&gt; Posted by Susy Cheston, Senior Advisor, CFI

<a href="http://www.fi2020progressreport.org/client-protection/"><img class="aligncenter wp-image-19650" style="border: 1px solid #000000;margin-bottom: 5px" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/10/client-protection.png" alt="" width="614" height="341" /></a>Visitors to our <a href="http://www.fi2020progressreport.org/client-protection/">FI2020 Progress Report on Client Protection</a> will have noted our poor math skills. (This is the section of the report that assesses global progress to date in advancing fair treatment for lower-income financial services clients.) We rated regulators a 6 on consumer protection and providers a 3—and somehow averaged those out to a 5. Our averaging skills make even less sense when you consider the <a href="http://cfi-blog.org/2012/12/05/the-three-legged-stool-of-client-protection/">three legs of the client protection stool</a>—providers, regulators, and consumers—and realize that consumers are not even on the radar, rightfully earning a 1 at best in terms of their capacity to advocate on their own behalf. So why the optimism?

We were certainly swayed by the impressive momentum among a range of actors at the global level—including policy and private sector initiatives—toward improved consumer protection. But it’s what happens at the national level that really counts. The World Bank’s <a href="http://responsiblefinance.worldbank.org/~/media/GIAWB/FL/Documents/Publications/CPFL-Global-Survey-114econ-Oversight-2014.pdf">2014 Global Survey on Consumer Protection and Financial Literacy</a> reports that some form of legal framework for financial consumer protection is in place in 112 out of 114 economies surveyed. We are not so <a href="https://en.wikipedia.org/wiki/Pollyanna_principle">Pollyannaish</a> as to think that having a legal framework is equivalent to having a regulatory and supervisory system that protects consumers well, but we do think it’s a good step in the right direction.

We also looked at the <a href="http://www.centerforfinancialinclusion.org/microscope">Global Microscope</a>, which shows a wide range of policy and practice in each of the 55 markets it surveys. The Microscope provides a wealth of detail, including noting the countries that have weak market-conduct rules and grievance redressal mechanisms. In general, the MENA region is struggling in these areas. On the whole, in one-third of the countries studied, the Microscope found that significant efforts are needed in both regulation and its implementation. Yet, there are glimmers of best practice. The Latin American region stands out, with Peru, Colombia, Chile, and Bolivia ranked in the lead on consumer protection indicators in 2014, and the Philippines (as always) is worth noting, too.

Overall, with significant recent progress by national regulators such as Indonesia, continued deepening from leaders such as Peru and the Philippines, and progress on global standard-setting, we are just encouraged enough to give regulators a cautiously optimistic 6 in progress to date.

On the provider side, which we awarded a 3 for progress to date, there are bright spots. Among them, industry codes of conduct, and individual financial service providers that recognize the linkage between consumer protection and their own success. However, there are many forces pushing against industry leadership. The challenges and costs of reaching the base of the pyramid together with the challenges and costs of implementing good consumer protection practices can be daunting. We may seem like cockeyed optimists—but we nevertheless hold fast to the vision that providers can and must incorporate consumer protection into their professional identity. Not only is it the right thing to do, it positions clients to be effective, loyal services users, contributing to long-term financial bottom-lines.

Of course, as the market evolves, consumer protection challenges evolve with it. Technology can benefit consumer protection. Among the many examples are how technology can reduce opportunities for petty staff corruption and provide new ways for consumers to share complaints. But technology also brings new risks, such as complex and confusing interfaces, connectivity interruptions, lack of pricing transparency, and new types of fraud. Consumer data in digital form is proliferating, and most countries do not have protections in place about the use of that data. We are now in a period of learning about the consumer protection implications of rapidly changing technologies, and the jury is out on whether client protection is prone to be stronger or weaker amidst those changes.

We weighed all of these considerations and scored the world’s progress toward consumer protection for the base of the pyramid. The last I checked, the “People’s Vote” was a slightly less optimistic 4. Check out the <a href="http://www.fi2020progressreport.org/client-protection/">FI2020 Progress Report on Client Protection</a> and cast your own vote.

Have you read?

<a href="http://cfi-blog.org/2015/10/01/rating-progress-toward-financial-inclusion-on-a-scale-of-1-to-10/">Rating Progress toward Financial Inclusion on a Scale of 1 to 10</a>

<a href="http://cfi-blog.org/2015/10/05/toward-an-agent-free-world/">Toward an "Agent-Free" World</a>

<a href="http://cfi-blog.org/2015/10/07/addressing-customer-needs-off-to-the-data-mines/">Addressing Customer Needs? Off to the Data Mines</a>

Why We Gave Consumer Protection a 5

Financial Inclusion 2020

Bolivia

Chile

Latin America and The Caribbean

Middle East and North Africa

Philippines

Agent Banking

Alternative Data

Consumer Protection

Digital Financial Services

Policy, Regulation and Government Initiatives

Privacy

Trends

Blog Post

<a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/534-2013-global-microscope"><img class="alignright wp-image-16543" style="border: 2px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2014/11/microscope.png" alt="" width="280" height="353" /></a>If there’s one thing we’ve learned in taking a close look at financial inclusion efforts around the world, it’s that context matters. That’s why we are excited to be part of the team releasing the <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/534-global-microscope">Global Microscope 2014: The Enabling Environment for Financial Inclusion</a>. The Microscope is carried out by the Economist Intelligence Unit (EIU) with sponsorship and guidance from the Multilateral Investment Fund of the IDB, CAF, and Citi. The Microscope evaluates the environment for financial inclusion in 55 different countries and provides powerful signals to policymakers in each country on their progress. Which countries topped the list and which have the most room to grow?

We’ll tell you, but first, it’s important to know what the results mean. Each country inspected in the Microscope is assessed on 12 indicators that consider best practices in national regulatory environments and institutional support for providers serving clients at the base of the pyramid. Indicators range from government support for financial inclusion, to supervision of microfinance and other financial products, the status of credit reporting, regulations governing mobile banking and, last but not least, consumer protection.

