<p>For more than a decade, the Smart Campaign put consumer protection for low-income clients at the center of its work. As the campaign winds down, we look at lessons learned working with FSPs, listening to and engaging with clients, and engaging with regulators on market conduct supervision.</p>


In the 12-plus years CFI has worked on consumer protection, we’ve seen again and again the importance of sound regulation and market conduct. While it’s not the only tool in the consumer protection playbook, sound regulation is necessary because even when providers are well-intentioned, it’s extremely difficult for “responsible” players to take action in an unfavorable environment.

As readers of this blog know, working with regulators can be time and labor intensive, but when successful, the impact can be immense. This post focuses on <a href="https://centerforfinancialinclusion.org/the-smart-campaign-and-the-mastercard-foundation-team-up-to-tackle-the-next-wave-of-consumer-protection-challenges-in-financial-services/" target="_blank" rel="noopener noreferrer">CFI’s multi-year initiative</a> in several countries in the West Africa Economic and Monetary Union (WAEMU) – Benin, Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo – and draws lessons from our work in Benin, in particular, where CFI’s engagement was multi-faceted. In particular, we focus on the support provided to the national supervisory body of Benin, the <a href="https://www.anssfd.org/" target="_blank" rel="noopener noreferrer">Agence Nationale de Surveillance des Systèmes Financiers Décentralisés</a> (ANSSFD).
<h2>The Need to Strengthen Market Conduct Supervision: The Case of West Africa</h2>
WAEMU countries experience a relatively complex supervisory environment, with multiple entities sharing supervisory responsibilities. The microfinance sector is supervised by the Central Bank of the West African States (BCEAO), the Banking Commission of WAEMU (a specialized regional entity overseeing banking sector) at the regional level, and a specialized supervisory body under the ministry of finance in each WAEMU member country. The Banking Commission of WAEMU only oversees part of the microfinance sector (institutions whose total loans/deposits exceeds 2 billion CFA francs [about $3.3 million] for two consecutive years). Unlike the Banking Commission, specialized national supervisory bodies have the responsibility to supervise the whole microfinance sector in each country.

Supervision in the WAEMU region focuses on prudential regulation, ensuring the soundness and stability of the financial system. However, <a href="https://en.wikipedia.org/wiki/Prudential_regulation" target="_blank" rel="noopener noreferrer">prudential supervision</a> in itself is insufficient for detecting and addressing improper conduct of financial service providers vis-à-vis their clients. As such, market conduct supervision is an important complement to prudential regulation. Even globally, the interest for and proven practices around market conduct regulation and supervision are fairly recent, with the 2008 global financial crisis being a notable trigger. While there have been some recent efforts to incorporate aspects of market conduct supervision in the region – including the creation of local public ombudsman offices (the OQSF) in Senegal and Côte d’Ivoire and the verifications related to <a href="https://microdata.worldbank.org/index.php/catalog/2946/related-materials" target="_blank" rel="noopener noreferrer">disclosure practices and compliance with interest caps</a> – this type of supervision is relatively new to the WAEMU region.
<blockquote>Market conduct supervision is an important complement to prudential regulation.</blockquote>
Benin is no exception. The focus on prudential regulation opens the door for poor consumer protection practices and a weak culture of self-regulation among financial institutions, as evidenced by low levels of consumer protection diagnostics and implementation of codes of conduct. The context in Benin is further complicated by a high prevalence of non-regulated financial service providers (FSPs). A 2015 unpublished survey by the ANSSFD indicated that about two-thirds of microfinance institutions operating in Benin were not regulated and operating without a license. The situation is also exacerbated by <a href="https://data.worldbank.org/indicator/SE.ADT.LITR.ZS?locations=BJ" target="_blank" rel="noopener noreferrer">low literacy levels</a> in the country, putting microfinance customers at heightened risk for fraud and unfair practices by financial institutions.
<h2>CFI’s Approach Builds on Client Voices Research</h2>
CFI’s <a href="https://www.centerforfinancialinclusion.org/client-voices-benin-country-report" target="_blank" rel="noopener noreferrer">client voices research</a> in Benin indicated that about 17 percent of former microfinance clients surveyed were unable to withdraw part or all their savings. It also highlighted that late payers experienced a number of serious harms, such as shaming, confiscation of goods, requests for bribes, and involvement of police in debt collection as intimidation tactics. About one-third of respondents ignored how much they will pay in total for their loans and only 12 percent knew the interest rate. In addition, a vast majority of clients (86 percent) were not informed about where to complain.

