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Little is known about how consumer protection might apply to financial services for the poor. As commercialization and competition increase, vulnerable borrowers may be more exposed to potentially abusive lenders. Low-income borrowers may be functionally illiterate, first-time consumers, or insufficiently informed about their rights and can be pressured into making poor borrowing decisions. Strategically, enhanced consumer protection measures can be a more constructive alternative to new or lowered interest rate ceilings. This paper discusses two primary approaches to enforcement of such measures - voluntary codes and state regulation - in the context of developing countries.
SafeSave, a small MFI, provides unusually flexible savings and credit services to poor slum dwellers in Dakha, Bangladesh. Given financial services that take their needs into account, the poor will use these services in diverse ways-supporting the growing consensus in microfinance circles that MFI products and delivery systems need to be more responsive to demand.
Based on field studies conducted in four countries, this note argues that MFIs should design their financial service products to meet the needs of the poor. Client-focused product development requires understanding the economic goals of poor households, how people manage their resources and activities, and how they deal with risk in their day-to-day lives.
This Focus Note summarizes original research by Leonard Mutesasira, Henry Sempangi, Harry Mugwanga, John Kashangaki, Florence Maximambali, Christopher Lwogs, David Hulme, Graham Wright, and Stuart Rutherford. It investigates client drop-out rates and the failure to attract potential clients among 13 MFIs in East Africa. Based on a research project coordinated by MicroSave-Africa of Uganda, the study highlights the importance of designing flexible, demand-driven financial products to both attract and retain clients, as well as to achieve significant outreach.
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