Consumer Protection and Financial Literacy:
The principle of Product Development in Financial Services Sector
Presented at the 1st International Islamic Financial Inclusion Summit
Solo, July 18th, 2012
Yoko Doi, Financial Sector Specialist
Financial and Private Sector Development Unit
World Bank Jakarta Office
1
Outline of Presentation:
1.
2.
3.
Importance of Consumer Protection
and Financial Literacy (CPFL) for
Financial Inclusion
The Principles of Product
Development: Financial Inclusion &
Consumer Protections: Good
Practices from other countries
World Bank’s engagements on CPFL
Globally and in Indonesia
2
Importance of Consumer Protection and Financial Literacy (CPFL) for
Financial Inclusion
3
Financial inclusion is a four dimensional aspects
• Increase in
Financial
Penetration
• Stability &
improvement to
family, business,
& economy
• Regularity &
duration of use
1.Access
2.Usage
4.Welfare
3.Quality
• Meet the needs
of consumer
4
CPFL is Important for Financial Inclusion

Benefits of increased financial inclusion may be undermined (or
lost) by weak financial consumer protection

Weak regulation of consumer finance leaves consumers
vulnerable to abuse

reduced consumer trust in financial sector

reduced use of formal financial services

Weak financial literacy means that consumers cannot protect
themselves

CPFL one of 9 principles of innovative financial inclusion
5
Many Stakeholders …
but Financial Supervisors Play the Key Role
Government
• Ministries (e.g. Finance,
Economy, Education)
• Public agencies (e.g.
consumer protection,
data protection,
competition)
• Councils (e.g. consumer
protection, education)
Financial Supervisors
• Financial supervisory
agencies
• Central bank
• Financial consumer
protection agency
• Compensation schemes
Civil Society
• Consumer
associations
• Debt counseling
• Foundations
• Academia
• Media
Financial Industry
• Industry associations
• Training centers
• Financial institutions
(incl. distributors)
• Financial infrastructure
(e.g. credit bureaus)
International
Community
Redress mechanisms
•
•
•
•
Ombudsman
Arbitration
Mediation, conciliation
Courts
•
•
•
•
Donors
Regional organizations
Standard setters
International
associations
6
Roles of Financial Supervisors in CPFL Programs
1)
Issue regulations on minimum standards of financial consumer
protection

Require clear consumer disclosure & easy access to comparable quotes,
prohibit unfair/deceptive/misleading practices
2)
Review consumer complaint files to identify trends of consumer
abuses.
3)
Encourage industry associations to develop conduct codes,
standard formats on disclosure, redress mechanisms.
4)
Research consumer behavior in use of financial products.
5)
Monitor financial markets for new risks to consumers.
6)
Promote financial education of consumers.
7
The Principles of Product Development: Financial Inclusion &
Consumer Protections: Good Practices from other countries
8
What Can Go Wrong?
Cross-cutting consumer protection concerns
Product transparency
• Deceptive ad, excessive small print - -consumer don’t
understand total cost
Overcharging
• Non-authorized or proper extra charge & commissions
on consumer
Sales practices
• Aggressive sales technique
Product-specific concerns
Deposit products
• Savings are eroded by hidden fees
• Deposits are lost to fraud
Credit products
•
•
•
•
•
Don’t understand terms and conditions of loan agreement
Pay high price
Take on to much debt
Exposed to loan officers ask for ‘gift’ to complete loan process
Subject to intimidation, abuse, or humiliation by collection
staff/agents
Payment services
Inadequate documentations
• Copies of contracts or receipts are not given to
customers
Privacy, security, permission to share with
third parties
• Unsure whether consumer personal data will be
treated appropriately
Recourse
• Transfer money to the wrong person & don’t know how to correct
it
• Lose their personal identification number or have it intercepted
electronically by a fraudster
Insurance
• Don’t understand, or fail to receive policy benefits
• Don’t realize that the loan price includes credit life insurance
(paying more than expected & failing to benefit from the
insurance
• Unaware about the right to complain or errors resolve
(how, where, or fail to receive appropriate redress)
9
World Bank’s Good Practices for Financial Consumer Protection
support G20 High Level Principles
Banking
Insurance
Securities
Focus on 4 areas:
1) Consumer Disclosure
2) Business Practices
3) Complaints & Dispute Resolution
4) Financial Literacy
Private Pensions
Non-Bank Credit,
Incl. MFI
Credit Reporting
10
Consumer Disclosure
Consumer
Disclosure
Consumer
Redress
Business
Practices
Financial
Literacy
•Simple
•Easy to understand
•Accessible
•Comparable
•How do you know if it is
working?
•Try consumer testing
11
Helping Consumers Shop Around
Makes a BIG Difference
Credit Card Loans Average Interest Rates in Peru
Source: Superintendence of Banking, Insurance and Private Pension Funds of Peru
12
Business Practices
Consumer
Disclosure
Consumer
Redress
Business
Practices
Financial
Literacy
• Free choice of financial
products
•Prohibition of unfair,
abusive, misleading
practices
•Retail sales officers
trained and qualified
13
Consumer Redress
Consumer
Disclosure
Consumer
Redress
Business
Practices
Financial
Literacy
•
Financial
ombudsman
•
Complaints
department in
every financial
institution
14
Financial Literacy
Consumer
Disclosure
Business
Practices
Consumer
Redress
Financial
Literacy
•Household Surveys of
Financial Literacy &
Consumer Behavior
•Financial education
targeted on:
•Risks/rewards
•Rights/obligations
•Impact Measurement
Studies
15
World Bank’s engagements on CPFL Globally and in Indonesia
16
World Bank Strategy for Country
CPFL Programs
Input
Baseline
Household Survey
of Financial
Literacy &
Consumer
Behavior
Diagnostic
Review of Legal
& Regulatory
Framework
Action Plan to
Implement
Recommendations
Implementation
Program
Follow-up
Household
Survey
Feedback Loop
17
World Bank CPFL Programs
Implementation Programs
Action Plans
-In pipeline
Household Surveys
-In pipeline
Diagnostic Reviews
-In pipeline
World Bank Engagement and Contribution to Global Dialogues







