thus, supervision of banks and non-bank financial institutions (including microcredit organizations) is at the entity-level, not the state-level, and we must consider this distinction while analyzing the status of microfinance and consumer protection regulations.
Laws and institutions regulating the banking, finance and microfinance industries in each entity do exist. There has been only limited progress toward a general law on consumer protection in either entity, however, much less a specific law for consumer protection in financial services.
AMFI has a
Code of Business Ethics. This code includes provisions on transparency of pricing and conditions, complaint resolution and privacy of client information. The issue of over-indebtedness is not addressed in this code, however.
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While Brazil boasts a robust and well-established consumer protection system, including a Consumer Protection Code, client protection in the growing microfinance sector is not as institutionalized as in other parts of the economy. A wide array of government agencies and NGOs promote client protection in financial services, especially around commercial banks. As financial services reach more and more low-income Brazilians, banks, MFIs, NGOs, and government will have to work together to ensure that Brazil’s tradition of consumer protection extends to cover new MFIs and customers.
- Numerous banks, MFIs, and networks have established principles, values, and codes of conduct that address client protection issues like transparency, ethical staff behavior, and redress of client grievances. However, other principles, such as prevention of client over-indebtedness and privacy of client information, have not yet been as widely adopted.
- The Consumer Protection Code established a comprehensive system for defending consumer interests that involves multiple branches and levels of government. PROCONs, state and municipal agencies that help consumers defend their rights and mediate disputes, are central to this system. These institutions are located throughout Brazil, offering many Brazilians the opportunity to seek redress for their grievances.
- Following a tradition that started in the government, many financial institutions employ ombudsmen at their own expense to look out for and defend consumer interests. The National Ombudsman Association of Brazil represents these consumer advocates and holds them to a strict Code of Ethics.
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Ecuador’s current economic outlook is similar to that of many commodity-exporting Latin American countries, with moderate growth forecasted for 2009. The country’s exports consist mostly of hydrocarbons and agricultural products. Since the country is dollarized, and therefore dependent on United States monetary policy, it will probably not be able to withstand international shocks as well as its non-dollarized neighbors. Microfinance in Ecuador continues to experience growth and relative stability in large part because of support from the government, international donors and aid agencies. Clear laws specifying client rights and responsibilities support the status of client protection in Ecuador.
- The general consumer protection law in Ecuador includes provisions on transparency, mechanisms for redress of grievances, appropriate collections practices and privacy of client information.
- The SALTO project demonstrates the importance of the microenterprise sector in Ecuador and shows commitment by the Banking Superintendent to address the current regulatory setbacks facing the industry.
- The Inter-American Development Bank and the Banking Superintendent have identified the need to focus efforts on strengthening consumer protection and building a financial culture.
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Ghana’s banking system and economy are growing. Currently there is awareness on the part of the microfinance networks and non-governmental associations to promote the subject of consumer protection. However, some legal or regulatory involvement will be necessary in the future to create a strong foundation for consumer protection in financial services. There is also a need for a more centralized body to oversee the various sectors of the microfinance industry, since current regulation is scattered across many different institutions. The status of consumer protection in Ghana is currently weak, because there has not been enough action by the government to tackle the main issues.
- There is no general consumer protection law, and there are no clear consumer protection regulations for financial services. Banks’ interests and client interests are not adequately defined and differentiated in the existing laws.
- Informal collectors and creditors have the advantage of being close to the population they serve and offering fast service, but there are concerns about their behavior with respect to consumer protection because many of them are not part of any industry association.
- GHAMFIN and SPEED, two microfinance facilitators, have launched a campaign to teach financial literacy as well as to educate the customers on their rights and responsibilities.
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In 1995, the Haitian government transformed Haiti’s banking sector by removing interest rate ceilings on loans and lowering the reserve requirements for banks. As a result, some existing banks reached out to new clients in the informal economy, while new microfinance institutions (MFIs) began operations specifically targeted at these same consumers. However, following these changes, Haitian banking regulations failed to keep up with the rapid pace of changes in the financial sector. In the absence of legislative or regulatory leadership, it will be up to industry networks to promote and implement standards that protect client interests.
- A 1980 legislative decree regulates the formal banking sector, while credit unions are subject to a 1981 law governing cooperatives and a 2002 update that gives banking authorities financial oversight responsibility for credit unions. Non-cooperative microfinance institutions operate without a formal regulatory structure and as a result standardization in the industry is weak.
- In 2007, the MFI industry in Haiti employed more than 3,600 people and served 239,000 clients. Two-thirds of those clients were women. The MFIs had a total loan portfolio of about US$105 million and were holding client savings of US$60 million.
- Industry networks like ANACAPH, KNFP, and ANIMH are playing an increasingly important role in developing and training MFIs on best practices. KNFP reaches out to rural MFIs directly with its Mobile Training Institute, while ANIMH has focused on standardization in the non-cooperative MFI sector and is developing a credit bureau to facilitate smarter lending practices.