Responding to these realities, the Smart Campaign, a consumer protection initiative housed at CFI, began a targeted approach in 2016 to build a more effective client protection ecosystem in five African markets. CFI engaged with ANSSFD, the supervisory body with the broadest mandate and most in need of resources. The two-year initiative in Benin was targeted at identifying and addressing gaps in market conduct supervision and mainstreaming market conduct supervision into Benin’s supervision system. The new interventions aimed at, among other things, supporting financial regulators to strengthen their frameworks and increase their capacity to conduct sound supervision.
<blockquote>The initiative in Benin was targeted at identifying and addressing gaps in market conduct supervision and mainstreaming it.</blockquote>
The campaign also engaged with regulators in Nigeria, Ghana, Uganda, Benin and Rwanda. Each of these countries presented unique contexts with different consumer protection priorities, leading to bespoke interventions, including mystery shopping in Nigeria, digitization of complaint handling systems in Ghana and Uganda, and support for developing consumer protection regulations for tier IV institutions in Uganda.
<h2>Ingredients for a Successful Intervention: Lessons Learned</h2>
Though it’s too early to see the full benefits of this support, we learned several lessons from the implementation process in Benin. Overall, the success of such support depends largely on the capacity to change the behavior of supervisors and increase their ownership of the tools and approaches developed during the course of the program. Below we outline several factors that can help positively influence the behavior change and ownership necessary for success.
<h3>Learning by Doing</h3>
CFI’s approach involved trainings and post-training technical assistance on market conduct supervision. It was designed such that inspectors led the development of tools that they could integrate into their existing work. With some support from CFI, the inspectors developed a series of inspection sheets addressing each of the <a href="https://centerforfinancialinclusion.org/about/what-we-do/consumer-protection/" target="_blank" rel="noopener noreferrer">Client Protection Principles</a> to be used during their on-site visits. By doing so, they incorporated the new inspection sheets into their existing practices, reducing the extent of change management needed.
<h3>Leadership Engagement</h3>
Buy-in and active participation by leadership is key to gaining traction for change. In 2019, following the training and technical assistance activities, the general manager of ANSSFD issued a memorandum to make the new consumer protection inspection sheets mandatory for all inspection missions. The issuance of the memorandum addressed both resistance to change (on the part of a minority of inspectors) and inconsistent use of tools within ANSSFD (tools were partly used or not used at all in some inspection missions prior to the memorandum). The commitment of the general manager was essential to ensuring widespread use of the new inspection sheets and improving oversight of consumer protection practices.
<h3>Change Takes Time</h3>
The timeline for regulator or supervisor engagements must allow for multiple iterations. CFI’s engagements have found that behavior change and adoption of new techniques generally require multiple cycles of “test, learn, adjust.” In Benin, it took two years to see some tangible results.
<h3>Select Budget-Appropriate Supervisory Tools</h3>
Changing supervisory practices is likely to have significant budget implications, including costs associated with technical assistance or the adoption of new supervision tools, such as <a href="https://www.cgap.org/research/publication/mystery-shopping-financial-services" target="_blank" rel="noopener noreferrer">mystery shopping</a> and other survey methods. Tools and approaches should be proportionate with what fits for the supervisor, both technically and financially. Technical assistance providers should offer all necessary information on the costs and benefits of tools and make sure that the beneficiary agency makes informed decisions about the tools they choose to retain. In Benin, we did not recommend doing additional surveys or tools. Rather, we agreed to have an inspector that solely focuses on consumer protection and market conduct during routine inspection missions.
<h3>Progress, but the Journey is Not Yet Complete</h3>
As of today, all microfinance inspectors in Benin have been trained on market conduct supervision and the supervision tools are included in the inspection package of ANSSFD. All recent inspection reports include a market conduct section focused on consumer protection. This is tremendous progress and a great step forward.
<blockquote>All recent inspection reports include a market conduct section focused on consumer protection.</blockquote>
The promising results observed in Benin can serve as a model for other countries in the WAEMU region. The shared regulation among the countries should make it possible to leverage the process and tools developed for Benin to replicate this success in other countries. CFI held a workshop in October 2019 to share ANSSFD’s experience with sister supervisory agencies from Niger, Côte d’Ivoire, Guinea-Bissau, Mali, and Togo, which are facing similar gaps in market conduct supervision. Encouraging and guiding supervisory agencies to adopt market conduct supervision and the Client Protection Principles into their practices (as further outlined in CFI’s <a href="https://centerforfinancialinclusion.org/handbook-on-consumer-protection-for-inclusive-finance/" target="_blank" rel="noopener noreferrer">Handbook on Consumer Protection for Inclusive Finance</a>) would contribute to creating market conditions that are fair, protection regimes that are enforceable, and better outcomes for vulnerable customers.

