Presented at the 1 st International Islamic Financial Inclusion Summit Solo, July 18th, 2012 Yoko...
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Transcript of Presented at the 1 st International Islamic Financial Inclusion Summit Solo, July 18th, 2012 Yoko...
Presented at the 1st International Islamic Financial Inclusion Summit Solo, July 18th, 2012
Yoko Doi, Financial Sector SpecialistFinancial and Private Sector Development Unit
World Bank Jakarta Office
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Consumer Protection and Financial Literacy:
The principle of Product Development in Financial Services Sector
Outline of Presentation:
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1. Importance of Consumer Protection and Financial Literacy (CPFL) for Financial Inclusion
2. The Principles of Product Development: Financial Inclusion & Consumer Protections: Good Practices from other countries
3. World Bank’s engagements on CPFL Globally and in Indonesia
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Importance of Consumer Protection and Financial Literacy (CPFL) for Financial Inclusion
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Financial inclusion is a four dimensional aspects
• Meet the needs of consumer
• Stability & improvement to family, business, & economy
• Regularity & duration of use
• Increase in Financial Penetration
1.Access
2.Usage
3.Quality
4.Welfare
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CPFL is Important for Financial Inclusion
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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
Many Stakeholders …but Financial Supervisors Play the Key Role
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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
Financial Industry
• Industry associations
• Training centers• Financial institutions
(incl. distributors)• Financial
infrastructure (e.g. credit bureaus)
Civil Society
• Consumer associations
• Debt counseling• Foundations• Academia• Media
Redress mechanisms
• Ombudsman• Arbitration• Mediation,
conciliation• Courts
International Community
• Donors• Regional
organizations• Standard setters• International
associations
Roles of Financial Supervisors in CPFL Programs
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1) Issue regulations on minimum standards of financial consumer protectionRequire 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.
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The Principles of Product Development: Financial Inclusion & Consumer Protections: Good Practices
from other countries
What Can Go Wrong?
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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
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
• Unaware about the right to complain or errors resolve (how, where, or fail to receive appropriate redress)
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/agentsPayment services• 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
Cross-cutting consumer protection concerns
Product-specific concerns
World Bank’s Good Practices for Financial Consumer Protection support G20 High Level Principles
Focus on 4 areas: 1) Consumer Disclosure2) Business Practices3) Complaints & Dispute Resolution4) Financial Literacy
Banking
Securities
Non-Bank Credit, Incl. MFI
Credit Reporting
Private Pensions
Insurance
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Consumer Disclosure
Consumer
Disclosure
Business Practices
Consumer Redress
Financial Literacy
• Simple• Easy to understand• Accessible• Comparable
• How do you know if it is working?
• Try consumer testing
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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
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Business Practices
Consumer
Disclosure
Business Practices
Consumer Redress
Financial Literacy
• Free choice of financial products
• Prohibition of unfair, abusive, misleading practices
• Retail sales officers trained and qualified
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Consumer Redress
Consumer
Disclosure
Business Practices
Consumer Redress
Financial Literacy
• Financial ombudsman
• Complaints department in every financial institution
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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
World Bank’s engagements on CPFL Globally and in Indonesia
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World Bank Strategy for Country CPFL Programs
Baseline Household Survey of Financial
Literacy & Consumer Behavior
Action Plan to Implement
Recommendations
Diagnostic Review of Legal &
Regulatory Framework
Implementation Program
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Follow-up Household Survey
Feedback Loop
Input
Implementation Programs
Action Plans
-In pipeline
Household Surveys
-In pipeline
Diagnostic Reviews
-In pipeline
World Bank CPFL Programs
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
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www.worldbank.org/consumerprotection
The Range of Financial Inclusion Engagements in Indonesia
20072008
2009 2010
2011
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2012
Pilot Project (Research on Fin. Literacy Assessment on MWs)
Diagnostic Stage
Individual Projects(TA to GoI etc.)
Macro / National Strategy
Two Diagnostics Studies
Fin Literacy ToT for GoI
NSFI development
Microinsurance Regulatory Framework
Microinsurance Marketplace
Evaluation of TabunganKu (Basic
bank account)
Review on MW Microinsurance
Reform on GoI funded PNPM Mandiri RLFs Scheme
Branchless Banking regulatory review
Assessment on KUR (GoI Credit Guarantee
Program)
Islamic Finance for MSMEs
Strengthening Savings & Loans Cooperatives
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• 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
• Development of financial literacy training modules for migrant workers and migrant workers’ families, and development of training supporting tools
• 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.
Activities Output and Outcome• 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
• 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.
Pilot Project on Financial Literacy Training for Indonesian Overseas Migrant Workers and Their FamiliesPartners: CMEA, BNP2TKI, Disnakertrans Malang, PPTKIS
WB Initiativ
es
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• 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)
Activities• 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
TA to Support GOI’s Financial Literacy Initiatives for Indonesian Overseas Migrant Workers and their FamiliesPartners: CMEA, BNP2TKI, BP3TKI, Disnakertrans, Government-owned Banks
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
Output
Supporting Government Initiatives
Terima Kasih
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