Disclosure and client protection are relevant issues in both the global and the local agendas. Important reforms are taking place today aiming to strengthen confidence and responsible practices in (micro) finance. However, financial authorities are not the only ones making efforts to build effective and complete frameworks to ensure responsible finance. Many providers are also working diligently to incorporate responsible finance practices into their business models.
However, to maximize the effect of client protection efforts, we believe it necessary to develop co-responsibility among the regulatory and institutional framework (authority), the financial providers (industry) and the financial consumer (client) in making sure the market functions properly and facilitates responsible financial inclusion.
Yet while this sounds good in principle, making this work in practice can often be a challenge. In fact, our client protection work across the globe has included markets where the authority sets the rules in isolation, and the industry complies with the rules passively, while clients are left on their own to determine how best to exercise their rights and to acknowledge their obligations.
Perhaps this arrangement could work with a truly exceptional (and well-resourced) supervisory body on financial consumer protection. But what about cases where the financial authority has not yet built a comprehensive, tested and useful institutional framework – nor the accompanying legal and regulatory body – that allows supply and demand sides to exactly know what their rights and obligations are? Does this mean providers are free of consumer protection obligations?
Fortunately, our work with financial institutions has shown that even where policy gaps exist, some institutions are acting on their own to set their own pace for responsible finance. A recent visit to Paraguayan MFI Visión Banco offered just such an example. Vision Banco is taking the lead in Paraguay in setting institutional standards, far beyond the existing consumer protection requirements of the financial authority. Visión Banco is now engaged in an initiative that aims at providing itself with a tailor-made action plan to guide the institution in what needs to be improved to guarantee the highest levels of “Transparency and Client Protection.”
And they are doing so in an environment that lacks regulation on key consumer protection issues such as transparency. Conscious of how important healthy, capable and responsible clients are for the steady and sustainable growth of its business, the institution is committed: (i) to learn what’s best practices already exist in disclosure and client protection – especially relevant when there are so few national standards to comply with; (ii) to assess the institution’s gap with those best practices, regardless of whether competitors will or will not follow soon; (iii) to adapt and incorporate the best practices, at a reasonable pace; and (iv) to share its experience with third parties, including local financial institutions and the financial authority. These new commitments to consumer protection add to preexisting measures such as recognition of how their clients lay at the center of their activities (as stated in Mission and Vision Statements), full disclosure of prices and use of effective interest rates (see Tarifarios published at the institution’s webpage), provision of written comprehensive “Recommendations” at the time of commercialization of massive products (Credit Cards, Savings Accounts, Savings Deposits and Credits), and creation of a mechanism to resolve complaints that allows for third party arbitration at the institution’s cost, among many other initiatives beyond what is stated in the regulation. Vision Banco’s Code of Ethics has been published by SmartCampaign as an example to follow.
Fair treatment and clear conditions make things work better for both financial institutions and clients, and can pay off in the long term by helping differentiate good providers in very competitive environments or where abusive practices have occurred. Fostering client protection is a win-win strategy for all agents involved, and requires that all three stakeholders play their role and stand out for what their responsibility is. So instead of waiting for regulation to come, and missing the opportunity to participate in the construction of the rules of the game, expert-guided self-regulation could temporarily close the gap and become a good “training” for financial providers. Client Protection principles, standards and practices should span the whole organization.
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