<em>We’d like to thank the <a href="https://mastercardfdn.org/" target="_blank" rel="noopener noreferrer">Mastercard Foundation</a> for partnering with us on this journey.</em>

Improving Consumer Protection Market Conduct: Lessons Learned in Benin

Around the developing world, the use of mobile technology for financial services is skyrocketting. In Africa, the value of mobile money transactions has grown over <a href="https://qz.com/africa/1721818/africa-mobile-money-industry-is-entering-its-next-stage-of-growth/" target="_blank" rel="noopener noreferrer">890 percent since 2011</a>. App-based lenders in Kenya, Uganda, and elsewhere claim to leverage more than 10,000 data points as part of their <a href="https://www.mitpressjournals.org/doi/abs/10.1162/inov_a_00240" target="_blank" rel="noopener noreferrer">underwriting processes</a>, (though consumers are largely <a href="https://digital.hbs.edu/platform-digit/submission/tala-using-machine-learning-to-provide-access-to-credit-for-the-worlds-unbanked/" target="_blank" rel="noopener noreferrer">unaware of what data is being collected</a> from them). In Myanmar, where 20 years ago SIM cards cost $5,000, today, more than 75 percent of the population own (mostly) smartphones, and mobile money provider <a href="https://www.wavemoney.com.mm/wp-content/uploads/htd_Wave-Money-cements-mobile-money-leadership-with-stellar-2019-results-_FINAL.pdf" target="_blank" rel="noopener noreferrer">WAVE Money</a> has reached more than <a href="https://medium.com/@geoffcharles/from-zero-to-40-million-the-rise-of-digital-payments-in-myanmar-2499b488f871" target="_blank" rel="noopener noreferrer">17 million unique users</a>.

Consumers have had to adjust rapidly. For many, their first experience with financial services asks them to contend with new digital interfaces, complex products, nefariously creative forms of fraud, and detailed regulations with rights and responsibilities they <a href="https://gdpr-info.eu/" target="_blank" rel="noopener noreferrer">may not understand</a>.

This is not just a developing-world issue, of course. Carnegie Mellon researchers found that it would take the average American more than 76 working days annually to <a href="https://techland.time.com/2012/03/06/youd-need-76-work-days-to-read-all-your-privacy-policies-each-year/" target="_blank" rel="noopener noreferrer">fully read the privacy policies</a> they encountered on the internet. Underserved customers also often do not have actual people to engage with on <a href="https://customersguide.cgap.org/sites/customersguide.cgap.org/files/resource/2018/07/CGAP-Voice-of-Customer-Toolkit.pdf" target="_blank" rel="noopener noreferrer">questions, complaints, or feedback</a>.

