MICROCAPITAL BRIEF: Khan and Nizami Argue Adopting Consumer Protection Principles Strategic for Microfinance Institutions

An article by Fehmeen Ahmed Khan, the founder of the Microfinance Hub Blog, and Saman Nizami, a finance consultant, recently appeared on the Microfinance Focus website arguing the business case for urging microfinance institutions (MFIs) to embrace consumer protection principles.

The authors point out that some MFI leaders feel that adopting these principles means trading immediate benefits for uncertain rewards in the future. The article suggests a number of ways through which better consumer protection could benefit an MFI.

It is argued that adopting consumer protection principles builds a corporate culture that could help MFIs recruit better talent. The authors claim that consumer protection fosters trust between clients and MFIs, which allows MFIs to gain access to valuable feedback. In addition, embracing these principles could boost MFIs’ social impact, which could help them raise funds from microfinance investment vehicles (MIVs) that focus both on the financial and social returns of MFIs. Lastly, it was argued that, in the long run, better consumer protection helps clients make more informed decisions, which increases competition within the microfinance industry and would thus allow the industry to prosper.

By Trevor Kwong, Research Assistant

Sources and Additional Resources:
[1] Microfinance Focus: Strategic Benefits of Adopting Client Protection Principles in Microfinance:
http://www.microfinancefocus.com/news/2010/10/08/strategic-benefits-of-adopting-client-protection-principles-in-microfinance/

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