As digital technologies transform inclusive finance, with new providers, products, and delivery channels reaching out to the financially excluded, the need increases for effective legal and regulatory frameworks to protect low-income consumers. When considering the organizing question for <a href="/financial-inclusion-week-2019">Financial Inclusion Week 2019</a> “Financial Inclusion: For What?” the theme of equity looms large. If the rules of the road for digital financial services (DFS) aren’t predictable, balanced between mitigating consumer risks and fostering innovation, or considering the voice of consumers, financial inclusion cannot deliver on its promises of fair access, fair use, or fair treatment. A sound legal framework for consumer financial protection will support financial inclusion and innovation, allow new products and services to responsibly reach previously underserved consumers, and provide for empowered and capable regulators to oversee and enforce these frameworks.

<strong>The Center for Financial Inclusion at Accion and DLA Piper/New Perimeter are pleased to launch updated and revised guidance for financial consumer protection regulators tackling the risks and opportunities introduced by digital financial services.</strong> The <a href="http://smartcampaign.org/tools-a-resources/1210-handbook-on-consumer-protection-for-financial-inclusion">Handbook on Consumer Protection for Inclusive Finance</a>, a joint project between experts at the Center for Financial Inclusion at Accion, Accion, and DLA Piper/New Perimeter, presents updated and revised guidance for consumer financial protection regulators organized around the Smart Campaign’s <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a> regarding the unique characteristics of DFS, with an emphasis on digital credit.

<strong>Join experts from Accion and New Perimeter on October 25 at 9:30 a.m. EST for a webinar to discuss how the regulatory landscape is shifting with the advent of digital financial services, the challenges policymakers are facing, and the ways that this Handbook can help regulators and the entire inclusive finance industry to strengthen consumer protection frameworks.</strong>

Webinar: A Conversation About the Handbook on Consumer Protection for Inclusive Finance

DLA Piper

Regulators

The Smart Campaign

Financial Inclusion Week 2019

Consumer Protection

Enabling Environment

Policy, Regulation and Government Initiatives

Responsible Digital Finance

Event

<em>This post originally appeared on the European Microfinance Platform's (e-MFP) <a href="http://www.e-mfp.eu/blog">blog</a>.</em>

How should financial institutions approach consumer protection differently when they offer services through smartphones rather than humans?

This was the question we posed when the <a href="https://content.centerforfinancialinclusion.org/about/what-we-do/the-smart-campaign/">Smart Campaign</a> team first started revising the standards to be applied to digital financial services, especially digital credit. We're very pleased to have launched the new <a href="http://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles/digital-credit-standards">Digital Credit Standards</a>, their accompanying <a href="http://www.smartcampaign.org/storage/documents/2019_06_19_Principles_Guidelines_FINAL2.pdf">guidance document</a>, and the forthcoming companion Handbook on Consumer Protection for Financial Inclusion (summary <a href="https://www.smartcampaign.org/storage/documents/Handbook_on_Consumer_Protection_-_Eng.pdf">here</a>). What we didn’t expect, however, was quite how profound the differences would turn out to be. We made significant changes to the standards for all seven Client Protection Principles (the principles themselves remain the same). I want to focus here on the most fundamental: Appropriate Product and Delivery Design.

When financial service providers (FSPs) consider tackling client protection, their first thought is often, “We need a code of conduct!” That reflexive response shows that FSPs traditionally view protecting clients mainly through the lens of setting and enforcing boundaries on staff behavior. And traditionally, that made sense. After all, ground zero for protecting clients occurs in the moments when they come face to face with staff. That’s when the client receives product information that is transparent (or not) and is treated (or not) with fairness and dignity. The practice of client protection has centered on defining codes of conduct, incentivizing and training staff to follow them, monitoring their adherence, and applying sanctions to breaches.
<h2>When face-to-face interaction disappears, what happens to consumer protection?</h2>
When staff aren't present, however, the client experience changes. On the one hand, the problem of rogue or substandard staff behavior disappears, which is good for clients. But so does the helpful staff person who can answer a client’s questions and guide the client to the right product. With digital services, everything the client experiences is pre-programmed and embedded into the user interface upfront, before a single client has clicked on a single screen. Everything is determined in advance, through coding and algorithms, and the sequences roll along without individual human intervention.

In this setting, protecting clients is all about good design. But product and delivery design teams in FSPs include a range of people, not all of whom are traditionally alert to client protection: the IT team, the market research and marketing teams, commercial analysts, and possibly outside software developers. Team members come from different disciplines with different training and skills, and they may not even be aware of client protection principles. These teams need guidelines to assist them in integrating protections into the interfaces they ultimately design. For example, designers need to determine whether clients are likely to understand the product information they provide in a setting where they can't easily ask questions. Those involved in market research and prototype testing need to have client protection issues in the forefront of their minds as they do their work.

To do this, they need a “code of conduct” for the design process, and that is how we think about the new standards for appropriate product and delivery design. We call the approach “protection by design,” taking a cue from the concept of privacy by design often advocated as a rubric for data privacy. Protection by design is a vastly different approach to implementing client protection from the old codes of conduct. The focus is what goes into the product, rather than how the staff member behaves with each individual. Protection by design focuses on anticipating the totality of needs of all clients and incorporates them right from the start.

And that brings up another profound difference between traditional client protection practice and the new standards. When the focus is on ensuring that the staff conducts successful interactions with each client, adherence is monitored on an ongoing basis through everyday work. With protection by design, and its focus on getting it right in advance for the whole portfolio of clients, the staff stand back and watch machines do the work. There is no daily staff feedback to tell supervisors whether client outcomes are satisfactory. Thus, in protection by design, systems and methods for monitoring client outcomes – through portfolio data and direct client surveys – become essential.
<blockquote>When the focus is on ensuring that the staff conducts successful interactions, adherence is monitored. With protection by design, the staff stand back and watch the machines do the work.</blockquote>
We're just at the start of understanding these and other implications of protection by design for the practice of client protection. The Smart Campaign looks forward to engaging with members of <a href="http://www.e-mfp.eu/">e-MFP</a> to build out and test robust tools that can enable the approach to be widely applied. We’d like to work out how to incorporate client input and testing during the design process, protocols for algorithm review and other facets of the new approach.

Beyond protection by design, the revised standards for digital financial services incorporate several other very important changes, some of which are among the hottest issues in the sector today: data privacy, data security, and the thorny question of fairness and responsibility in algorithm-based lending. The Smart Campaign will dig deeper into these issues during the coming year.

We would like to thank all those who worked with us in designing the standards, especially MFR and the members of the <a href="https://www.smartcampaign.org/about/fintech-protects-community-of-practice">Fintech Protects Community of Practice</a>. It has been a community effort.

In a world that is changing very rapidly, we consider the client protection standards to be a permanent work in progress, anticipating that they will need to be adapted as new developments in financial services occur. At this stage, our hope is that the players in the financial inclusion sector will actively promote and use the new standards to ensure that the sector does right by its clients, no matter what methods it uses to deliver its services.