This year is an important one in the publication’s eight year history because the focus shifted from microfinance to the environment for financial inclusion, a process that involved adapting the framework to account for today’s diversity of providers and products. What we were surprised by, however, was just how little a difference this made in the rankings. We charted last year’s results on the microfinance environment against this year’s results on the financial inclusion environment and we found a very high correlation between the two (see figure below). Environments that are enabling for microfinance are often environments that are enabling for financial inclusion. Six countries from last year’s top 10 were in this year’s top ten.

<a href="http://bit.ly/1s9k6T0"><img class="aligncenter wp-image-16546" src="https://centerforfinancialinclusionblog.files.wordpress.com/2014/11/microscope-figure.png" alt="" width="600" height="290" /></a>

So, who leads the pack? Here’s the list of the top 10 countries and their scores (on a scale of 0 to 100).
1) Peru -- 87
2) Colombia -- 85
3) Philippines -- 79
4) Chile -- 66
5) Mexico and India (tie) -- 61
7) Bolivia and Pakistan (tie) -- 58
9) Cambodia and Tanzania (tie) -- 56
There were three very clear champions: Peru, Colombia, and the Philippines, whose scores are well above the next-ranked country, Chile. Peru and Colombia performed strongly across the board, scoring in the top five on nearly all indicators. The Philippines’ inclusion environment ranked well in part due to its capable regulator, optimal credit regulation, and effective dispute-resolution mechanisms.

The wide range of performance is notable. Top-scoring Peru secured 87 out of a possible 100 points, while lowest-ranked Haiti only managed 16, and there are countries spread rather evenly throughout the whole scoring distribution. This reveals a very wide range of attention to and progress on financial inclusion across the world. This range is borne out by the finding that a third of countries have active national financial inclusion strategies with targets, a third have strategies that remain vague or patchy, and a third have not made any formal commitment to financial inclusion.

Regionally, both Latin America and the Caribbean and East and South Asia score well. While the Middle East and North Africa region had the lowest regional average score, low scores are present among countries in several regions: Democratic Republic of the Congo, Madagascar, Egypt, Yemen, and Haiti.

East and South Asia and Sub-Saharan Africa are the leading regions in regulation for electronic payments. Kenya and Tanzania in particular stand out for their strong regulation conducive to the growth of mobile payments, and Bangladesh, Pakistan, and Sri Lanka for their effective e-pay infrastructure.

The Microscope found that countries that had strong institutional support – credit reporting, client protection, accounting standards – often performed very well overall, and countries that had weak institutional support performed poorly. Countries at the bottom of the rankings performed especially poorly on measures of institutional support.

The Microscope report, with its country profiles, provides a rich source of information for further research. It also provides a stimulus for policymakers to focus on areas for improvement and to look to the leaders for inspiration and example.

For more detail, including country breakdowns and rankings, you can download the report <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/534-global-microscope">here</a>.

Graphic credits: <a href="http://bit.ly/1s9k6T0">'Global Microscope 2014'</a>

Have you read?

<a href="http://cfi-blog.org/2013/12/17/defining-the-path-to-financial-inclusion-in-peru/" target="_blank" rel="noopener">Defining the Path to Financial Inclusion in Peru</a>

<a href="http://cfi-blog.org/2013/10/03/global-microscope-finds-the-world-getting-more-microfinance-friendly/" target="_blank" rel="noopener">Global Microscope Finds the World Getting More Microfinance-Friendly</a>

<a href="http://cfi-blog.org/2012/12/20/putting-a-microscope-on-client-protection-in-microfinance/" target="_blank" rel="noopener">Putting a Microscope on Client Protection in Microfinance</a>

&nbsp;

The 'Global Microscope 2014': Results and Surprises

Bangladesh

Cambodia

Congo, Dem. Rep.

Egypt, Arab Rep.

Haiti

Kenya

Madagascar

Pakistan

Sri Lanka

Yemen, Rep.

Financial Inclusion Strategy

The following post was <a href="http://www.huffingtonpost.com/elisabeth-rhyne/genius-in-microfinance-re_b_5671545.html" target="_blank" rel="noopener">originally published</a> on The WorldPost blog of The Huffington Post.

<a href="http://www.audinet-conseil.com/news/article.php?id=1163"><img class="alignright wp-image-15774 size-full" style="margin: 5px;border: 0 solid #ffffff" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/08/panchootero.jpg" alt="" width="150" height="150" /></a>In a <a href="https://www.microlinks.org/studying-past-looking-future-bancosol-moving-microfinance-mainline-financial-system" target="_hplink">recent retrospective</a>, Rich Rosenberg called Pancho Otero, the founding leader of Bolivia's Prodem and BancoSol, a genius. With Pancho's sudden death last month, I find myself surprised to speak with many people who work in microfinance or financial inclusion today but do not know about Pancho's genius. And so, I would like to take this moment to tell the story of who Pancho was and what he accomplished.

Genius can be applied in many spheres, from art to action. But all notions of genius share the idea that a genius sees beyond the things ordinary people see and works in some extraordinary way to bring that vision into being, disregarding conventional boundaries. I think Pancho would have enjoyed this thought about genius, by seventeenth century English author Jonathan Swift, "When a great genius appears in the world you may know him by this sign; that the dunces are all in confederacy against him." But that is the end of the story, not the beginning.

In 1986 Pancho was hired by Accion to start a microenterprise lending organization in Bolivia. His signal accomplishment was to create an organization that was so good at what it did that it gave rise to the idea - and then the reality - that a microfinance operation lending exclusively to the poor could become a full fledged commercial bank. And when Prodem launched BancoSol, Pancho became President of the <a href="http://www.amazon.com/Mainstreaming-Microfinance-Lending-Began-Bolivia/dp/1565491262/ref=sr_1_5?ie=UTF8&amp;qid=1407851116&amp;sr=8-5&amp;keywords=Elisabeth+Rhyne" target="_hplink">first private commercial bank in Latin America dedicated to the microenterprises of the poor</a>. BancoSol, in turn gave impulse to the transformation of microfinance NGOs into financial institutions all over the world and set the ball rolling for the widespread commercialization of microfinance.

