Taking Stock of Consumer Protection in Microfinance - A Non-Regulatory Approach

Publication Date: Oct 2003
Document Type: Paper (Microsoft Word)

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Is plain language enough to protect the consumer in microfinance?

This paper argues that consumer protection is a core mission issue for microfinance providers with a social mission. It discusses:

• The emergence of new players, who are not motivated by the social goals of microfinance, but are strictly profit-oriented;
• The need to define exactly where the line between beneficial and harmful practice falls;
• The challenge faced by regulated microfinance institutions (MFIs), which want to operate on commercial principles, while maintaining their social mission.

The paper lists the following difficulties that MFIs not paying attention to consumer-protection may face:

• Loss of customers to providers who are more responsive to consumer concerns;
• Loss of sympathy from the general public;
• Attraction of unwanted, restrictive regulation.

The author credits the “Small Enterprise Education and Promotion” network (SEEP) for having formed a consumer protection task force and points out its drawbacks as follows:

• It substitutes one regulatory body for another;
• It looks towards developed country models as templates for consumer protection statements;
• It is too bureaucratic.

The author argues for a strategy that includes:

• Simple language that can be understood by the consumer;
• Public information about best practices in consumer protection;
• Client education programs.

The author concludes by arguing that plain language will take the microfinance industry a long way and there is no need to adopt regulatory solutions, even self-regulatory ones.