We invite you to review the <a href="http://www.smartcampaign.org/storage/documents/Digital_Credit_Standards_June_2019.pdf">standards</a> and send us your thoughts by commenting below.

From Human Conduct to Protection by Design: The Smart Campaign's Digital Standards

Keeping Clients First

Appropriate Product Design and Delivery

Blog Post

We are pleased to participate in the following two sessions during the official program at European Microfinance Week 2019. Join us!
<h2>Atlas Data Platform: A New One-Stop-Shop for the Sector</h2>
<h3>Thursday, November 21, 2019
3:45 - 5:15pm (local time)</h3>
<a href="/bio/isabelle-barres">Isabelle Barres</a>, Campaign Director, <a href="/about/what-we-do/the-smart-campaign">The Smart Campaign</a>, joins on a panel alongside BFR, CERISE, MFR and SPTF to demo and discuss the Atlas Data Platform on pricing, client protection, social, environmental and financial performance of approximately 600 financial service providers (FSPs) from 70 countries. Investors, networks, researchers and other subscribers will be able to use this data to benchmark FSPs with peers, monitor their evolution, consolidate portfolios, review country profiles, research industry trends, and analyze data through the lens of the Sustainable Development Goals. The Atlas Data Platform will be launched in 2020.
<h2>Responsible Client Choices in Finance: Whose Responsibility Is It? (Closing Plenary)</h2>
<h3>Friday, November 22, 2019
3:30 - 4:45pm (local time)</h3>
CFI Managing Director <a href="/bio/mayada-el-zoghbi">Mayada El-Zoghbi</a> joins Gerhard Coetzee, CGAP, Tim Odgen, Financial Access Initiative, and Roshaneh Zafar, Kashf Foundation, to debate the tension between client choice and client protection. While client protection is a foundation of responsible finance, implementing it requires wrestling with a fundamental question: when does protection become a paternalistic limitation on client choice?  Among responsible finance adherents, there is universal agreement that clients should be provided with clear, simple information in order to make financial decisions. But often this is seen as insufficient, and institutions and regulations go further, limiting or prohibiting certain practices because they are deemed irresponsible—thus also limiting client choices. This session will use a free debate format to explore the challenge of balancing between these two objectives—client choice and client protection.

European Microfinance Week 2019

Social Performance

Digital credit has emerged as a new and profitable service offering that has great potential to increase financial inclusion. Yet, if not carefully managed, digital credit also runs the risk of excluding, over-charging, and over-extending customers.

Seven years since the first digital credit product launched, the market in Kenya has grown exponentially and hosts a diverse ecosystem with more than 50 supply-side actors. The phenomenal expansion of digital credit in Kenya serves as a test-bed for the product and offers lessons for digital credit suppliers and regulators around the world.

SPTF and the Smart Campaign commissioned MicroSave Consulting (MSC) to study the dynamics of the digital credit sector on both demand and supply sides. The output of the study was a <a href="https://content.centerforfinancialinclusion.org/making-credit-truly-responsible-webinar/">comprehensive report on the current state of digital credit in Kenya</a>. It looked at the evolving challenges in digital credit and made recommendations for a more responsible and customer-centric delivery of the product.

With participation from Smart Campaign Senior Director Alexandra Rizzi, this webinar:
<ul>
 	<li>Helps participants understand the digital credit landscape in Kenya</li>
 	<li>Assesses the progress and challenges around making digital credit responsible and inclusive</li>
 	<li>Recommends steps towards a more responsible delivery of digital credit</li>
</ul>

Making Digital Credit Truly Responsible Webinar

SPTF

Kenya

Sub-Saharan Africa

Credit

Credit Provision

Customer Centricity

Default

Delivery Channels

Digital Financial Services

Financial Service Providers

Interest Rates

Nano Loans

Over-indebtedness

Product Pricing

Webinar

All is not well in the country that pioneered mobile credit. A new <a href="/making-digital-credit-truly-responsible">report on digital credit in Kenya</a> from <a href="https://www.microsave.net/">MSC</a>, commissioned by <a href="/about/what-we-do/the-smart-campaign">the Smart Campaign</a> and the <a href="https://sptf.info/">SPTF</a>, shows that with continued dramatic growth rates, the sector also experiences cripplingly high default and delinquency, enabled by poor business practices and weaknesses in both the credit reporting infrastructure and regulatory jurisdiction.

Most notably, the report reveals very high rates of delinquency and default. Among active digital loans, more than a quarter are non-performing. About 2.2 million Kenyans are said to have delinquent loans. In some cases, liberal use of refinancing and rescheduling hides this level of delinquency in lender portfolios. At the same time, the report points out that about half of these non-performing loans are for amounts less than $10. These findings are broadly consistent with results cited by CGAP in 2016, which found that 50 percent of digital borrowers in Kenya repaid their loans late, and 12 percent defaulted.
<blockquote>Despite continued growth of digital credit in Kenya, high delinquency, default and interest rates persist in the market and credit bureaus haven't yet caught up with the digital age.</blockquote>
The report also details shortcomings in credit reporting, given that many digital lenders neither consult nor report to the credit reporting bureau as fully or regularly as they should. The credit reporting bureaus were clearly set up for a pre-mobile era, which suffer from issues related to inclusion of all types of lenders, frequency of uploading data (monthly, when daily is more relevant for today’s short term loans), and ease of connection among all the players in the credit reporting ecosystem. As a result, many lenders are not consistently using credit bureaus—neither ensuring that the information is updated and correct, nor fully consulting it prior to lending.

Pricing is also an issue. The market leader, M-Shwari, which accounts for about two-thirds of all digital loans, charges an annual percentage rate (APR) of 90 percent. The low-price option provided by Kenya Commercial Bank is a fairly reasonable 44 percent APR, but the high end of the price range includes providers charging APRs well into the hundreds. Granted that these are small, short term loans where interest payments are not expected to be sustained for an entire year. Nevertheless, the promise of digital to bring down prices does is not yet in sight.

Other issues noted in the report include non-transparency regarding portfolio quality, identity theft, misuse of client data, multiple borrowing and loan bicycling by clients, and client use of loan proceeds for sports betting.

The picture that emerges suggests that the still-exploding market of very small, “nano” loans needs to be brought into more orderly operation. Consumers and providers are operating in risky ways. The current state of the market is not beneficial for either.
<blockquote>Raising the bar for blacklisting customers and public awareness about defaulting on loans are among our recommendations for improving digital credit.</blockquote>
One issue specific to this nano-loan market concerns the reporting of very small non-performing loans to credit bureaus, with negative consequences, such as curtailing of access to credit, for hundreds of thousands of borrowers. MSC, the Smart Campaign and SPTF recommend that regulations be put in place such that delinquencies and defaults among loans below some fixed amount not be reported to the credit bureau (whether US$2, $5 or $10 – the report actually recommends a cutoff of 5% of the monthly per capita GDP). It also recommends that the government launch a public awareness campaign about how credit bureaus work and the consequences of default so consumers will better understand the risks involved in borrowing.