Genius does not work alone, and Pancho had help of many kinds - a cultural tradition among his clients, mainly Aymara people, of entrepreneurship and honoring debts, and a set of capable and influential backers in both Bolivia and North America, who helped finance and advise the new organization.

But Pancho's own unique contribution? I think his genius lay in two attributes, his personal charisma and his iconoclastic passion. He applied them both to great effect in creating first Prodem and then BancoSol.

Pancho's first genius was a winning way with all kinds of people. He could establish rapport with clients in an instant. He understood, empathized, and honored the poor of Bolivia. As a passionate Latin American leftist, he believed - and practiced - radical solidarity with the poor and indigenous. Perhaps he was sometimes a romantic about this, but not when he was actually in the field, where he felt fully at ease. Pancho believed that a microenterprise organization should be built on trust between the client and the institution, trust that grows from the connections created when people look each other in the eye. Pancho treated clients with kindness, sympathy, and camaraderie.

That was the mistica he brought to his work and spread among his staff, a sense of mission that suffused every facet of Prodem. In the early days, Prodem was steeped in this mistica. It perspired mistica.

And that mistica inspired the staff as Pancho created a sense of excitement and discovery among them. Every time a credit committee met to consider a loan application, Pancho saw it as an opportunity for learning and growth. And so he set loan officers to challenge each others' assumptions, turning the credit committees into classrooms for staff. As Pancho's life has been memorialized in Bolivia, <a href="http://www.la-razon.com/opinion/columnistas/Homenaje-Pancho-Otero-Bailey_0_2097990192.html" target="_hplink">members of his staff</a> are among those offering the most <a href="http://www.noticias.com.bo/opinion/querido-pancho/" target="_hplink">moving tributes</a>.

Prodem staff lived by a few catch phrases that captured and translated the mistica into practice. Ni un vaso de agua (not even a glass of water) emphasized expectations that staff would be fully ethical in dealings with clients, reversing patterns of corruption in Bolivia associated with government lenders. "Zero tolerance" sent loan officers out immediately upon arrears, not (as Pancho later explained) for the purpose of harassment, but first of all to find out whether the client was "can't pay" and needed to be worked with sympathetically or "won't pay" and would be treated strictly. In a <a href="http://www.youtube.com/watch?v=hwV3l5H56C4" target="_hplink">video interview</a> with MicroSave (embedded above) he explains the presumption at Prodem that arrears usually signaled a shortcoming of the institution, not of the client.

Pancho also turned his genius for people full blast on the supporters of Prodem, from the top political figures of Bolivia, to donors at USAID and the IDB, to colleagues at Accion. He charmed everyone with warmth, humor, and conviction, and in return, received the backing he needed in the form of Accion's full support, grants from USAID and the IDB, and local political support. It is hard to believe today, but at that time the case Pancho repeatedly had to make was something we now take for granted: that low income people can and will repay their loans and form the basis for a successful financial operation.

As for the second strand of genius, Pancho was a highly motivated iconoclast, by ideology and by nature. Born and raised in Bolivia, Pancho was profoundly influenced early in life by two politically active leftist uncles, one of whom was gunned down by the Bolivian military. He gloried in establishing himself in contrast to authority, and especially against the role of the United States in Latin American affairs during the 1960s and 1970s. His heroes were revolutionaries, and he saw microfinance as his contribution to the revolutionary tradition. This side of Pancho's genius is responsible for his dedication to making Prodem an excellent institution that learned from its own experience rather than simply copying others. It enabled him to create a vision for the organization, rally his staff around that vision, and resist slipping into a more donor-led position. He turned that questioning spirit on Prodem itself, challenging it to do things in a way that turned conventional banking on its head. Pancho wanted Prodem to be the anti-bank.

Which is why it is ironic that his most significant achievement was the conversion of the NGO Prodem into a bank. Pancho did not originate the idea for BancoSol, but he created the conditions that made it possible by making Prodem a truly excellent operation that was growing fast and breaking even in just a few years. By 1989, after only two years of operation, the prospect arose that Prodem could become a bank (as it was financially viable) and needed to become a bank (in order to raise the funds to continue growing). It is hard to believe now that in 1989 this was a revolutionary idea, one that at first even Accion's board of directors were reluctant to endorse. Over the next few years, Pancho continued to advance Prodem's success while working with a team set up by Accion and Calmeadow to develop a business plan, find investors, and secure regulatory approval. It was a proud day in February 1992 when BancoSol opened its doors, and surely one of the handful of most significant dates in the evolution of microfinance.

But Pancho's iconoclasm was also his tragic flaw, at least so far as the BancoSol story is concerned. As an anti-banker himself, he wanted BancoSol to stay as different from a bank as Prodem had been, and thus, he defied the formalization that the new shareholders and the regulatory authorities demanded. As effective as BancoSol was, with Pancho at the helm it resisted the formal systems necessary for a larger, regulated institution. Pancho preferred to do business based on person-to-person connections among his team, and he was temperamentally allergic to bureaucracy and control. He clashed with those who sought to impose more of that on him and his own dear creation.

But BancoSol simply could not operate as a bank on mistica alone. And so, in 1994, with great reluctance and sadness, the board of BancoSol asked Pancho to step down as President and CEO. This was a great disappointment to Pancho, and the bitterness engendered when he had to surrender his role at BancoSol stayed with him for years.

Pancho believed wholeheartedly in the power of microfinance to transform lives, but only if it were delivered with proper care and connection to clients. If he were starting out today, he would undoubtedly be one of the new advocates of "client-centricity", though I'm sure he would dismiss the term itself as corporate-speak.

Pancho continued to work on the kind of microfinance he believed in, heading for countries where it was not available and where he believed it could be life-changing. He died suddenly, of cerebral malaria, in the small town of Kikwit, in the hinterlands of the Democratic Republic of Congo, where he was building yet another microfinance program, Credit Ya Mpa.

