Guidelines for Consumer Finance

This memo provides basic guidelines to evaluate and analyze consumer finance providers. It also outlines practical guidelines for due diligence.

Access to finance is a basic consumer right. Consumer finance is part of the financial system of a society. If consumer finance is provided through sustainable and responsible providers, with acceptable credit conditions, it becomes a monetary bridge between the productive sectors of a society and its consumers. Consumer finance takes place through many different channels. These include specialized consumer finance companies, retail stores, pay-roll lenders, vendor credit, family and friends, banks and loan sharks.

Although delivery channels differ, basic consumer finance guidelines apply to all providers. Consumer finance is usually the first entry point into the formal financial services sector for the low-income consumer, and leads to productivity gains as well as improvement in the quality of life. Providers of consumer finance need to comply with four basic guidelines that include:

• Disclosure of information;
• Right of withdrawal and early repayment;
• Affordability check and avoidance of over indebtedness;
• Responsible credit collection.