Consumer Protection – Is there a business case?

> Posted by Kelley Mesa
counting-moneyIf you haven’t signed up for our monthly Inclusions e-newsletter, then now is a great time to do so! Create a Center login account and check the Inclusions box.
Along with updates on Center happenings, the e-newsletter will include a “Question of the Month,” on which we’d love to hear your thoughts and comments. This month’s question is on one of the Center’s core projects – consumer protection:
Is there a business case for client protection in inclusive finance? Do you believe the implementation of client protection will improve the financial bottom line of microfinance institutions?

“The MFI market in Nicaragua is one of the most competitive ones in Latin America, with over 300 MFI’s. The presence of just about every donor, a large influx of international funding, and banks downscaling has created an environment of market saturation and over-indebtness of clients. MFIs have begun to see a significant increase in arrears and a decrease in margins. Some MFIs have toughened their collection methods, creating friction among clients. This, compounded with a more populist regime, interest-rate caps, and a very weak legal system, has resulted in a number of customer complaints being printed in the press. A group of people with criminal backgrounds and the backing of the political party have begun striking against MFIs and threatening employees, even setting one branch on fire.
Banex identified the risk in the middle of 2007 and made significant changes, including prevention, changes in its internal processes, the addition of appropriate collection technology, and, in general, a strong client focus. This included implementing a code of ethics for collectors and attorneys, training them on customer rights, preventing judicial collections whenever possible, adding an ombudsman to protect the customer, and giving a written statement to customers explaining their rights.
These steps have helped to reduce our political exposure and keep our arrears much lower than the industry average.”
Gabriel Solorzano, Banex

Audio comment
Nejira Nalic, MiBospo

“We believe in protecting our customers in the following ways: avoiding overindebtedness, and educating them in the correct use of financial instruments, such as credit and deposits.
Protecting clientes, both depositors as well as borrowers will generate loyalty. This in turn will reduce the costs of losing customers, and thus improve the bottom line.”
– Kurt Koenigsfest, BancoSol S.A.