The regulators, credit reporting agencies and lenders in Kenya are aware of these concerns and working to improve the situation. A new association of digital lenders (Digital Lenders Association of Kenya) has been formed to create consumer protection standards and the central bank is exploring ways to upgrade the credit reporting ecosystem. The Smart Campaign recommends that both lenders and regulators consider adopting the <a href="http://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles/digital-credit-standards">digital credit standards</a> and <a href="https://www.smartcampaign.org/tools-a-resources/1210-handbook-on-consumer-protection-for-financial-inclusion">model regulations</a> covering issues ranging from transparency, to the fair use of algorithms, to protection of customer data.

Kenya’s unprecedented dynamism in mobile money, digital credit and financial inclusion is envied across the world. If authorities and providers can bring the participants in these sectors into a better-functioning marketplace, Kenya will benefit greatly from the innovation the country continues to spawn.

Red Flags in Kenya’s Nano-Credit Market

Digital Credit

Fintechs

Transparency

<span class="hotkey-layer ">Digital credit has emerged as a new and profitable service offering that has a great potential to increase financial inclusion. Yet, if it is not carefully managed, digital credit runs a great risk to exclude, over-charge, and create over-indebtedness.</span>

<span class="hotkey-layer ">During the first half of 2019, The Smart Campaign and the Social Performance Task Force (SPTF) commissioned Microsave Consulting (MSC) to study the current state of digital credit in Kenya and formulated recommendations for how to make digital credit delivery safer and more customer-centric. We propose that </span>regulations be put in place such that delinquencies and defaults among loans below some fixed amount not be reported to the credit bureau so as not to unduly burden consumers. We also call for increased public awareness campaigns about how credit bureaus work and the consequences of default so consumers will better understand the risks involved in borrowing.

More generally, the Smart Campaign recommends that both lenders and regulators consider adopting the <a href="http://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles/digital-credit-standards">digital credit standards</a> and <a href="https://www.smartcampaign.org/tools-a-resources/1210-handbook-on-consumer-protection-for-financial-inclusion">model regulations</a> covering issues ranging from transparency, to the fair use of algorithms, to protection of customer data.

Making Digital Credit Truly Responsible

Agence Francaise de Developpement

Report

Digital credit has emerged as a new and profitable service offering that has great potential to increase financial inclusion. Yet, if not carefully managed, digital credit also runs the risk of excluding, over-charging, and over-extending customers.

Seven years since the first digital credit product launched, the market in Kenya has grown exponentially and hosts a diverse ecosystem with more than 50 supply-side actors. The phenomenal expansion of digital credit in Kenya serves as a test-bed for the product and offers lessons for digital credit suppliers and regulators around the world.

SPTF and the <a href="/about/what-we-do/the-smart-campaign">Smart Campaign</a> commissioned MicroSave Consulting (MSC) to study the dynamics of the digital credit sector on both demand and supply sides. The output of the study was a comprehensive report on the current state of digital credit in Kenya. It looked at the evolving challenges in digital credit and made recommendations for a more responsible and customer-centric delivery of the product.

With participation from Smart Campaign Senior Director <a href="/bio/alexandra-rizzi">Alexandra Rizzi</a>, this webinar will:
<ul>
 	<li>Help participants understand the digital credit landscape in Kenya</li>
 	<li>Assess the progress and challenges around making digital credit responsible and inclusive</li>
 	<li>Recommend steps towards a more responsible delivery of digital credit</li>
</ul>
We hope you can join us!

<img class="alignnone size-large wp-image-36766" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/09/MSC_Webinar-1-1024x683.jpg" alt="Infographic describing webinar schedule" width="1024" height="683" />

Webinar: Making Digital Credit Truly Responsible

Partnerships

Telcos

Earlier this month, we announced that <a href="https://content.centerforfinancialinclusion.org/people/mayada-el-zoghbi/">Mayada El-Zoghbi</a> is joining us as the new Managing Director of the Center for Financial Inclusion at Accion (CFI). Mayada is known for her extensive research in – and advocacy for – financial inclusion. As CGAP’s Lead for Strategy, Research &amp; Development, she coordinated CGAP’s strategy development and its research on women’s financial inclusion, financial services in crisis environments, and other emerging topics.

Prior to CGAP, Mayada founded and managed a development consulting firm, led numerous technical assistance, evaluation, and research assignments, served as a research director for a USAID initiative, helped develop several financial institutions, and lectured at Columbia's School of International and Public Affairs (SIPA).
<h4>CFI: What sparked your passion for financial inclusion, and what continues to propel it as you assume your new role at CFI?</h4>
<strong>Mayada</strong>: After graduating from college, I went to Morocco on a research fellowship with a program called Minnesota Studies in International Development (MSID). I lived both with a family in Rabat and spent a month in a rural community doing survey work on a rural credit research project with a professor from the Agronomy Institute in Rabat. This experience piqued my interest in financial services.

The project in Morocco was clearly not good practice and I was interested to learn more about what works. I decided to go back to graduate school to learn more about it, so I studied at SIPA. It was during a course on microenterprise development, taught by Heather Clark, who was heading UNCDF at the time and who is now a dear friend, that I knew for sure that this was a field that combined all of my interests in business, financial services, and sustainable development. Most importantly, it aligned with my social values.

The inclusive finance field has expanded so much beyond my initial exposure to an agricultural loan program in rural Morocco. The many ways in which this sector continues to evolve and expand is what continues to draw me in. I’m especially excited by our ability to shape responsible growth of the industry, and the role that organizations like CFI have in guiding both public and private sector actors in inclusive finance.
<blockquote>I’m especially excited by our ability to shape responsible growth of the industry.</blockquote>
<h4><strong>CFI</strong>: Why did you choose to join CFI? What about CFI resonated with you?</h4>
<strong>Mayada</strong>: I’ve worked on inclusive finance from many angles: managing institutions in the field, supporting donors on their strategies, conducting research, providing technical assistance to providers and other stakeholders. All of these experiences have been rewarding, but perhaps the role that I’ve enjoyed the most is thought leadership. I’ve been fortunate to do that at CGAP for the past 10 years.

With its convening power, independence, and ability to influence the private sector, investors and the broader inclusive finance community, CFI is unique. Its position as an independent think tank with deep expertise in consumer protection and a strong advocacy platform representing people living in poverty makes it an extremely compelling platform for me personally. At a time when digital platforms represent transformative opportunities to serve the poor and present serious risks for those who are the least able to withstand those risks, there’s no denying that a laser focus on consumer protection has to be front and center. Ensuring that the digital economy evolves in a way that’s both inclusive and protective is critical, and I believe that CFI is well positioned to lead the industry in such a way as to make that a reality.

Q and A with Mayada El-Zoghbi, CFI’s New Managing Director

Rural Populations

Underserved Groups

Women

<em>This post was originally published on the FinDev Gateway <a href="https://www.findevgateway.org/blog">blog</a>.</em>

Last week the <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/the-smart-campaign">Smart Campaign</a> launched new <a href="http://www.smartcampaign.org/storage/documents/Digital_Credit_Standards_June_2019.pdf">standards</a> and <a href="https://www.smartcampaign.org/storage/documents/2019_06_19_Principles_Guidelines_FINAL2.pdf">guidance</a> covering digital financial services, especially credit. This is a milestone for the Campaign, and a step forward for protecting consumers who are accessing financial services digitally for the first time. We would like the standards to be widely used to guide the practices of both fintechs and traditional financial service providers undergoing digital transformation.