As I think about Pancho personally, I remember a man who loved to be contrary, and because he was warm and funny and charming, usually got away with it. He was the kind of person who, while entering the U.S. with his Bolivian passport, picked an argument with the customs official about U.S. policy in Latin America, nearly getting himself pulled into detention. He was the kind of person who, when requested to speak about a certain topic in a conference, would talk eloquently about something else. He had talents - like drawing perfect circles freehand (an unusual way to impress women), and mimicking accents perfectly. Although I have not seen him in several years, I can still hear his version of Indian English, complete with head-waggle. He often talked about eye-to-eye-based trust, probably because his own eyes twinkled incorrigibly.

I'm not sure whether Pancho was "a genius", but I am sure that he had genius in him. The twinkle in his eye, and everything that came along with it, made a lasting mark on the world.

Image credit: <a href="http://www.audinet-conseil.com/news/article.php?id=1163" target="_blank" rel="noopener">Audinet</a>

Have you read?

<a href="http://cfi-blog.org/2011/09/22/financial-inclusion-the-trust-factor/" target="_blank" rel="noopener">Financial Inclusion: The Trust Factor</a>

<a href="http://cfi-blog.org/2011/09/28/revista-features-beth-rhyne-on-the-bolivian-model-of-microfinance/" target="_blank" rel="noopener">'ReVista' Features Beth Rhyne on the 'Bolivian Model' of Microfinance</a>

<a href="http://cfi-blog.org/2012/02/03/from-the-roundtable-reflections-on-improving-microfinance/" target="_blank" rel="noopener">From the Roundtable: Reflections on Improving Microfinance</a>

Genius in Microfinance - Reflections on Pancho Otero

Executive Summary<img class="imgRight" src="storage/images/Bolivia.jpg" alt="Bolivia" width="282" height="198" />

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.
<ul>
 	<li>The principal banking networks of Bolivia have not set client protection standards.</li>
 	<li>No agreement has been made between banks and the regulatory authorities about the creation of a financial services ombudsman.</li>
 	<li>The instructions that have been erected to protect clients are sector-specific and leave out financial services.</li>
</ul>
Introduction

Bolivia is amongst the poorest Latin American countries and has an economy dependant mostly on its natural resources including tin, copper, silver, and natural gas. It is also highly dependent on foreign aid. The banking system in Bolivia has long suffered from corruption and weak regulation. The country has a central bank, but few private banks.

In 1993, Bolivia passed the Banking Law (which has been subsequently reformed several times), which improved and opened the banking sector to foreign participation. The lack of credit given by banks to microenterprises made microcredit NGOs a source of capital for many Bolivian entrepreneurs. As the NGOs became regulated institutions and the Bolivian microfinance industry matured, vibrant competition developed, which is generally positive for consumers. However, there has also been great concern about protecting bottom-of-the-pyramid clients, and so regulatory measures have been put in place by the state.

Regarding the financial industry as a whole, there has been little work to try to create a client-protection framework. Moreover, with the current status of the Bolivian political landscape, a near deadlock between the ruling coalition and the opposition, passing any law is a highly politicized process, especially with a constituent assembly presently re-drafting the country’s constitution. This presents an uncertain prospect for the passage of any law in the near future, at least until the Constituent Assembly’s draft Constitution is ratified by a national referendum.

Legal Framework

The General Law on Banking and Financial Institutions of 1993, last modified in May 2004, is Bolivia’s general banking law. As such, it enforces the rules and regulations for all banks and financial institutions. It is quite generic in its main points, but there are a few items worth highlighting:
<ol start="1">
 	<li>Non-bank financial institutions (NBFIs) cannot lend individuals or groups a value above 1% of their net equity without a guarantee. The exception is a housing credit, in which case NBFIs cannot lend above 5% or 10% without authorization from the Banking Superintendency.</li>
 	<li>Directors of banks must maintain the privacy of both operations within the banking system and their clients' information.</li>
 	<li>The law created the Superintendencia de Bancos y Entidades Financieras (SBEF), which is the banking comptroller general.</li>
</ol>
On April 16, 2008, President Evo Morales issued <a href="http://www.cgap.org/p/site/c/template.rc/1.9.45980/" target="_blank" rel="noopener">Supreme Decree 29519</a>, which regulates competition and consumer protection with regards to conduct that negatively influences the market. The decree will be executed by the Bolivian Institute of Metrics and the Business Superintendence. To prevent price and quantity speculation, the decree determines what constitutes competitive and anti-competitive behavior. However, it does not contain any caveats about financial services in general or describe consumer rights. There has been strong criticism of this decree from the <a href="http://www.cainco.org.bo/default.aspx" target="_blank" rel="noopener">Santa Cruz Chamber of Commerce (CAINCO)</a> because the Superintendence does not have the facilities to perform its job under the decree. CAINCO argues instead that there must be clear and well defined norms that protect Bolivians’ economy, health, and access to more and better products.

The <a href="http://www.economiayfinanzas.gob.bo/" target="_blank" rel="noopener">Ministry of Finance</a> and the <a href="http://www.bcb.gob.bo/" target="_blank" rel="noopener">Central Bank</a> have a mandate to determine the country’s monetary and fiscal policy as well as to oversee and regulate the financial industry of the country. Within that context, the SBEF’s objective is to strengthen the role of all actors to measure and monitor the risk of every financial institution as well as the system as a whole, thus contributing to a healthy financial system that is efficient and profitable, benefiting the security of the public’s savings.