This context served as the backdrop for CFI, in partnership with the Mastercard Foundation, to build and test a toolbox of consumer engagement channels to surface challenges clients face as financial services go digital. From <a href="https://centerforfinancialinclusion.org/clients-deserve-to-know-using-radio-to-educate-and-empower-consumers-in-africa/" target="_blank" rel="noopener noreferrer">radio campaigns</a> and client surveys to digital recourse channels for regulators and industry associations, these projects provided a set of valuable lessons about the increasing complexity of the sector and steps we must take to protect the well-being of customers. As the Smart Campaign winds down, CFI is reflecting on these lessons to inform the next stage of our consumer protection agenda.
<h2>Tailor Your Tools to Clients, Then Tailor Them Again</h2>
When done well, digital interactions with customers – whether it be financial products or surveys or other forms of communication – can provide immense value to both customers and providers. We learned from clients about the critical importance of being customer-centric in the design of these interactions. Investing in design upfront leads to better outcomes for all stakeholders, but most importantly, it can protect customers from negative consequences.

In our <a href="https://centerforfinancialinclusion.org/client-voices-rwandans-speak-on-digital-financial-services/" target="_blank" rel="noopener noreferrer">client survey on mobile money in Rwanda</a>, while most people reported that mobile money interfaces are easy to use, they worry that it’s also easy to make a mistake. Sixty-nine percent of clients believed it was easy to make a mistake and 17 percent have made an error. One issue is language: clients may select the wrong default language to begin with (English instead of Kinyarwanda, in our research in Rwanda, for instance), or even after selecting Kinyarwanda find that the language switches unexpectedly. Fear of making a mistake might be a disincentive for some users to engage with digital products, or worse, actually making a mistake could result in loss of funds or instances of fraud.

CFI also worked with three FSPs and the <a href="https://cma-network.org/" target="_blank" rel="noopener noreferrer">Cambodia Microfinance Association</a> to design and implement a survey, using the interactive voice response (IVR) method, with the goal of hearing directly from clients about the FSPs’ client protection practices. From the outset, we knew that precision in the survey’s language would be integral for the project’s success. But even with this expectation, we were surprised by how much it took to get it right. As my colleagues <a href="https://centerforfinancialinclusion.org/amplifying-client-voices-using-interactive-voice-response-ivr-technology-insights-from-cambodia/" target="_blank" rel="noopener noreferrer">pointed out in a CFI blog post</a>, pre-launch testing showed that while the Khmer jargon used in the survey was well-understood among microfinance staff, clients would either ask for help or skip questions altogether. Moreover, my colleagues observed that intonation and speech tempo of the voice talent behind the IVR recording made a significant difference in respondents’ successful completion of the survey. Seemingly small details such as this can easily prevent a project from achieving the intended results, further emphasizing the importance of upfront product design and testing with clients (not just MFI staff) before roll out.

In our <a href="https://www.centerforfinancialinclusion.org/clients-deserve-to-know-using-radio-to-educate-and-empower-consumers-in-africa#ghana:-you-deserve-to-know-campaign" target="_blank" rel="noopener noreferrer">Ghanaian radio campaign</a>, we partnered with local designers to create posters and animated videos to promote the broadcasts. For example, for the themes of fraud and privacy, we had a cartoon in Twi, the language spoken by over 10 million Ghanaians, depicting what happens when a family is called by a scammer (the family figures it out before they lose any money, fortunately). Our approach initially was to create purely educational social media content to drive listenernship, but we found more success with an edutainment approach, with the lively cartoons amplified by paid advertisting on Twitter and Facebook. In this case, it was important for the team to quickly learn from consumers what resonated and lean into that approach rather than simply stick with the original plan.
<h2>Fraud’s Digital Inroads</h2>
Financial fraud is <a href="https://www.cbsnews.com/media/top-14-financial-frauds-of-all-time/" target="_blank" rel="noopener noreferrer">nothing new</a>, but there are characteristics unique to digital finance that give it renewed virulence. These include less face-to face interaction between consumers and providers, a larger burden on clients to conduct transactions independently, and a wider network of entry points for fraudsters to gain access to clients’ data and scale their schemes.