Through the in-depth research, piloting and consultation to prepare these standards, we have developed an approach to consumer protection for digital credit that is in many ways familiar and in other ways brand new. The Client Protection Principles, from transparency to fair and respectful treatment, continue to be the bedrock on which the standards are based, and many of the original standards still apply with few or minor changes.

But there is also big news in these standards. They shift the emphasis in application of consumer protection from staff and operations toward product design and delivery. When services are delivered primarily through front line staff or loan officers, clients are protected by ensuring that staff are well-trained and properly incentivized. With digital services, the consumer experience is embedded in the design of the product and user interfaces – largely in advance. This is a profound shift. To ensure consumer protection, digital financial service providers will need to institute practices in the design process to confirm that consumer risks are mitigated. These practices are only now emerging in the sector.
<blockquote>There's big news in these standards: They shift emphasis in application of consumer protection from staff &amp; operations to product design &amp; delivery.</blockquote>
For example, we propose that to protect clients against over-indebtedness in digital lending, where predictive algorithms substitute for repayment capacity analysis, providers must regularly review the choices embedded in the algorithm and selection of data points (ex ante measures), and they must monitor results in the portfolio and directly with clients (ex post measures).

Similarly, there is a broad shift in emphasis from Client Protection Principle #5, Fair and Respectful Treatment, to an expanded Client Protection Principle #1, reformulated as Design of Products, Services and Delivery Channels. In non-digital models the standards around fair treatment focus on staff behavior toward clients, such as codes of conduct and sanctions for lapses. In the new standards, more attention is given to ensuring that the design process incorporates client input and that predatory or deceptive sales and marketing techniques are not programmed.

Another big change in the standards is the elaboration of the Privacy of Client data principle, which has been reformulated as Privacy, Security and Integrity of Client Data. When the Smart Campaign began, data privacy was often regarded as the least important of the principles, but today it is a major concern, as financial service providers and their partners have, use and share so much more client data. Many providers have not yet determined what privacy policies to follow or how to implement them. Informed consent is a starting point, as the standards state, but we are also looking at ways to bake privacy protections into design. As more data is manipulated, stored and moved from place to place, risks increase for data breaches and misuse, prompting us to also deepen attention to cybersecurity.
<blockquote>As more data is manipulated, stored and moved, risks increase for data breaches &amp; misuse, prompting us to deepen attention to cybersecurity.</blockquote>
A final noteworthy shift is the use of partnerships (including agents) to deliver products, which makes it harder to assign responsibility for client mistreatment. For example, an agent may be managed by a network operator while selling products of a bank or other financial service provider. When something goes amiss, it should be made clear who is responsible to make the client whole. The standards call on providers to discuss relevant practices with partners and secure agreement for partners to meet high standards, wherever possible.

As a first cut at a complete set of consumer protection standards for digital services, we recognize that these standards will need to continue to be tested and refined. An enormous thanks to the organizations who worked with us to develop the standards, particularly the <a href="http://www.smartcampaign.org/about/fintech-protects-community-of-practice">Fintech Protects</a> community of practice and <a href="https://www.mf-rating.com/">MFR</a> (formerly Microfinanza Rating), as well as to the many people who provided comments and critique. We continue to welcome your feedback. Meanwhile, we call on digital financial service providers around the world to apply the standards so that they and their consumers will face fewer risks and receive the value they seek from using financial services.

Consumer Protection in a Digital Age

Barres's questions that Libra's developers should consider when innovating for the new cryptocurrency are:
<ul>
 	<li>What would data privacy agreements look like if we wanted them to be understandable, fair and with an option to opt out?</li>
 	<li>How would algorithms that did not discriminate be set up?</li>
 	<li>How might fully transparent, low-cost and high-quality products and services that truly solve problems be brought to bear?</li>
</ul>
Read the <a href="https://www.euromoney.com/article/b1g0hvpnhqmyg0/cryptocurrency-facebook39s-libra-is-this-how-we-get-to-responsible-fintech">full article in Euromoney</a>.

In Euromoney: Smart Campaign's Isabelle Barres Poses Questions About Libra

News

Isabelle Barrès

Vice President and Campaign Director, Smart Campaign

Mayada El-Zoghbi

Managing Director

Alex Taylor

Alexandra  Wall

Alexandra Rizzi

Alexis Beggs Olsen

Dylan Lennox

Elisabeth Rhyne

Ethan Loufield

Ezra Mannix

Haset Solomon

Ian Parrish

Ignacio Mas

John Owens

Pablo Anton-Diaz

Ros Grady

Rose  Muturi

Somen Saha

Wayne Hennessy-Barrett

Azerbaijan

Bosnia and Herzegovina

Europe and Central Asia

Indonesia

Latin America and The Caribbean

Nigeria

Serbia

Tajikistan

Tanzania

Agent Banking

Alternative Data

Client Treatment

Complaint Resolution

Data Analytics

Financial Technology

Fraud

Human Centered Design

Human Touch

Mobile Banking

P2P Lending

Payments

Privacy

Smallholder Farmers

Smart Certification

The majority of Kenyans have mobile money accounts; their activity demonstrates digital financial services’ potential. Accion helps Kenyan innovators harness emerging technologies to create new financial services.

This week the <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/the-smart-campaign/">Smart Campaign</a> is celebrating its 10th anniversary year with a bang by releasing its new standards for digital financial services. These standards represent the opening of a new phase for Smart to meet the growing challenges of the digital age.

The Smart Campaign began in the context of the 2008 global financial crisis. The financial system, and indeed the world economy, had just been brought down by interlocking defects in the financial system, a chain of events triggered by reckless lending in the U.S. mortgage market. A parallel phenomenon was taking place in the microfinance market in countries as diverse as India, Nicaragua and Morocco, with fast growth and commercialization leading to widespread over-indebtedness among customers, and a resulting backlash in public opinion. Customers suffered and providers lost the trust they had enjoyed. No greater object lesson can be imagined for prompting a focus on <a href="https://www.centerforfinancialinclusion.org/topics/consumer-protection">consumer protection</a>.

Smart quickly became a vehicle for the growing community of financial service providers, investors, regulators and support organizations who wanted to embed consumer protections into the microfinance sector. With the <a href="http://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a>, the community created a common language and, with detailed guidance, standards and tools, it improved consumer protection and built trust.