The Superintendency of Banking also issues periodic regulatory updates with the objective to improve the Bolivian financial industry. One of these updates is the Regulation and Supervision of Microfinance Institutions in Bolivia (Regulación y Supervisión de las Entidades Microfinancieras en Bolivia). Some of the important norms contained in this update include:
<ol start="1">
 	<li>MFIs now have a specific credit risk rating scheme, with the objective of using a general risk assessment tool to allow uniform interpretation of information.</li>
 	<li>MFIs can obtain credit history information from the credit bureaus as well as provide information to them in order to increase transparency in the microfinance sector and have more accurate information about over-indebtedness.</li>
 	<li>MFIs should disclose all details of their operations in their contracts, including nominal and variable interest rates and detailed information about all charges and fees.</li>
 	<li>Furthermore, before contracting an agreement, MFIs should clearly disclose in writing all the terms and conditions of loans.</li>
 	<li>Given their nature, MFIs will provide a record of its clients credit history in order to integrate people into the formal sector.</li>
 	<li>The Superintendency will implement two types of monitoring for MFIs:
<ol start="1">
 	<li style="list-style-type: none">
<ol start="1">
 	<li>Off-Site - monitoring the financial records of the MFI and its indicators, including asset liquidity and profitability to asess the state of the country’s microfinance industry.</li>
 	<li>On-Site - inspections of the MFI with regard to quality of information, governance, risk assessment and loan portfolio.</li>
</ol>
</li>
</ol>
</li>
</ol>
Bolivia also has the Financial System Development and Productive Sector Support Fund, or FONDESIF for its Spanish acronym. It is that state institution that serves as a public policy instrument to orient and support the microfinance sector, widening coverage, diversifying products, and democratizing access to credit through economic initiatives for the bottom of the pyramid to be viable.

FONDESIF partners with sustainable MFIs to expand their coverage to regions previously without financial services or consolidate the MFIs presence in an area. It assigns resources to these MFIs in two ways:
<ol start="1">
 	<li style="list-style-type: none">
<ol start="1">
 	<li style="list-style-type: none">
<ol start="1">
 	<li>Loans for the establishment of a portfolio that will allow the MFI to serve the identified clients.</li>
 	<li>Technical assistance, subject to conditions, for the subsidization and financing the MFI’s operational costs.</li>
</ol>
</li>
</ol>
</li>
</ol>
Furthermore, FONDESIF provides resources to promote research and seminars that advance the microfinance sector in Bolivia. The resources for these efforts come from the Bolivian government, international donors, and cooperative agencies.

The government also has a consumer protection institution called the Consumer Protection Office, or ODECO for its Spanish acronym. It is a service of the sectoral regulation system to provide a servomechanism of redress to the consumers of the electric, hydrocarbon, sanitation, telecommunications and transportation sectors. The institution embraces the best consumer protection practices and seeks to implement international experiences to provide an effective protection of user and consumer rights. Clients of financial services cannot use ODECO’s mechanisms.

There is a citizen-led NGO that strives to protect consumers called the Bolivian Consumer Rights Defense Committee, or <a href="http://saludpublica.bvsp.org.bo/ais/codedco.htm" target="_blank" rel="noopener">CODECO</a> for its Spanish acronym. It is a member of the Consumers International Global Federation. In Bolivia, it seeks to represent consumers and patients across the country who seek to promote citizen participation in safeguarding their rights. Unfortunately, with its very diverse agenda, financial services are not included in their program of activities.

In 2004, an <a href="http://www.unctadxi.org/Sections/DITC/COMPAL/docs/Informes%20de%20Consumidor/Informe%20Bolivia%20PROTECCIONCONSUMIDOR.pdf" target="_blank" rel="noopener">unofficial UNCTAD report</a> found the status of consumer protection in Bolivia to be particularly weak. It mentioned that Bolivia does not have institutions that dedicate themselves to the protection, promotion and defense of consumer interests. Furthermore, it stated that no clear consumer protection laws that existed for specific sectors. A series of recommendations were issued by the organization including:
<ol start="1">
 	<li style="list-style-type: none">
<ol start="1">
 	<li style="list-style-type: none">
<ul>
 	<li>The need to build a societal consensus around the need for consumer rights.</li>
 	<li>The need to extend the reach of institutions who are designed to protect certain consumers, to encourage them to go beyond basic services.</li>
 	<li>The need to establish a culture of consumer and user rights in public and private sectors to advance social and academic policies that introduce this idea to all sectors of society.</li>
 	<li>The need to strengthen the role of civil society with regard to consumer protection in order for civilians to defend their interests and represent themselves.</li>
</ul>
</li>
</ol>
</li>
</ol>
Both UNCTAD and CODECO have suggested that the current consumer protection and competition Decree could be turned into law.

Networks

<a href="http://www.asoban.bo/" target="_blank" rel="noopener">Bolivian Private Banks Association</a>

The Bolivian Private Banks Association (ASOBAN) is the largest association of private banks in Bolivia, and has 12 members. Its objective is to design policies to develop banking in Bolivia as well as preserve and maintain the interests of the banking sector in the economic development of Bolivia. It biannually publishes a report on the state of the banking industry in Bolivia along with several other studies on the state of the Bolivian economy. The ASOBAN website does not list any policy protections regarding consumer protection.

<a href="http://www.asofinbolivia.com/sp/default.asp" target="_blank" rel="noopener">Assocation of MFIs</a>

Assocation of MFIs (ASOFIN) is the largest microfinance network in the country. Its mission is to promote policies that strengthen microfinance in Bolivia and safeguard the interests of the sector. It has 8 members, among them <a href="http://www.bancosol.com.bo/" target="_blank" rel="noopener">Bancosol</a>, which has been characterized as Bolivia’s best bank. ASOFIN does not have any clear consumer protection policy or a statement that characterizes the policies of the network on consumer protection.