Indeed, fraud was top of mind among partners and consumers in all of the markets where we implemented projects. In Rwanda, 39 percent of the clients surveyed perceived mobile money fraud to be a big problem and 10 percent reported being defrauded themselves. These frauds resulted in real financial harm for individuals, and we were troubled by how few were able to report it to authorities. One victim reported that the perpetrator claimed to be part of the Girinka “One Cow Per Poor Family” program and even invoked the involvement of Jeannette Kagame, First Lady of Rwanda, to gain the client’s trust.

In Uganda we heard of schemes including PIN fraud and false text messages stating users won a competition and would need to send a fee to claim a prize. Through a mix of dramatic storytelling, local reporting, expert interviews and social media public service announcements (PSAs), our three radio campaigns tried to impart on listeners how to distinguish fraudulent institutions from real ones and how to recognize mobile money scams.

The pervasiveness of fraud (especially digital) highlights real gaps in client capability. Schemes show that clients need a greater understanding of privacy risks and continued awareness campaigns about how to protect themselves as fraudsters evolve their tactics. We also found the burden of reporting fraud needs to be reduced to meet the constraints of this lower-income segment since opportuntiy costs for this group are steep.
<blockquote>Leveraging technology for consumer protection has great potential to meet consumer protection challenges.</blockquote>
Leveraging technology for consumer protection has great potential to meet these challenges, with, for example, chatbot-powered complaints management system. In this <a href="https://www.r2accelerator.org/chatbot-prototype-1" target="_blank" rel="noopener noreferrer">use case</a>, which has already been tested in markets like the Philippines, all actors could benefit - from the central bank to financial service providers to the consumers. Access to new quantitative and qualitative information can enable regulators to better understand customer experiences and more easily detect fraud in the market. We are eager to identify, test, and document more use cases around the use of technology to improve market monitoring and consumer protection.
<h2>Empowerment Comes from Long-Term Client Engagement</h2>
While we are excited by what CFI accomplished with the radio campaigns, we know that the length of the interventions, which ranged from six to 13 weeks, were likely not enough to catalyze long-term behavior change. However, we designed the radio campaigns with partners whom we hoped could continue to distribute and air the episodes and media content. In both Uganda and Ghana, government entities expressed interest in continuing to run the content. In Benin, we used a decentralized approach of training 19 radio journalists on the key client protection market issues, then managed a competition to see who could create the best educational content. The journalist competition allowed us to multiply our outreach efforts in a cost-effective, sustainable way.

