> Posted by Laura Sochas
The G20’s recent report on Innovative Financial Inclusion provides governments with recommendations and case studies to address consumer protection (among other issues), a subject of obvious interest to the Smart Campaign (see previous post). The report addresses three out of the six client protection principles identified by the industry as being essential to comprehensively protect microfinance clients, a different but ultimately complementary perspective in the promotion of client protection.
The report mentions transparent disclosure of terms and conditions, fair and ethical treatment of clients and the implementation of grievance redressal systems as being the “three main consumer protection goals which apply to markets everywhere.” To these, the Smart Campaign, as an industry-led initiative adds the following principles: avoidance of over-indebtedness, appropriate collections practices and privacy of client data. This approach simply reflects a difference in perspective, as the G20 considers that “fair and ethical treatment of clients” encompasses the three omitted principles.
There is a clear complementarity between government regulation’s bird-eye view and the Smart Campaign’s bottom-up approach to building a healthy industry one institution at a time. For example, effective implementation of “transparent pricing” requires both a law stipulating how terms and conditions are to be disclosed and an active commitment on the part of microfinance providers to double-check that clients have truly understood the terms of the contract.
Another key illustration applies to preventing over-indebtedness. Government can contribute a great deal by funding industry-level public goods such as credit bureaus but will find it difficult to appropriately define and monitor whether microfinance providers are truly applying the principle. Working on the MFI level to develop a business case for the principle’s implementation while also supporting MFIs to flexibly define what it means for their operations is therefore also important. Generally speaking, regulation can create industry-wide incentives for basic compliance but provider-level initiatives are essential in the last mile by ensuring that the client actually receives the intended treatment.
This approach, emphasizing the relative strengths of each stakeholder within each principle, is supported by the Smart Campaign. The G20 agrees, seeking to promote “a comprehensive approach to consumer protection that recognizes the roles of government, providers and consumers.”