Over the past decade, Smart has expanded its reach into the broader financial inclusion sector, and now there are thousands of endorsers and networks of providers and practitioners around the world who are engaged in embedding client protection standards into their products and practices. Today, more than <a href="http://www.smartcampaign.org/certification/certified-organizations">115 financial service providers</a>, serving over 45 million customers, have been awarded the <a href="http://www.smartcampaign.org/certification/all-about-certification">Smart Certification</a> seal, which demonstrates their commitment to treat customers with fairness and respect. <a href="https://www.centerforfinancialinclusion.org/the-business-case-for-smart-certification">Investors have adopted</a> the standards in their due diligence and social impact assessments. Regulators in many countries rely on the principles and the Smart’s research to design policies that balance client risk with provider sustainability, taking the voices of both providers and clients into account. Smart has facilitated the collaboration needed to create a world in which clients can access financial services with confidence.

In recent years, Smart has examined the new risks emerging as financial inclusion goes digital. Digital financial services make access much more available and more convenient for many of the people who were previously excluded, but care is needed to get it right for the vulnerable. After much research and consultation, we've developed practical guidance and standards for digital providers.
<blockquote>After much research and consultation, we've developed practical guidance and standards for digital providers.</blockquote>
As we launch these new standards, we see some parallels with the situation ten years ago, though with different headline risks. In the mainstream economy, concerns over the <a href="https://www.centerforfinancialinclusion.org/financial-inclusion-responds-to-the-zuckerberg-moment">rising power of “big tech”</a> and the appropriate use of personal data are causing widespread anxiety and mistrust. In the financial inclusion sector, data privacy and protection are also <a href="https://www.centerforfinancialinclusion.org/consumer-harm-from-data-breaches-is-a-black-box">central concerns</a>. The Smart Campaign standards address these concerns, as well as more traditional issues like over-indebtedness and transparency, which must be handled differently when digital interfaces replace face-to-face. Smart commends digital financial services for giving more people greater access to powerful financial tools. Our goal is to ensure that the digital revolution develops in a way that is healthy for customers and providers alike.

A heartfelt thank you goes out to all who have been part of this movement. We are thrilled to continue this journey together with many partners who are old friends and many more who are new ones. As we celebrate a decade of practical action to instill good practices, we ask stakeholders across the sector to join us in ensuring that the digital revolution builds trusting relationships and mutual benefits for customers and financial service providers well into the future.

<em>Stay tuned for an upcoming post on the launch of the digital standards, which will provide in-depth discussion of the new standards. For now, this <a href="https://www.centerforfinancialinclusion.org/help-us-shape-standards-for-responsible-digital-lending">post from the standards’ comment period</a> provides more detail on what these standards are.</em>

Smart Campaign’s Next 10 Years to Start With New Digital Standards

<a href="https://libra.org/en-US/">Libra</a>, a new digital currency backed by blockchain technology and introduced today by Facebook, has the potential to reach any consumer with a digital connection. It’s exciting news for the 3 billion people worldwide who are currently unserved or underserved by the world’s financial sector. In addition to leveraging connections between people already on the world’s largest social network, the platform will be leveraged by many innovators -- starting with an impressive <a href="https://mashable.com/article/facebook-libra/">array of founding members</a> -- enabling people across the globe to transact and access new products securely. While this represents a huge opportunity, there’s also a responsibility to ensure that access to the platform and new financial service customers’ data and funds be safeguarded.

The value proposition of a global payment infrastructure has been recognized before, with many innovators moving into this space to launch solutions tailored to the underserved. Yet, the potential scale of Libra, through familiar and popular platforms such as WhatsApp and those of other founding companies, is a potential game changer. Libra has the potential to add a streamlined payment feature in millions of people’s phones – without even requiring that they download a new app.

At the <a href="http://smartcampaign.org/">Smart Campaign</a>, we’re enthusiastic about the potential for partnerships and innovations through Libra, which will be governed by the independent, non-profit Libra Association. Vulnerable unbanked and underbanked populations still face challenges to access high-quality and trustworthy products. Libra will allow a wide range of innovators to develop creative solutions, backed by secure technology.

Ensuring the privacy and security of client data is at the core of building lasting trust in a digital world. Providers can strengthen their privacy and security practices by having:
<ul>
 	<li>Sound data collection and storage policies</li>
 	<li>Clear guidelines about when and with whom to share data</li>
 	<li>Informed consumers who have meaningful choices in regard to the handling of their data</li>
 	<li>Systems to detect and respond to fraud</li>
</ul>
Those are a few of the safeguards that the Smart Campaign promotes with providers and is helping providers to implement. Together, we can ensure that the products and services that are developed to use the Libra platform create trust and value for both providers and customers.

The <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a>, which form the cornerstone of the Smart Campaign’s work, provide a framework to anticipate and evaluate the consumer risks introduced by blockchain innovations. We look forward to working with innovators in the Libra community, as we have with our <a href="https://www.smartcampaign.org/about/fintech-protects-community-of-practice">Fintech Protects Community of Practice</a>. Similar to our work with Fintech Protects, we hope to promote greater awareness and consensus among Libra innovators on consumer risks in digital financial services and how to mitigate them.
<blockquote>We hope to promote greater awareness and consensus among Libra innovators on consumer risks in digital financial services and how to mitigate them.</blockquote>
There will be adoption challenges for any cryptocurrency among low-income consumers. Over a decade of learning about the needs of this customer segment has shown us that appropriate product design requires a feedback loop between consumers and those developing the products. We know that payments can be an on ramp to access, but that <a href="https://www.centerforfinancialinclusion.org/financial-inclusion-hype-vs-reality-deconstructing-the-2017-findex-results/">does not guarantee consumers will make meaningful use</a> of other core financial services, such as credit, savings, or insurance. Thinking through the last mile use cases for Libra, including cash out points and merchant transactions, will be key, as will anticipating the risks that can damage consumer trust. Our goal is to ensure that new financial products aren’t just exciting new innovations, but that they actually deliver quality, appropriate, fair and trusted services.

Libra: With Opportunity Comes Responsibility to Safeguard

The use of algorithms to automate credit decisions, detect fraud, measure risk, and provide customer support has become widespread in the financial sector and is increasingly common in the financial inclusion industry. Artificial intelligence holds immense promise to develop and distribute financial products for previously underserved, low-income consumers by reducing costs and increasing efficiencies and scale.

Yet concerns about the fairness of machine learning systems and algorithmic bias are warranted. Technological systems can inherit the biases of the society where they are developed, through historically available data, training data selection, and choice of machine learning techniques.
<ul>
 	<li>Algorithms are not designed to be interpretable or explainable, and are treated as trade secrets that are, often rightly, protected from calls for full transparency.</li>
 	<li>Consumers are either unaware that they are the subject of an automated decision or they lack redressal.</li>
 	<li>Government oversight is lacking.</li>
</ul>
As algorithms, machine learning, and other data analytics are deployed in developing countries, many of these risks are exacerbated due to data limitations and lower levels of digital literacy. Yet, the solution is not to halt innovation, but rather to set up thoughtful oversight measures that align with the technical development process and allow for interpretability of results by policymakers down the road.