With the Client Voices research, we worked closely with the National Bank of Rwanda (BNR) research unit in the hopes of embedding data collection as a regular occurance and not a one off, which they are currently exploring, though at a smaller scale. In Cambodia, the objective for the IVR was to pilot an effective tool for MFIs and others to take the pulse of their clients on an ongoing basis. Over the course of the project, we recognized that providing such feedback can have significant (and in our case unanticipated) cost implications for low-income households. For this reason, we had to reexamine the programing of the platform so that clients would not incur any charges for airtime used when they called in to complete the survey.
<h2>Looking Ahead: CFI Strategy &amp; Impact</h2>
CFI’s experience with client engagement under the Smart Campaign yielded several valuable lessons. First, engaging clients in the design and testing of any digital tool is essential to ensuring that the product features and safeguards work for them. Client engagement also helps providers prioritize what’s most helpful and rout out anything harmful, ideally in the design stage before any harm actually occurs. Second, direct client feedback should not be considered a one-time occurance during product design. Ongoing engagement can provide valuable lessons and ensure that client needs are being met. Finally, digitization has introduced an era of rapid change, made only more extreme by the impacts of the COVID-19 pandemic. We must be poised to listen to clients, and quickly adapt as needed to fulfill our commitment to the <a href="https://centerforfinancialinclusion.org/about/what-we-do/consumer-protection/" target="_blank" rel="noopener noreferrer">Client Protection Principles</a>.
<blockquote>CFI is incorporating these lessons across our work as we seek to understand the impact of COVID-19 on low-income customers.</blockquote>
CFI is incorporating these lessons across our work as we seek to understand the impact of COVID-19 on low-income customers. For example, we launched a series of policy papers examining policy measures to mitigate the impact of COVID-19 and understanding their impact on low-income customers. We are also collecting data on the impact of COVID-19 on MSMEs to help inform providers, investors, and policymakers about the depth and breadth of the impact on low-income customers. As the world faces unprecented times in the wake of COVID-19, we will continue to listen to customers and adapt our work. The customer voice — and engaging them at every step — is crucial for advancing financial inclusion, perhaps now more than ever.

<em>We’d like to thank the <a href="https://mastercardfdn.org/" target="_blank" rel="noopener noreferrer">Mastercard Foundation</a> for partnering with us on this journey.</em>

&nbsp;

Making Digitization Work for Clients Starts With Client Engagement

When CFI <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/09/Ten-Years-of-Keeping-Clients-First-Final.pdf" target="_blank" rel="noopener noreferrer">launched</a> the Smart Campaign in 2009, global financial upheaval had revealed huge cracks in financial consumer protections around the world, including <a href="https://www.centerforfinancialinclusion.org/2009-microfinance-banana-skins-report" target="_blank" rel="noopener noreferrer">new challenges</a> for the inclusive finance sector. A lack of comprehensive consumer protection regulation covering microfinance institutions across the globe put vulnerable clients at risk. The industry faced inconsistent regulations at the country level and did not have a globally accepted framework describing appropriate consumer protection from the provider perspective. Steeped in an <a href="https://www.huffpost.com/entry/on-microfinance-whos-to-b_b_777911" target="_blank" rel="noopener noreferrer">over-indebtedness crisis</a> that threatened both the operations and reputations of microfinance institutions, the industry had an imperative to accelerate and amplify its individual consumer protection actions.