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The Indian banking sector is one of the world’s fastest growing markets for inclusive finance. As the planet’s largest democracy and the second most populated country in the world, India is a rising star. As the financial services industry becomes more entrepreneurial and innovative, its risk and product diversification grow. Following the 2006 crisis in Andhra Pradesh, regulators, private banks, and MFIs alike have been increasingly concerned with consumer protection policies. The status of client protection in India seems strong because of a tough legal framework, specific and clear set of policies, and the presence of industry watchdogs as well as a commitment to compliance by the national networks of banks and MFIs. The country’s legal framework is buttressed by strong institutions and the political will to follow through on legislation.
- Banking networks have been persuaded by the Banking Codes and Standards Board of India to adopt a uniform code of conduct that enforces many pro-client clauses.
- Indian Banking Associations have their own codes with strict penalties for non-compliant members.
- Sah-Dhan is the leading national network of MFIs who have enacted a code of conduct proclaiming the organization to be first and foremost client-focused and designed to enhance client well-being in ethical, dignified, transparent, and cost-effective manners.
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Kenya has significant problems regarding lax banking regulations and corruption. Political stagnation between the country’s power-brokering fractions has prevented the government from taking action on consumer protection policies. The status of client protection in Kenya is very weak due to little or no action taken by government, non-government, and banking entities. There has been action against corruption, with a commission passing a general code of conduct for co-operative societies, but the code is vague and falls short of creating a consumer protection framework. No actions on consumer protection by the banking networks have been made public to date.
- A general consumer protection bill was introduced in July 2007, but it has yet to be passed.
- The Association of Microfinance Institutions of Kenya has included the creation of a code of standards into their strategy for 2007-2010. The Association has not disclosed results of this procedure and it is unclear weather the code will have enforceable consumer-oriented clauses.
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Since the Tequila Crisis in 1994, the Mexican financial system has become increasingly integrated into global markets. Authorities in Mexico have also become increasingly aware of client-protection issues in the broader financial industry. They have enacted a series of laws and regulations, enforced by strong institutions, which have the authority to sanction non-compliant organizations. At the same time, client associations and microfinance networks are working to increase client protection in the financial sector. The status of client protection in Mexico appears to be strong because it has the backing of important political and economic sectors and action is being taken by influential players.
- Mexico has a robust legal framework that provides banks and customers with clearly defined rules and regulations.
- At the same time there is important political will, spearheaded by Finance Secretary Agustin Carstens, to tackle the issues of over-indebtedness and client protection.
- Client association, federal client protection institutions like PROFECO and CONDUSEF are working alongside microfinance networks to extend client rights within the financial services industry in Mexico.
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As one of the fastest growing economies in Latin America, Peru has experienced remarkable and sustained economic growth since the early nineties. The economic changes Peru has experienced during this time have directly affected its consumers. Consequently, Peru has strived to strengthen its consumer protection framework. The enactment of a Consumer Protection Law in 1991 pushed consumer protection into the spotlight for the businesses and people of Peru.
- Peru’s General Law of the Financial and Insurance Systems includes statutes that strive to protect clients through provisions demanding privacy and avoid over-indebtedness of the financial services client.
- The Consumer Protection Law for Financial Service Clients establishes a strong framework that calls for transparency, ethical staff behavior, privacy of client data and mechanisms for redress of grievances.
- SBS, Peru’s Banking Superintendent, seeks to minimize consumer grievances through preventative measures, while INDECOPI and DCF are among the agencies providing mechanisms for the redress of client grievances.
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The banking industry in the Philippines has undergone significant transformation in recent years. There have been marked improvements in regulations alongside increased revenues for banks. The Filipino government has enacted multiple laws regulating the financial industry as well as protecting consumers. However, significant institutional overlap exists, which is not easy to unravel. Client protection appears to occupy a very important position in the banking and financial sector, at least with regards to microfinance. On paper, there is a great framework for protecting consumers from financial woes and providing them with fair treatment.
- The National Poverty Commission spearheads the promotion of client protection in microfinance and has developed a consumer protection guidebook, which serves as a compilation of the rules and regulations on consumer protection for financial services.
- The OECD, in partnership with the Filipino government is working on a financial literacy program, however, its results have not yet been released.
- The Microfinance Council of the Philippines has a very interesting code of ethics where they state that they will "consistently assess the impact of our services with the objective of exerting extra efforts to lift members and clients out of poverty in the shortest time possible."
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Venezuela has one of the strongest economies in Latin America. In terms of GDP, it ranks among the top 40 in the world. Venezuelan banks have been subject to intense regulation in arenas ranging from interest rate caps to mandatory minimum amounts for microfinance loans. The presence of few microfinance institutions and high market concentration results in weak competition. Additionally, microfinance must compete with heavily subsidized public programs, the latter of which can offer interest rates 6%-8% lower than private or not-for-profit programs. The growing trend towards regulation and nationalization means the presence of similar public programs will likely increase. Venezuelan law calls for strict regulation of financial institutions in the area of consumer protection. However, the extent of the regulation and government intervention, as well as the threat of nationalization, dissuades private sector players from providing services.
Consumer protection law contains strict clauses regarding financial services in the areas of transparency, usury and false advertising.
The Venezuelan Banking Association has a powerful ethics committee.
New licenses for banks have been frozen and it does not seem likely that more will be granted in the future.
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