Responsible Consumer Lending

This brief provides a framework to guide financial institutions in their product design and client education decisions when they want to steer their clients towards better financial management. The appropriate consumer finance framework helps financial institutions design products that are optimized for a given financial need.The foundational idea behind the framework is that in consumer finance, the default funding preference should always be savings, unless there is clear justification for why credit would be better suited. The note states that there are two types of expenditure for which credit should be the preferred over savings: when the object being funded can significantly increase household productivity and unpredictable expenses.  Focus points of the note include:

• Guidelines for the relative appropriateness of credit over savings;
• Loan designing by MFIs for acquiring productivity-enhancing and non-productive goods;
• Expansion of consumer finance.