The <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/the-smart-campaign" target="_blank" rel="noopener noreferrer">Smart Campaign</a> has proposed what this oversight process could look like for individual financial service providers in the <a href="https://www.centerforfinancialinclusion.org/help-us-shape-standards-for-responsible-digital-lending">Draft Standards for Digital Credit</a>. Other industries relying on AI and machine learning have begun to develop guidelines and technical capabilities to audit algorithms for bias and discrimination. This webinar will bring together experts with backgrounds in policy, data science, and financial inclusion to discuss the risks to consumers and emerging mitigation strategies (or theories) that can help ensure trust in digital financial services.
<h4></h4>
&nbsp;

Algorithmic Governance and Accountability Webinar

<a href="http://about/what-we-do/the-smart-campaign/">The Smart Campaign</a>, in collaboration with <a href="http://www.sptf.info/">The Social Performance Task Force (SPTF)</a>, invites you to attend <strong>Inclusive Digital Future: A Summit on Responsible Finance</strong> <strong>in Action</strong> taking place in <strong>Nairobi, Kenya</strong> from <strong>June 25th to 27th, 2019</strong>.
<blockquote>How do we promote inclusion and trust in digital financial services while fostering innovation and growth?</blockquote>
Over the course of this three-day international forum—organized in partnership with <a href="https://www.microsave.net/">MSC</a> (MicroSave Consulting) and <a href="https://www.ada-microfinance.org/en/our-projects/fintech-digital-finance">ADA</a>— we will confront the most pressing financial inclusion question of the day: How do we promote inclusion and trust in digital financial services while fostering innovation and growth?

The gathering will bring together financial service providers, regulators, investors, and DFS experts for two days of trainings, panels, and interactive breakout discussions, capped off by a field visit to leading Kenyan institutions engaged in digital transformation.
<ul>
 	<li><strong>Day 1: </strong>An interactive training on how to create a digitalization strategy that includes social goals (led by MSC) and workshops introducing the fundamentals of responsible inclusive finance and regulatory approaches to consumer protection in the digital era.</li>
 	<li><strong>Day 2: </strong>A full day of plenary discussion and breakout sessions on responsible digital finance in action, identifying practical ways stakeholders can advance inclusion and foster consumer confidence in digital products.</li>
 	<li><strong>Day 3: </strong>Join us on local site visits to interact with and learn from Kenyan institutions that serve as models for inclusive digital transformation.</li>
</ul>
More information, including detailed agenda, registration and travel/logistics details are available on SPTF's <a href="https://sptf.info/annual-meetings/2019-summit-inclusive-digital-future">Inclusive Digital Future page</a>.

<em>This event is supported by Mastercard Foundation and the Government of Luxembourg.</em>

Inclusive Digital Future: A Summit on Responsible Finance in Action

ADA absi

Luxembourg Aid &amp; Development

Mastercard Foundation

<a href="/about/what-we-do/the-smart-campaign/">The Smart Campaign</a> will participate in the AFI Consumer Empowerment &amp; Market Conduct (CEMC) &amp; Digital Financial Services (DFS) Working Group Meetings March 25-29 in the Bahamas. Elisabeth Rhyne will speak on a joint working group panel entitled “Data Protection and Privacy in the Age of Data Driven Financial Services.” This session will examine how innovations in technology that resulted in the proliferation of data and why consumers need to be more aware than ever about the risks of sharing personal details, and why financial institutions need to start thinking about data protection seriously. The Campaign will also present on the <a href="/help-us-shape-standards-for-responsible-digital-lending">draft Consumer Protection Standards for Digital Credit</a> and forthcoming updates to the Model Legal Framework for digital financial services.

Alliance for Financial Inclusion Working Group Meeting

I remember a time, back in the 1990's, when almost everything in my life was computer-less. I didn’t use email or the internet and didn’t own a cell phone. Other than some government, education, medical and financial records that may have been stored electronically, I essentially had no digital footprint. That all changed in 1996 when I subscribed to dial-up internet.

Fast forward to 2019, and we now have the term “data exhaust” to describe how we are constantly generating new data about ourselves as we go about our daily lives. Data has become so fundamental to our existence that a growing number of people, including Satya Nadella and Tim Cook, CEOs of Microsoft and Apple, respectively, have been calling for data privacy to be treated as a human right. But despite all the attention data is getting, there’s tremendous confusion and uncertainty among consumers and businesses alike as to what to do about it.
<h2>Urgency to Act at a Fever Pitch</h2>
In terms of what this means for financial services, we at CFI are living the growing sense of urgency with respect to data use and protection, and we’ve been responding, most recently with the new draft <a href="https://www.centerforfinancialinclusion.org/help-us-shape-standards-for-responsible-digital-lending">standards on responsible digital credit</a> from CFI’s <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/the-smart-campaign">Smart Campaign</a>.

We’ve also begun to explore more ways in which we can better support financial service providers in getting data right. Last month, we partnered with <a href="https://www.accion.org/how-we-work/invest/accion-venture-lab/">Accion Venture Lab</a>, which has also released a new <a href="https://www.accion.org/data-protection">data protection resource</a> targeted to fintechs, in a convening of about 30 stakeholders with a shared interest in this topic to consider the primary data protection issues financial service providers are grappling with and ways in which we can make progress.

Not surprisingly, there was an ample supply of challenges put forward on issues: from informed consent and data minimization, to regulatory complexity and the limited resources and expertise of smaller providers. There were no easy answers, but about halfway through the discussion, one participant said, “Maybe we need to bring it down a level to basic blocking and tackling. We can’t own the philosophical discussion.”

While the larger questions are important to consider, this served as a reminder that it’s easy to get swept away in the ocean of issues. So the best approach may be to look to players and solutions that already exist to help anchor our efforts around more practical steps.

What this means for us is that while new standards and resources are good first steps, they're stepping stones for establishing good practices and building trust between providers and clients. There’s a need for greater awareness and more concrete guidance and solutions through audiences that can help to maximize influence, such as boards, investors and regulators. Throughout the conversation, the ideas that emerged hinted at a two-part approach:
<ul>
 	<li>working at an ecosystem level to develop principles around data protection, and</li>
 	<li>seeking out existing organizations and resources in adjacent spaces that could be leveraged to develop more practical tools.</li>
</ul>
So how might we go about this? One path could be to try to work with larger technology players to develop high-level principles as a guiding framework. Whether or not there would be an appetite among larger technology players to collaborate on such an undertaking, principles need broad-based buy in to achieve scale.