The <a href="https://centerforfinancialinclusion.org/about/what-we-do/consumer-protection/" target="_blank" rel="noopener noreferrer">Client Protection Principles</a> emerged as a shared set of responsible financial inclusion guidelines that would become the bedrock of the Client Protection Standards and <a href="https://centerforfinancialinclusion.org/about/what-we-do/certified-organizations/" target="_blank" rel="noopener noreferrer">Smart Certification</a>, and the infrastructure needed to support the implementation of good consumer protection practices: technical know-how through a community of experts and tools, access to funding through support facilities, and evaluations and capacity building for both providers and regulators. Since 2013, when CFI began certifying financial service providers (FSPs) that met adequate standards in their treatment of clients, 135 institutions in over 40 countries have earned Smart Certification, collectively serving over 62 million people. We also conducted over 120 trainings and 300 assessments, produced hundreds of tools for FSPs, and hosted convenings for thousands of financial inclusion professionals around the world, all part of a <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/09/Ten-Years-of-Keeping-Clients-First-Final.pdf" target="_blank" rel="noopener noreferrer">multi-pronged strategy</a> to raise awareness about the importance of consumer protection and improve providers’ practices.
<blockquote>Smart Certification has been awarded to 135 institutions serving 62 million people in 40 countries.</blockquote>
A cohesive landscape of investors and providers facilitated collaboration, enabled the uptake of certification, and created conditions in which clients could better access a range of financial services with confidence. Providers were <a href="http://smartcampaign.org/tools-a-resources/1172-consumer-protection-resource-kit" target="_blank" rel="noopener noreferrer">motivated</a> to undergo evaluations and seek certification in order to differentiate themselves as responsible actors, strengthen internal processes, attract investors, and improve relationships with regulators. <a href="https://responsiblefinanceforum.org/investor-guidelines/" target="_blank" rel="noopener noreferrer">Investors</a> adopted components of the standards into their due diligence and social impact assessments. Regulators have relied on our <a href="https://blogs.worldbank.org/psd/model-law-best-practice-financial-consumer-protection-important-driver-universal-financial-access" target="_blank" rel="noopener noreferrer">Model Legal Framework</a> (now known as the <a href="https://centerforfinancialinclusion.org/handbook-on-consumer-protection-for-inclusive-finance/" target="_blank" rel="noopener noreferrer">Handbook on Consumer Protection for Inclusive Finance</a>), which was recently updated for digital financial services. Regulators also used CFI’s <a href="https://centerforfinancialinclusion.org/client-protection-in-peru/" target="_blank" rel="noopener noreferrer">research</a> to design policies that balance client risk and market sustainability while taking the voices of both providers and clients into account. (For more resources and past consumer protection knowledge products, visit the Smart Campaign <a href="https://centerforfinancialinclusion.org/about/what-we-do/the-smart-campaign/" target="_blank" rel="noopener noreferrer">project page</a> on the CFI website.)
<h2>Changing Times Raise New Concerns for Client Protection</h2>
New actors, fintechs, and their investors are launching ventures aimed at serving unbanked and underbanked customers, hoping to use technology to scale their offerings beyond the reach of physical branches. Fintechs have entered the ecosystem at a rapid rate, particularly in growing markets, such as <a href="http://www.nairobibusinessmonthly.com/impact-of-fintech-on-kenyas-financial-services-industry/" target="_blank" rel="noopener noreferrer">Kenya</a> and <a href="https://www.techinasia.com/talk/state-fintech-cambodia" target="_blank" rel="noopener noreferrer">Cambodia</a>. Some of these companies have emerged under a loose banner of “inclusive fintech,” but many new entrants have different motivations and experiences than the providers that have traditionally sought to provide financial services to low-income customers. Fintechs that aim to serve this vulnerable segment may have good intentions, but many are also driven by different forces, including pressure to scale quickly in competitive markets, and commercial investors that are motivated more by returns than by development goals. As financial inclusion slogans increasingly appear in the <a href="https://www.bloomberg.com/news/features/2020-02-12/tech-startups-are-flooding-kenya-with-apps-offering-high-interest-loans" target="_blank" rel="noopener noreferrer">lexicons of fintechs</a>, these companies are largely unaccountable for their claims and, as non-bank entities, do not fall under existing consumer protection regulations.