ASOFIN in turn has a couple of provocative publications on its website: <a href="http://www.asofinbolivia.com/archivos/DOC%20COMPLETO%20EN%20PDF.pdf" target="_blank" rel="noopener">“A study on the Feasibility of a Financial Ombudsman”</a> and another one on the <a href="http://www.asofinbolivia.com/archivos/Bolivia%20Lecciones.pdf" target="_blank" rel="noopener">“Lessons Learned about Microfinance Regulations in Bolivia.”</a>

Association of Financial Institutions for Rural Development

The Association of Financial Institutions for Rural Development (FINRURAL) is a group of 15 organizations that work in the microfinance and microenterprise sector in Bolivia. They promote improved institutional management, product diversification, and recognition for MFIs in Bolivia. FINRURAL promotes innovation and technology transfers and proclaims itself a leader in the sector. All of its members are non-regulated financial institutions, but they have clear policies to promote self-regulation. The objectives of this system of self regulation are to:
<ol start="1">
 	<li style="list-style-type: none">
<ol start="1">
 	<li style="list-style-type: none">
<ul>
 	<li>Increase the credibility of MFIs so they will be able to reach more people who have previously been excluded from the formal financial sector;</li>
 	<li>Promote the continued advancement of good MFI management to promote efficiency and effectiveness in generating value and risk reduction;</li>
 	<li>Harness MFIs to act as a group to consolidate their efforts; and</li>
 	<li>Promote development of a healthy and sustainable microfinance sector.</li>
</ul>
</li>
</ol>
</li>
</ol>
The website has a section on self-regulation where they specify what their internal regulations are, from tax reporting to interest rate methodology. Unfortunately, there is no consumer protection policy where they clearly outline a pro-consumer approach.

Bancosol has published a report entitled “The Bolivian Financial Market and the Defender of Financial Consumer Protection.” In this report, they mention that a certain financial culture has been developed in Bolivia where institutions provide adequate information and consumers are no longer fooled by banks’ marketing strategies. It also mentions that banks have the duty to provide clear and sufficient information to consumers about the conditions and characteristics of the products that they advertise. This paper also makes the argument that a Financial Services Ombudsman contributes to equalizing the imbalance of power between the banks and the consumers. An ombudsman would help clients confront abuse, injustice and lack of quality in financial services. Moreover, Bancosol’s report mentions that ASOFIN, FINRURAL and ASOBAN have all committed themselves to institutionalize the Financial Ombudsman, though this has not yet been implemented.

Conclusions

The Bolivian legal framework is rather vague when it comes to client protection. It does not have specific clauses regarding sectoral regulations for financial services. However, there are institutions dedicated to the protection of consumer rights for the electricity, hydrocarbons, sanitation, telecommunications and transportation sectors. Currently, financial services are not seen as a basic service, which is something that will need to change in order to create a strong enabling environment for client protection in microfinance. Furthermore, the general law on banks does not contain specific clauses regarding transparency, over-indebtedness, reckless lending, or client rights. Some good measures have been implemented by the Superintendency of Banking, but they are directed exclusively at microfinance organizations, and are not mandatory for the rest of the financial sector.

Finally, the banking networks lack clear client-protection policies, and although they all welcome the existence of a banking ombudsman to protect consumers, so far they have not taken the initiative to advertise and implement client-protection codes and practices.

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.

<a title="Client Protection Library" href="publications-a-resources/client-protection-library" target="_parent">Back to Client Protection Library</a>

Client Protection in Bolivia

Report

&gt; Posted by Center Staff
<img class="alignright size-full wp-image-4346" title="ReVista logo" src="http://centerforfinancialinclusionblog.files.wordpress.com/2011/09/revista-logo.png" alt="" width="170" height="62" /><a href="http://www.drclas.harvard.edu/publications/revistaonline/" target="_blank">ReVista: Harvard Review of Latin America</a> has just released an issue that maps out Bolivia's changing social, political, cultural, and economic landscape.
CFI Managing Director Beth Rhyne's article <a href="http://www.drclas.harvard.edu/publications/revistaonline/fall-2011/microfinance" target="_blank">"Microfinance: A World-Class Performance"</a> takes readers on a tour of the "Bolivian model" of microfinance, which has "led to the transformation of dozens of MFIs around the world, launching the expansion of microfinance from a few tiny, donor-driven programs to a global industry that today brings access to financial services to 150 million people."
Rhyne's analysis begins:
When I first saw the photos of the sacking of BancoSol, I cried. The slide show began with chaotic pictures of the mob hauling desks, computers and files into the street and setting them on fire. Next were two captured looters lying face down and handcuffed amid the wreckage of what hours before had been a functioning bank branch. Finally, next-day photographs documented the ravaged premises of BansoSol’s branches all over La Paz and El Alto.
Thinking back to 2003 when these events occurred, I ask three questions. Why did protestors ransack a socially motivated bank that lends to the poor? Why did that make me cry? And what has become of BancoSol and the rest of the microfinance sector since then?
Development economist Claudio González-Vega once said of microfinance in Bolivia, “One could not write the recent economic history of Bolivia without highlighting microfinance, and one could not write the world history of microfinance without highlighting Bolivia.” (Boulder Finance Institute presentation, July 2007). Microfinance is one of Bolivia’s best claims to a world-class performance. It started in the late 1980s when idealistic Bolivian social activists created a series of microfinance institutions (MFIs). They found a ready market for small loans among Bolivia’s enormous informal sector, dominated by Aymara-speaking microentrepreneurs. The need, the services and the culture somehow clicked, and these MFIs quickly grew into leaders in the emerging global microfinance sector.
Please click the link to read the rest of <a href="http://www.drclas.harvard.edu/publications/revistaonline/fall-2011/microfinance" target="_blank"> "Microfinance: A World-Class Performance."</a>
<a href="http://www.drclas.harvard.edu/publications/revistaonline/about" target="_blank">ReVista</a>, published three times yearly, focuses on different themes related to Latin America, Latinos/as, and the Iberian peninsula. The magazine-length publication brings together different voices on each theme, highlighting the work of Harvard faculty, students, alumni and visiting scholars.
Harvard’s <a href="http://www.drclas.harvard.edu/" target="_blank">David Rockefeller Center for Latin American Studies</a> is ReVista's parent institution. The publication's creators "hope to foster cooperation and understanding among the people of the Americas [and] seeks to contribute to democracy, social progress and sustainable development and to stimulate dialogue on these issues."
Have you read?
<a href="http://centerforfinancialinclusionblog.wordpress.com/2011/02/16/the-centers-best-kept-secret-the-country-by-country-client-protection-library/" target="_blank">The Center’s Best-Kept Secret: The Country-by-Country Client Protection Library (Featuring Bolivia)</a>
<a href="http://centerforfinancialinclusionblog.wordpress.com/2010/12/13/a-tale-of-microfinance-in-two-cities/" target="_blank">A Tale of Microfinance in Two Cities</a>
<a href="http://centerforfinancialinclusionblog.wordpress.com/2011/01/05/pilar-ramirez-microfinance-trailblazer/" target="_blank">Pilar Ramírez, Microfinance Trailblazer</a>
<a href="http://centerforfinancialinclusionblog.wordpress.com/2011/07/12/weathering-the-storm-and-learning-from-latin-americas-experiences/" target="_blank">‘Weathering the Storm’ and Learning from Latin America’s Experiences</a>
Microfinance
A World-Class Performance
By Elisabeth Rhyne
When I first saw the photos of the sack ing of BancoSol, I cried. The slide show began with chaotic pictures of the mob hauling desks, computers and files into the street and setting them on fire. Next were two captured looters lying face down and handcuffed amid the wreckage of what hours before had been a functioning bank branch. Finally, next-day photographs documented the ravaged premises of BansoSol’s branches all over La Paz and El Alto.
Thinking back to 2003 when these events occurred, I ask three questions. Why did protestors ransack a socially motivated bank that lends to the poor? Why did that make me cry? And what has become of BancoSol and the rest of the microfinance sector since then?
Development economist Claudio González-Vega once said of microfinance in Bolivia, “One could not write the recent economic history of Bolivia without highlighting microfinance, and one could not write the world history of microfinance without highlighting Bolivia.” (Boulder Finance Institute presentation, July 2007). Microfinance is one of Bolivia’s best claims to a world-class performance. It started in the late 1980s when idealistic Bolivian social activists created a series of microfinance institutions (MFIs). They found a ready market for small loans among Bolivia’s enormous informal sector, dominated by Aymara-speaking microentrepreneurs. The need, the services and the culture somehow clicked, and these MFIs quickly grew into leaders in the emerging global microfinance sector.

