Or they can enlist the assistance of industry. A case to watch is the Reserve Bank of India’s (RBI’s) recent recognition of the Microfinance Institution Network (MFIN) as the Self-Regulatory Organization for non-bank financial company microfinance institutions in India. In this new role, MFIN will supervise its members (with RBI oversight) on their fulfillment of a code of conduct primarily focused on client protection. MFIN will also develop grievance redressal mechanisms.
Industry-based efforts to embrace client protection as part of banking’s professional identity are an important piece of the overall consumer protection picture. The Smart Campaign’s certification program recognizes microfinance institutions (MFIs) that fully implement seven Client Protection Principles. To date, 24 MFIs have been certified, covering over 8 million consumers–with dozens of other MFIs in the pipeline. Many experts would like to see similar efforts taken into mainstream segments of the financial services industry.
As digital financial services grow, the financial inclusion community has begun to assess the risks for consumers. Earlier this year, the Alliance for Financial Inclusion (AFI) released guidelines on consumer protection in mobile financial services which highlighted emerging risks, including misuse of data, limited consumer recourse, and agent misconduct. In August, leaders from industry, government, and development assembled at the Responsible Finance Forum in Perth, Australia to discuss key dimensions of responsible digital finance, forge a common vision, and identify concrete next steps. There was a call among the participants about the need for global principles, standards, and codes of conduct for responsible digital finance.
Client Protection
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The experts we talked with this year cited mounting interest in client protection on the part of regulators. However, many regulators lack the legal mandate and/or capacity to implement such regulation. In the face of limited supervisory capacity – and while this capacity is being constructed – other ways to bolster consumer protection can help. For example, regulators can leverage limited capacity through use of tools like mystery shopping to monitor the market and pinpoint issues that require action, as has been done recently in Mexico (with CGAP) and India with IFMR and NSE.
Many regulators lack the legal mandate and/or capacity to fully implement client protection regulation. In the face of limited supervisory capacity, other ways to bolster consumer protection can help.
Financial Inclusion 2020: Round-Up 2014