Trust Through Transparency: Applicability of Consumer Protection Self-regulation to Microfinance
This technical note examines how non prudential self-regulation has helped other industries, especially the financial services industry in the United States, win the trust of consumers and avoid heavy-handed and costly regulation. The technical note begins by providing the background of the consumer movement and the response of business to consumer issues.
The review of other industries focuses particularly on the United States because of the availability of materials, with some reference to the international consumer movement and some examples from other countries. Both the consumer perspective and the business perspective are described to emphasize their fundamental difference in approach to consumer protection: the former operates through government regulation, the latter through industry-sponsored self-regulation.
The paper explains how self-regulation is accomplished through:
- Establishing;
- Distributing;
- Enforcing codes of practice to which businesses agree to adhere.
The paper concludes by arguing that MFIs should embrace self-regulation to protect consumer rights, both because this approach is morally correct and because it is in the industry's business interest to do so.