&#039;ReVista&#039; Features Beth Rhyne on the &#039;Bolivian Model&#039; of Microfinance

&gt; Posted by Center Staff
<img class="alignright size-full wp-image-2763" title="5" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2011/02/5.gif" alt="" width="100" height="100" />Andhra Pradesh's shadow is long, and particularly dark where it falls across the media. But beyond the bleaker headlines are stories of a different kind, about countries where microfinance is working.
The Center's managing director, Beth Rhyne, this week published an article on this topic in The China Daily. It may cast a new light on microfinance for the newspaper's nearly 400,000 readers, many of whom hail from Asia's business and investor community.
Here are some excerpts from "Five Countries Where Microfinance Works":
<ul>
 	<li>"Indian policymakers created a perfect storm for a microfinance shipwreck ... MFIs, locked out of the ability to provide a range of services, had no other channel for growth than unbridled credit expansion."</li>
 	<li>"Tiny Bolivia got many things right ... competition between ... strong institutions brought interest rates in Bolivia below 20 percent, among the lowest microfinance rates in the world."</li>
 	<li>"Cambodia and Mongolia followed Bolivia’s example. Acleda Bank in Cambodia and Xac Bank in Mongolia ... added savings and other services, offering a solid range of products."</li>
 	<li>"Indonesia showed what a state-owned bank can do ... Bank Rakyat Indonesia now serves tens of millions of clients, has been profitable since it began, and has never experienced a significant crisis of over-lending."</li>
 	<li>"The government’s nurturing approach led the Economist Intelligence Unit to rank the Philippines second in the world in its “Global microscope on the microfinance business environment 2010.”</li>
</ul>
To access the entire article, please click <a href="http://www.cdeclips.com/files/asiapdf/20110218/cdasiaweekly20110218p14.pdf" target="_blank" rel="noopener">here</a>.
For more information, <a href="http://bit.ly/FI2020signup">sign up for updates</a> from the Financial Inclusion 2020 campaign.

5 Countries Where Microfinance Works

Mongolia

&gt; Posted by Jon Pattee
<img class="alignright size-medium wp-image-2486" title="110103_MFM_Raw Photo_Pilar Ramirez_headshot crop 3" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2011/01/110103_mfm_raw-photo_pilar-ramirez_headshot-crop-3.jpg?w=220" alt="" width="220" height="300" />Pilar Ramírez, a pioneer of microfinance in Latin America, in 1985 launched FIE, Bolivia’s first MFI. Her personal journey in the industry parallels the Bolivian microfinance sector’s development from its beginnings to its current mature status.
Ramírez, whose passion for social justice has never flagged, believes that she, FIE, and microfinance in Bolivia have all made significant contributions to the lives of low-income Bolivians.
Today, however, she sees troubling developments that are products of the industry’s very success. As MFIs become more profitable, Ramírez worries that the field is luring in professionals who lack the social commitment of the founding leaders. “It’s becoming like any business,” she laments.
As 2011 begins, Ramírez shares her thoughts on the microfinance industry past, present, and future, in the second of the “Microfinance Matters” interview series:
<h1 style="padding-left:30px">Pilar Ramírez</h1>
<h3 style="padding-left:30px">Defying Conventional Wisdom, Pursuing Social Justice</h3>
Although born into a wealthy family in Bolivia, Pilar Ramírez was part of a generation whose social conscience was formed by the events of the late 1960s.  As a high school student, Ramírez was galvanized into activism when the revolutionary hero Ché Guevara came to Bolivia and was killed by the military dictatorship in 1967.  “Ché had impressed the youth here, as he represented change and hope that a ‘new man’ – one who cared about the needs of the poor – was possible,” she says. At that time, she might have been stunned to learn that her belief in social justice would ultimately lead her to become a banker, and eventually the chair of CONFIE, a bank holding company.
To read more of the interview with Pilar Ramírez, click <a href="http://bit.ly/eKkoOV" target="_blank">here</a>.