Of course, many fintechs have genuine ambitions to advance inclusive finance and want to do everything in their power to prevent harm to their clients. Yet they face limits in what they can control due to fragmentation of the financial product delivery value chain. For instance, one credit product might involve an array of different companies: one that designs the credit model, another company contracted for collections, a bank that provides the capital, and the mobile network operator (MNO) that controls the digital rails. Because of this fragmentation, FSPs can find themselves as deal takers with limited influence over the practices of some partners.
<blockquote>Fintechs face limits in what they can control due to value chain fragmentation.</blockquote>
The new landscape compounds the challenges faced by regulators to improve consumer protection measures. Consumer protection is higher on the agenda than ever, as evidenced by findings of the annual <a href="https://centerforfinancialinclusion.org/global-microscope-2019/" target="_blank" rel="noopener noreferrer">Global Microscope</a>, an index that assesses the enabling environment for financial access in 55 countries across the globe, and the agenda set by the <a href="https://www.afi-global.org/" target="_blank" rel="noopener noreferrer">Alliance for Financial Inclusion</a> (AFI). Nonetheless, the progress that many countries have made to bolster consumer protection regulations and enforcement does not apply to new digital business models – either because these non-bank, non-microfinance entities fall outside current frameworks or because regulation has not yet addressed risks unique to digital financial services.
<h2>Building a Responsible Digital Ecosystem</h2>
As the inclusive finance ecosystem fragments and becomes more complex, CFI will shift its approach from codes of conduct and provider certification to focus on regulation, market conduct, and consumer research. With the <a href="https://centerforfinancialinclusion.org/cfi-celebrates-smart-campaigns-advancement-of-consumer-protection-announces-plans-to-transition-resources-to-industry-partners/" target="_blank" rel="noopener noreferrer">closure of the Smart Campaign</a>, our partners, SPTF and CERISE, will manage the Client Protection Standards going forward as a part of the Universal Standards for Social Performance. CFI will continue to manage the Client Protection Principles, which we believe can form the base of a shared language to understand consumer risks across the range of inclusive finance providers. CFI will continue to collaborate by engaging in research and learning that can be translated by our partners into practical tools for FSPs.
<blockquote>CFI will continue to collaborate by engaging in research and learning that can be translated into practical tools for FSPs.</blockquote>
To begin addressing the digitalization of financial services for the poor and the increasing complexity of the sector, CFI conducted <a href="https://centerforfinancialinclusion.org/a-framework-for-responsible-digital-credit/" target="_blank" rel="noopener noreferrer">research on digital credit</a> (including the <a href="https://centerforfinancialinclusion.org/client-protection-standards-for-digital-credit/" target="_blank" rel="noopener noreferrer">Client Protection Standards for Digital Credit</a>) to provide digital lenders with a shared set of criteria to assess their practices. CFI convened researchers, investors, and providers to discuss and debate good practices. These consultations revealed the following lessons:
<ul>
 	<li><strong>The relative importance of the Client Protection Principles are shifting in a digital world. </strong>Principle Six (Privacy of Client Data) has become a key consideration, while Principle Five (Fair and Respectful Treatment of Clients) may look vastly different when a business model leans toward tech over touch.</li>
 	<li><strong>Protection by design better aligns with fintech's faster product development and deployment cycles</strong>. Previously, the CPPs looked at established products and institutions, but the pace at which fintech products are brought to market and refined based on customer use shifts attention to the product development cycle as a crucial opportunity to embed client protection.</li>
 	<li><strong>Consumer protection needs an awareness boost</strong>. The Smart Campaign put consumer protection on the radar of FSPs by raising awareness of unintended consequences and convening stakeholders to identify practical solutions. It’s time to open this conversation to new investors and providers that are concerned about alarming trends in markets like <a href="https://centerforfinancialinclusion.org/red-flags-in-kenyas-nano-credit-market/" target="_blank" rel="noopener noreferrer">Kenya</a>, for example, to raise awareness again. In a rapidly evolving digital financial system, it is more important than ever to anticipate, understand, and catalog risks to consumers -- activities that will form the basis of CFI’s consumer protection agenda going forward.</li>
</ul>
<em>We’d like to thank the <a href="https://mastercardfdn.org/">Mastercard Foundation</a> for partnering with us on this journey.</em>

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FSPs Adopt Client Protection: A Look Back, A Look Ahead

For more than a decade, the Smart Campaign put consumer protection for low-income clients at the center of its work. As the campaign winds down, we look at lessons learned working with FSPs, listening to and engaging with clients, and engaging with regulators on market conduct supervision.

Boubacar Diallo

Alexandra (Alex) Rizzi

Malacci Ohrt

Alex Kessler

Laura Schroeder

Benin

Côte d'Ivoire

Ghana

Nigeria

Rwanda

Senegal

Sub-Saharan Africa

Uganda

Cambodia

East Asia and Pacific

Myanmar

Client Treatment

Complaint Resolution

Consumer Protection

Enabling Environment

Policy, Regulation and Government Initiatives

Responsible Digital Finance

Smart Certification

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