Europe and Africa Share Knowledge on Financial Literacy | World Bank Institute (WBI)

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STORY HIGHLIGHTS

  • Weak financial consumer protection and low levels of financial literacy can result in disastrous consequences for both the financial sector and society.
  • The G20 has asked the international community to develop principles for financial consumer protection by October 2011. The Bank is part of this initiative.
  • Representatives from Armenia, Azerbaijan, Kenya, Russia, South Africa, and Zambia participated in a Bank-sponsored knowledge exchange on consumer protection and financial literacy. 


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March 3, 2011
—In Andhra Pradesh, India, microfinance credit is easily available but the lack of consumer education has left many borrowers in despair. In Malawi, three times as many people keep their savings in coffee tins as in a bank, leaving them at risk and undermining economic growth.

For the World Bank the picture is clear: weak financial consumer protection and low levels of financial literacy in developing countries can result in disastrous consequences for both the financial sector and society.

“Some 2.5 billion people in developing countries have no access to financial services. It is a problem that we at the Bank need to address. As access increases, it is important that financial services benefit consumers and not harm them. The interests of consumers have to be protected to support financial stability and achieve equitable growth worldwide,” said World Bank Managing Director, Mahmoud Mohiedlin at the Global Dialogue on Consumer Protection and Financial Literacy on February 24.

During the dialogue thinkers, policymakers and economic actors from Armenia, Azerbaijan, Kenya, Russia, South Africa, and Zambia exchanged knowledge about consumer protection and financial literacy.

The Bank is part of a G20 initiative to develop principles for financial consumer protection by October 2011.

The event was co-sponsored by the World Bank Institute (WBI) and the Financial and Private Sector Development Network (FPD) and is part of WBI’s Global Development Debates Platform – a series of dialogues on emerging development topics and priorities.

“We believe that in today's world south-south conversations have proved to be extremely useful, and the Bank can play a key role in facilitating them,” said WBI Director, Akihiko Nishio.

According to Consolate Rusagara, the director for Financial Systems in FPD, the dialogue was a successful example of peer-to-peer learning.
 

open-quotesSome 2.5 billion people in developing countries have no access to financial services. It is a problem that we at the Bank need to address.close-quotesWorld Bank Managing Director, Mahmoud Mohiedlin

The World Bank works with countries to identify gaps in the area of financial consumer protection and benchmarks them so they know where they stand and what they can do to improve.

“We also conduct household surveys on financial literacy, and help countries prioritize and develop concrete action plans and implementation programs,” said Rusagara.

See below for examples of successes and challenges from participants of the dialogue.

 Azerbaijan has national financial education program run by a special unit in the Central Bank and a hotline for consumers. “The hotline is a good barometer of what we are doing right or wrong,” said a participant from Azerbaijan.
In Kenya financial inclusion has grown as financial services are now available from mobile phones. “But on the credit side the growth is muted,” said a Kenyan participant. “We work with banks to help them explain the schedule of payments to consumers and encourage consumers to compare offers from different banks.”
 
Russia’s agency for consumer protection, Rospotrebnadzor, has 84 centers across the country providing free advice on financial consumer issues. Russia also has many civil society organizations active in the area of consumer protection including legal assistance. “Many people who were shaped in the Soviet Union are used to the government’s protection and are not prepared to be responsible for their own undertaking now,” said the representative from the banking association in Russia. “We have used the World Bank Diagnostic Review to develop a passport of key facts, which helps consumers understand the terms of their credits.”
 
In South Africa the credit industry regulator functions as consumer protection agency, responsible for education, research and investigations. Some 6,500 consumers apply monthly for debt counseling services. Debt counselors, supervised by the regulator, work with consumers to help them repay their debts and know their rights.

 

In Zambia the Central Bank requires that financial institutions publish interest rates in the newspapers but most people do not understand what the figures mean. Similarly, legislation requires that financial institutions display consumer complaints but consumers do not know about these procedures and do not take advantage of them.

 

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