Pilar Ramírez, Microfinance Trailblazer

&gt; Posted by Elisabeth Rhyne
CGAP has just come out with an important new Focus Note analyzing recent microfinance repayment crises in Nicaragua, Morocco, Bosnia, and Pakistan—<a href="http://www.cgap.org/p/site/c/template.rc/1.9.42393/" target="_blank">“Growth and Vulnerabilities in Microfinance.”</a> Reading it set me thinking back to the Bolivian repayment crisis of 1999-2000 and to the lessons that came out of it.
The Bolivian crisis had all the same hallmarks as recent crises.  New entrants, in this case consumer lenders, came in with very aggressive growth strategies, as second movers behind the more established MFIs.  They tolerated and even welcomed multiple borrowing.  Borrower difficulties were triggered by a recession, which in turn triggered a virulent—and politically motivated—debt protest movement. At one point protestors piled all the computers of MFI branches into the street and set fire to them.  At the height of the crisis, the outlook for Bolivian microfinance was bad. But today, Bolivian microfinance is thriving, and that includes all of the leading microfinance institutions who experienced the crisis.
A number of key short- and longer-term actions made it possible for Bolivian microfinance to survive, recover, and move to a more stable footing.
In the short term, the Bolivian MFIs instigated intensive dialogue with government so that responses to the debt protestors could be worked out together. They then announced that they would work with every single client who the protestors named to resolve their repayment problems. This helped defuse the protests.  In fact, the big numbers melted away as it turned out there were only a few seriously troubled borrowers in the debt protest movement. The banking regulators issued out a new rule limiting debt service for consumer loans to 25 percent of a person’s salary.  This shattered the business models of most of the consumer lenders, who fled Bolivia or quietly closed operations, losing millions on the way.
Longer term, MFIs ended up writing off many loans and taking a big hit to profitability for a couple of years.  They survived by drawing on their past strong financial, especially the financial cushions they had in terms of prudent provisioning and leveraging.  NGOs working in rural areas were hit less hard than regulated urban lenders who occupied the same market space as the consumer lenders.
Since the crisis, and partly as a result, the MFIs in Bolivia strengthened their associations, which became strong and competent organizations, able to work with government and monitor the status of their members.  Government, associations, and MFIs worked together to improve the coverage and timeliness of credit bureaus.  And MFIs strengthened their own operations, in improved repayment capacity analysis and by seeking to offer clients greater value—a fuller range of services.
Each repayment crisis has its own specifics, but the lessons from Bolivia give some indication of the paths the microfinance industry can take to resolve and rebuild—and possibly even prevent the next crisis. 



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CGAP has just come out with an important new Focus Note analyzing recent microfinance repayment crises in Nicaragua, Morocco, Bosnia, and Pakistan—“<a>Growth and Vulnerabilities in Microfinance</a><a id="_anchor_1" class="msocomanchor" name="_msoanchor_1" href="#_msocom_1">[KM1]</a> .”  Reading it set me thinking back to the Bolivian repayment crisis of 1999-2000 and to the lessons that came out of it.

The Bolivian crisis had all the same hallmarks as recent crises.  New entrants, in this case consumer lenders, came in with very aggressive growth strategies, as second movers behind the more established MFIs.  They tolerated and even welcomed multiple borrowing.  Borrower difficulties were triggered by a recession, which in turn triggered a virulent—and politically motivated—debt protest movement. At one point protestors piled all the computers of MFI branches into the street and set fire to them.  At the height of the crisis, the outlook for Bolivian microfinance was bad. But today, Bolivian microfinance is thriving, and that includes all of the leading microfinance institutions who experienced the crisis.

A number of key short- and longer-term actions made it possible for Bolivian microfinance to survive, recover, and move to a more stable footing.

In the short term, the Bolivian MFIs instigated intensive dialogue with government so that responses to the debt protestors could be worked out together. They then announced that they would work with every single client who the protestors named to resolve their repayment problems. This helped defuse the protests.  In fact, the big numbers melted away as it turned out there were only a few seriously troubled borrowers in the debt protest movement. The banking regulators issued out a new rule limiting debt service for consumer loans to 25 percent of a person’s salary.  This shattered the business models of most of the consumer lenders, who fled Bolivia or quietly closed operations, losing millions on the way.

<a>MFIs</a><a id="_anchor_2" class="msocomanchor" name="_msoanchor_2" href="#_msocom_2">[KM2]</a> ended up writing off many loans and taking a big hit to profitability for a couple of years.  They survived by drawing on their past strong financial, especially the financial cushions they had in terms of prudent provisioning and leveraging.  NGOs working in rural areas were hit less hard than regulated urban lenders who occupied the same market space as the consumer lenders.

Since the crisis, and partly as a result, the MFIs in Bolivia strengthened their associations, which became strong and competent organizations, able to work with government and monitor the status of their members.  Government, associations, and MFIs worked together to improve the coverage and timeliness of credit bureaus.  And MFIs strengthened their own operations, in improved repayment capacity analysis and by seeking to offer clients greater value—a fuller range of services.

Each repayment crisis has its own specifics, but the lessons from Bolivia give some indication of the paths the microfinance industry can take to resolve and rebuild—and possibly even prevent the next crisis. 
<div> <hr class="msocomoff" size="1" />
<div>
<div id="_com_1" class="msocomtxt"><a name="_msocom_1"></a>
 <a class="msocomoff" href="#_msoanchor_1">[KM1]</a>URL to link: http://www.cgap.org/p/site/c/template.rc/1.9.42393/
</div>
</div>
<div>
<div id="_com_2" class="msocomtxt"><a name="_msocom_2"></a>
 <a class="msocomoff" href="#_msoanchor_2">[KM2]</a>Is this the longer term?
</div>
</div>
</div>
</div>

Repayment Crises: Lessons Learned from Bolivia

Challenges and Crises

Pablo Anton-Diaz

Research Manager

Elisabeth Rhyne

Sonja Kelly

Susy Cheston

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