Martin Tisne, Managing Director at <a href="https://luminategroup.com/about">Luminate</a>, recently made this point in “<a href="https://www.technologyreview.com/s/612588/its-time-for-a-bill-of-data-rights/">It’s Time for a Bill of Data Rights</a>,” published last December in <em>MIT Technology Review</em>. He discussed the importance of data rights, such as the right to be secure against unreasonable surveillance and the right to not be discriminated against. “The details should flow from basic principles, as with America’s existing Bill of Rights. Too often, attempts to enunciate such principles get bogged down in the weeds of things like ‘opt-in consent models,’ which may fast become outdated,” Tisne wrote.
<h2>From Frameworks to Specific Actions</h2>
As for specific actions, another path could be to scan the landscape for existing resources that could be adapted and applied in the financial inclusion space. Some specific organizations mentioned include the <a href="https://www.sifma.org/">Securities Industry and Financial Markets Association</a> (SIFMA) and the <a href="https://www.sei.cmu.edu/about/divisions/cert/">CERT Division</a> of the Software Engineering Institute at Carnegie Mellon. While they don't specifically focus on BOP markets, consulting with these organizations could serve as a good reference point for relevant data protection frameworks and policies, procedures and best practices. They could also provide listings of third parties that specialize in services around data privacy and security, such as audits, penetration testing and threat intelligence.
<blockquote>There’s a need for greater awareness and more concrete guidance and solutions.</blockquote>
CFI’s goal is not to become technical advisors, but rather to provide overall direction and practical tools that are tailored to smaller providers in geographies where assistance of this nature is harder to come by. Despite all the attention that the topic of data has been getting, the level of risks and uncertainties only continues to rise, especially for smaller providers. There's nothing more core to our purpose than to confront these types of emerging challenges head on. We did this in 2009 when we launched the Smart Campaign to take on consumer protection, and we see this new phenomenon of data as being just as pressing.

Please join us in our pursuit of getting data protection right. Leave a comment below and let’s get the discussion going on actionable best steps!

On Data, Let’s Anchor Ourselves in Practicality

You’re invited to join the Smart Campaign on Tuesday, February 26, at 11 am EST for a virtual event to discuss the newly released draft Consumer Protection Standards for Digital Credit. We’ll be talking with the Smart Campaign’s Global Director Isabelle Barres and Senior Director Alexandra Rizzi joined by Lucia Spaggiari, Chiara Pescatori, and Ben Wallingford of MFR about how the digital credit standards were developed and major updates in areas such as transparency, data privacy and security, and algorithm governance.

Based on the latest industry research, field assessments with digital lenders conducted by Smart and MFR, and discussions with the Fintech Protects Community of Practice, the draft standards consolidate what we have learned about good practices for responsible digital credit and provide a starting point for discussion.

This webinar is part of the six-week public comment period on the standards and serves as an opportunity for the industry to ask questions and provide feedback before the standards are finalized.

Webinar: Draft Digital Credit Standards

More and more low-income customers around the world have access to digital loans that promise improvements to their lives. At the Smart Campaign, we believe that financial service providers and their customers can both benefit from transparency and fair treatment in financial services. Customers need to be confident that they can trust their provider and its products.

With an emerging consensus around the importance of responsible digital credit, demand is rising for a shared set of criteria to assess the practices of digital lenders. Investors and regulators want a way to evaluate consumer protection practices among the financial service providers they invest in or regulate. Digital financial service providers also want guidance to improve their practices and demonstrate that they are committed to putting responsible finance into action.

This is why the Smart Campaign has been working to develop a revised set of Client Protection Standards that address the risks involved in digital credit. Today we are releasing a set of draft standards that reflect input from consumers, researchers, financial service providers and on-the-ground testing.
<blockquote>We're releasing a set of draft standards that reflect input from consumers, researchers, financial service providers and on-the-ground testing.</blockquote>
To prepare these standards, the Smart Campaign has engaged in research to understand emerging risks to clients (see, for example, "<a href="https://www.centerforfinancialinclusion.org/smart-brief-tiny-loans-big-questions">Tiny Loans, Big Questions</a>") and mapped these risks to the Client Protection Principles through CFI Fellow John Owens’ work on <a href="https://www.centerforfinancialinclusion.org/responsible-digital-credit">responsible digital credit</a>. We have learned about the <a href="https://www.centerforfinancialinclusion.org/digital-finance-and-data-security-2">state of data security</a> through the work of CFI Fellow Patrick Traynor. In collaboration with <a href="https://www.mf-rating.com/2018/10/05/mfr-smart-campaign-and-fintech-protects-pilot-digital-client-protection-assessments/">MFR</a>, the Campaign has worked with providers, including <a href="https://www.centerforfinancialinclusion.org/building-trust-and-growing-digital-financial-services-a-look-at-jumo/">Jumo</a>, <a href="https://www.centerforfinancialinclusion.org/partnering-with-providers-to-set-dfs-standards-for-client-protection">4G Capital</a>, and <a href="https://www.centerforfinancialinclusion.org/app-based-lender-weighs-in-on-standards-for-responsible-digital-credit">Tala</a>, to conduct research and field assessments to ensure that the draft Client Protection Standards for Digital Credit would be practical. We have had extensive discussions with providers who are members of the Fintech Protects community of practice. We have benefitted from and built upon the high quality research produced by institutions including CGAP, GSMA, Microsave, Financial Sector Deepening, and the Better than Cash Alliance.

These draft standards consolidate what we have learned about good practices and where to set the bar. They provide a starting point for further inquiry and discussion across the industry.
<h2>Familiar and New Territory for Financial Consumer Protection</h2>
The Standards for Digital Credit are anchored in the <a href="http://smartcampaign.org/certification/4-demonstrate">Client Protection Principles</a> (CPPs) that serve as the north star of Smart Certification. We found that many of the standards already in place for traditional forms of lending apply equally to digital lending. In other cases, standards remain the same, but practices differ. For example, the principles of transparency have not changed, though in practice standards must be adapted to products that interface digitally with customers. For example, clients must be able to access terms of service agreements and receive provider notifications in a local language whether the channel is a loan officer, an app, or a chat bot.

More important changes involve areas at the heart of digital business models, notably data privacy, data protection and digital underwriting. The sections on these topics have been greatly enlarged, and we are especially eager to receive input on them. For these areas in particular, we recognize there is more to learn to <a href="https://news.un.org/en/story/2019/01/1031092">strike a balance</a> between the benefits and risks of new data-rich business models.
<h2>Comments Please!</h2>
Now, we’d like to hear from you, so we’ve opened this initiative to public comment.

Per <a href="https://www.isealalliance.org/credible-sustainability-standards/iseal-codes-good-practice">ISEAL’s Codes of Good Practice</a> on standard setting, we will collect feedback over the coming six weeks and incorporate these ideas into an updated set of standards. We will host a <a href="https://register.gotowebinar.com/register/8253670247853286401">public webinar</a> to discuss the standards and field questions on Tuesday, February 26, in addition to hosting a <a href="https://www.smartcampaign.org/about/evolution-of-standards/public-comment-2019">feedback form</a> on our website (see "How to Give Feedback" below).

As you comment on the new standards for digital credit, we ask you to approach them as a minimum viable product (MVP). In much in the same way as an MVP is the starting point for product testing, iteration, and improvement, so we expect to iterate these standards quickly to develop standards backed by industry consensus. We are also hopeful that during this public comment period providers will evaluate their own practices against these standards. We would love to hear the results, and we would be even more excited to hear if providers upgrade their policies and procedures to reflect the standards.
<blockquote>We’d like to hear from you, so we’ve opened this initiative to public comment.</blockquote>
Following the public comment period, we will revise the standards based on input received and integrate them into our Smart Certification program as a roadmap for digital lenders. Smart Certification has been a catalyst for improvement of consumer protection practices at more than 110 financial institutions, and we expect to offer <a href="https://www.smartcampaign.org/certification/2-assess">Smart Assessments</a> and <a href="http://smartcampaign.org/certification/all-about-certification">Smart Certification</a> to digital lenders shortly after revised standards are published (exact date TBD). To support providers to implement the standards, we will develop publicly available tools for providers, investors, and others, as well as products for more formal assessments offered through our expert network of trainers and certification bodies.

