FIELD Brief 16: Facilitating Client Protection, Financial Literacy, and Consumer Awareness in the West Bank & Gaza

Author(s): 
Obed Diener, Timothy Nourse, Annie Belt, Donna Stefano
Organization/Affiliation(s): 
FHI 360, Making Cents International, and CHF International
Resource Type: 
Publication Date: 
Dec, 2011

In recent years, financial crises in both developed and developing economies have demonstrated that efforts to expand financial access are incomplete and can in fact be harmful in the absence of corresponding measures to enhance financial consumer protection and awareness. Prior to the start of the global financial crisis in 2007, an estimated 150 million new consumers were entering the global financial services market annually. Within the global microfinance industry, recent repayment crises in areas such as Nicaragua, Pakistan, and the Indian state of Andhra Pradesh have raised concerns about client overindebtedness from a consumer protection perspective. In those areas, the popular perception of unscrupulous lending by microfinance providers has in some cases contributed to a political backlash damaging the industry’s standing and reputation. However, that growth was not matched by an equivalent improvement in financial literacy or regulatory protection measures, particularly with respect to clients with lower income and education levels, who are generally more vulnerable to fraud and abuse.

Perhaps the most infamous illustration of the trend was the subprime mortgage crisis in the U.S., which resulted from the provision of millions of mortgage loans to borrowers who could not afford to repay them and triggered a meltdown in the secondary market for complex securitized mortgage products, thereby threatening the stability of the global financial system. In response, national legislatures and regulatory authorities worldwide have enacted an array of reforms seeking to improve the transparency and fairness of financial products.

Within the global microfinance industry, recent repayment crises in areas such as Nicaragua, Pakistan, and the Indian state of Andhra Pradesh have raised concerns about client overindebtedness from a consumer protection perspective. In those areas, the popular perception of unscrupulous lending by microfinance providers has in some cases contributed to a political backlash damaging the industry’s standing and reputation.Recognizing the importance of a strong foundation of consumer protection and financial literacy for a stable, efficient, and fair financial sector, the USAID-funded Expanded and Sustained Access to Financial Services (ESAF) program in the West Bank and Gaza implemented a major cross-cutting initiative in response to identified weaknesses in the West Bank and Gaza. ESAF’s approach has been to support regulatory and industry bodies to set up new regulations and mechanisms for protecting consumers, while also educating the public about rights and responsibilities as well as smart financial practices. The initiative has been implemented in close partnership with local institutions including regulators, industry associations, financial institutions, and the public school system. Though a modest investment on the part of ESAF, its various components have yielded lasting impacts.

This brief presents ESAF’s activities and results according to three thematic areas:

  1. Formative Research
  2. Client Protection
  3. Consumer Awareness and Financial Literacy
Topic: 
Financial Inclusion
Regions: 
Middle East & North Africa
Tags: 
Youth
Microfinance
Governance & Policy
Consumer Protection
Financial Literacy/Education
Market Research & Assessments