Methodology for assessing country
financial consumer protection
regimes: “Good Practices for
Financial Consumer Protection”
“Consumer Protection and
Financial Literacy: lesions from
Nine Country Studies”
18 Country Diagnostic Reviews
18 Country Household Surveys
3 Country Action Plans + 2
Implementation Program
Member of Financial Stability Board
Consultative Group on Financial
Consumer Protection
Member of OECD Task Force for High
Level Principles on Financial Consumer
Protection
www.worldbank.org/consumerprotection
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The Range of Financial Inclusion Engagements in Indonesia
2007
2008
2009
Diagnostic
Stage
2012
2011
2010
Macro /
National
Strategy
Individual Projects
(TA to GoI etc.)
NSFI development
Reform on GoI funded PNPM Mandiri RLFs Scheme
Fin Literacy ToT for GoI
Pilot Project (Research on Fin. Literacy Assessment on MWs)
Microinsurance Regulatory Framework
Microinsurance Marketplace
Review on MW Microinsurance
Assessment on KUR (GoI
Credit Guarantee Program)
Islamic Finance for MSMEs
Strengthening Savings &
Loans Cooperatives
Branchless Banking regulatory review
Two Diagnostics
Studies
Evaluation of TabunganKu
(Basic bank account)
20
Pilot Project on Financial Literacy Training for Indonesian
Overseas Migrant Workers and Their Families
WB
Initiatives
Partners: CMEA, BNP2TKI, Disnakertrans Malang, PPTKIS
Activities
Output and Outcome
•
This pilot is a randomized research. The main objective is to
evaluate the impact of financial literacy training for migrant
workers and their families and to explore the effective ways
to improve their knowledge in managing their remittances
•
Modules: Training Guidelines, Trainer’s Guide for Migrant
Workers, Trainer’s Guide for Migrant Workers’ Family; and
supporting training tools: poster, comic book, financial book,
and brochure
•
Development of financial literacy training modules for
migrant workers and migrant workers’ families, and
development of training supporting tools
•
Overall, 432 migrant workers and/or their families from
Greater Malang area have been trained
•
Currently, the pilot is analyzing all the data collected from
the monitoring stage. Report on the results are expected to
be published in mid June 2012.
•
Preliminary analysis of the monitoring data shows that there
is a positive correlation between financial literacy training
and opening savings account.
•
•
Providing financial literacy training: trainings are conducted
for migrant workers who have registered to recruitment
agencies (PPTKIS) to work overseas and/or their families.
Phone and face to face monitoring were carried out to assess
how the training affected the household’s financial behavior.
21
TA to Support GOI’s Financial Literacy Initiatives for
Indonesian Overseas Migrant Workers and their Families
Partners: CMEA, BNP2TKI, BP3TKI, Disnakertrans, Government-owned Banks
Activities
•
ToT on financial literacy for staffs of BNP2TKI, BP3TKI
(regional office of BNP2TKI, in 19 provinces across
Indonesia) & Govt-owned banks; 2 batches in 2011 & 1
batch in 2012
•
Mentoring and monitoring during BNP2TKI – BP3TKI
financial literacy trainings to MWs and MWs families: 17
provinces in 2011 (April – November 2011) and 9 provinces
in 2012 (March – July 2012)
Outcome
•
•
•
BNP2TKI staff gained competency as mentor & Master
Trainer during ToT in 2012
Banks (BRI, BNI and Mandiri )committed to provide
support to BNP2TKI by involving their trainers in the ToT
Bank Mandiri committed to expand FL training as part
of its CSR activities
Supporting
Government
Initiatives
Output
•
•
•
•
•
•
ToT implementation: March 29 – April 8, 2011, 58 staffs
from 19 BP3TKIs, Bank BRI, Bank BNI, Bank Mandiri, TIFA
Foundation, and Sahabat Wanita Foundation participated
in the training. March 5 – 8, 2012, 37 staffs from 19
BP3TKIs, Bank BNI and Bank Mandiri participated in the
training.
Monitoring tools formulated: checklist, pre test/post test
questionnaire, time keeping form, mentoring &
monitoring form
Overall, 1,287 people were trained in 2011 (542 MWs, 723
MW’s families, 22 ex MWs)
Mailing list established (for BNP2TKI & BP3TKI staff) as a
media to discuss, learn, and share experience in
conducting FL training
FL advocacy video produced, and FL training tutorial
video in production process
Website on MWs financial education is under
construction
22
Terima Kasih
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