Ensuring trust in the next generation of digital financial services is an effort that involves all participants in the sector. We can all work together to ensure that clients remain at the center.

Help Us Shape Standards for Responsible Digital Lending

Consumer protection is essential for ensuring that financial inclusion works for consumers and results in a healthy sector. That’s why the <a href="https://www.centerforfinancialinclusion.org/global-microscope-2018">Global Microscope</a> includes indicators on the state of consumer protection regulation in its overall assessment of a country’s enabling environment. The <a href="https://www.smartcampaign.org/">Smart Campaign’s</a> expertise in consumer protection give its team an informed perspective on these issue. We sat down with Isabelle Barrès to get deeper perspectives on this relationship and her general reactions to the Microscope.
<h4>Did the Microscope reveal any surprises from a consumer protection perspective?</h4>
What stood out to me was the way consumer protection cuts across all of the domains in the Microscope framework. Indeed, while specific consumer protection and privacy regulations are key, as I look through the Microscope indicators, I’m struck by how nearly all of them contribute to minimizing consumer harm.

For instance, a favorable environment for consumer protection requires government and policy support and a solid infrastructure. Consumers stand a better chance of being protected if financial literacy programs enable them to make more informed choices and advocate for their rights. Thoughtful product design is critical to mitigate risks – for example in designing a loan product, it’s important to build in restrictions against excessive borrowing. The way agents and outlets are supervised can make a critical difference in the way clients are treated.

This 2018 Microscope has increased its weighting on cybersecurity one of the rising risks to consumers and the industry, which the Smart Campaign is tracking.
<h4>How do you get a robust regulating environment that doesn’t stand in the way of new players? Where’s the balance?</h4>
The Smart Campaign helped draft a <a href="https://responsiblefinancialinclusion.org/?page_id=2353">model legal framework</a> – a guideline for regulators – largely for this purpose. It builds on existing <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/28996/122011-PUBLIC-GoodPractices-WebFinal.pdf?sequence=1&amp;isAllowed=y">guidelines</a>, <a href="https://clmr.unsw.edu.au/sites/default/files/content_files/Regulatory_Diagnostic_Toolkit-June 2018.pdf">tools</a>, and <a href="https://www.itu.int/en/publications/Documents/tsb/2017-DFS-ConsumerExperienceProtection/mobile/index.html#p=1">recommendations</a>, and is drafted in a way that leaves room for regulators to factor in the level of competition in the market, the types of players, the level of maturity, prep regulation to support a balance between regulation and innovation. In developing standards for digital credit providers, we see a number of practices that, if we were looking at a traditional provider, we would have been very critical of (e.g., portfolio quality and pricing). While still very much focused on these issues, we recognize that many of these models are nascent and providers are still refining their models and need time to innovate and adapt. We are therefore providing space for early stage providers to innovate rather than have more stringent guidelines from the get go, as long as risks to clients are mitigated.
<h4>The Microscope states that, "in the best-performing countries, traditional consumer protections are coupled with data privacy and cybersecurity safeguards... strong performance on traditional consumer protection (countries that scored greater than 80) does not necessarily indicate that a country has a sufficient framework for digital consumer protection." What does this mean to you?</h4>
That means that countries have traditional consumer protections in place, but these are not sufficient to deal with newly arising risks. So just because a country has a good consumer protection framework, doesn't mean it's up to date with the emerging digital risks.
<blockquote>Just because a country has a good consumer protection framework, doesn't mean it's up to date with the emerging digital risks.</blockquote>
The main adaptations that we see needed for an adequate framework for consumer protection in a digital world are the need to account for 1) the increased reliance on agent networks for sales and service; 2) the reliance on technology and technical interfaces and the client risks linked to data collection, use and storage; and 3) more complex value chains. These are taken into consideration in the current <a href="https://www.centerforfinancialinclusion.org/partnering-with-providers-to-set-dfs-standards-for-client-protection">update</a> to the Client Protection Standards for digital services.
<h4>Would the countries that have done well in traditional consumer protection be well positioned to adopt digital consumer protection?</h4>
In some ways, yes. Digital consumer protection builds off of traditional consumer protection. The “traditional” consumer protection dimensions (appropriate product and delivery design, prevention of over indebtedness, transparency, responsible pricing, fair treatment, recourse) are still relevant, with adaptations needed for the new risks that come with low touch/ high tech models. The biggest changes from the digital revolution that affect consumer protection are linked to data: data privacy, data security and data use, and the confluence of industries that used to work independently: technology and finance. While data privacy and protection was part of the traditional consumer protection, the extent to which the data protection frameworks need to be extended to cover consumer risks in a digital world is considerable. Countries that have strong data protection policies and enforcement (e.g., The Philippines, Colombia) are getting a head start to address consumer protection issues in a digital world.

The extent to which countries are well positioned to adopt digital consumer protection also depends on the extent to which they embrace innovation, the extent to which non financial digital providers can be integrated to the financial infrastructure, and the extent to which telcos and banking regulators cooperate. As highlighted by the Microscope, The Philippines is a good example of a country making headway in building an effective digital finance ecosystem and increasing the collaboration between regulators and industry. Their work under the <a href="https://www.r2accelerator.org/bsp/">R2A program</a> in developing and testing technology based solutions that can support good consumer protection is an interesting example to follow.
<blockquote>The Philippines is a good example of a country making headway in building an effective digital finance ecosystem and increasing the collaboration between regulators and industry.</blockquote>
<h4>Are there any country-level assessments that especially caught your attention?</h4>
For Cambodia, in terms of key barriers to financial inclusion, the Microscope authors worry about the expansion in the number of MFIs and MBIs, and it does reference the surge of refinanced loans. In our work, we’re seeing self-organization efforts in response to a surge of lending and a fear of over-indebtedness that has been well documented through <a href="https://mimosaindex.org/living-on-the-edge-is-it-worth-it/">Mimosa</a>. We see ongoing efforts from investors to share information on their portfolios. There are industry efforts in the form of lending guidelines that have started. It’s an example of an industry-based initiative that is complementing what regulators are doing.

Kenya is another example. The Microscope highlights the Consumer Protection Act, which aims to protect consumers from aggressive lending. Yet, regulations are not yet going far enough, because of the proliferation of digital lenders that aren’t regulated. It would be great if the Microscope analysis could dig deeper into the institutional landscape.

<em>Read the <a href="https://www.centerforfinancialinclusion.org/global-microscope-2018">Microscope</a> and let us know what you think!</em>

Digital Standards and Nascent Business Models: Smart Campaign Reacts to The Global Microscope

Global Microscope