Making Recourse Work for Base-of-the-Pyramid Financial Consumers
Consumer recourse—the ability to raise grievances and have them heard and resolved or redressed—is in many ways at the heart of consumer protection. Timely and effective recourse processes can have important positive impacts on consumer well-being, provider–client trust, product uptake and loyalty, and overall development of a more responsible financial system. This is all the more true for markets with large concentrations of BoP financial consumers and providers serving them.
Investing in recourse systems that effectively serve BoP consumers can reinforce and advance responsible financial inclusion, as illustrated by the following examples:
• Improved quality of services and products for BoP consumers. Complaints records offer a wealth of data on consumer experience, product usage, and preferences that can be analyzed and used by financial institutions to improve their operations and develop innovative products. For instance, Tameer Microfinance Bank in Pakistan used its internal complaints system to identify clients with higher default risk; subsequent assistance targeting these clients resulted in a 50 percent decrease in the delinquency ratio across Tameer’s portfolio (Center for Financial Inclusion 2012).
• Trust in the formal financial system. Well-functioning recourse systems can support the broader goal of building and maintaining BoP consumer trust in the formal financial system, which is essential to financial inclusion. This is particularly important for the financial sector given the decrease of trust in financial institutions expressed in global surveys in the years following the global financial crisis.
• Market monitoring by regulators and supervisors. High volumes of inquiries and complaints data are of great value to policy makers in monitoring the market, improving regulatory measures and supervisory techniques, and introducing changes in policies or products that could benefit financial consumers. Evidence of systematic problems from high complaints volumes can alert the supervisor to problems with a certain provider or in a certain area of the market, triggering onsite inspection, other follow-up action, or appropriate regulation.
• Positive impacts on financial capability and usage. There is emerging evidence that effective recourse systems can help clarify and explain products and terms and otherwise improve beneficial product usage. Across the consumer recourse systems studied for this Focus Note, it is generally estimated that between 60 and 80 percent of total “complaints” received are actually inquiries or matters of confusion or misunderstanding.