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Financial Sector

Are Consumer Rights Well Protected in Pakistan's Financial Sector?

Sarmad Shaikh's picture

Walled City of Lahore market. Asad Zaidi / World Bank
Last month, the World Bank released Pakistan’s first ever Consumer Protection and Financial Literacy (CPFL) Diagnostic Review along with convening a workshop where 200 financial sector professionals discussed the recommendations, a first such deliberation on consumer protection and financial literacy in the country.

The assessment compares Pakistan’s performance standards, covering four segments of the financial sector - banking, microfinance, insurance, and securities markets. This approach brought out cross-cutting findings and a comprehensive set of recommendations. The overall objective of the review is to foster a responsible financial system that offers (a) transparency, (b) appropriate choices, (c) redress mechanisms, and (d) privacy of consumer information.

Financial exclusion in Pakistan is high – 56% of the population currently uses no formal or informal financial products – but decreasing. The past decade has seen rapid growth in household lending in Pakistan, leading to many taking on risks and obligations they do not fully understand. This growth underscores the need for CPFL to prevent unfair practices, and improve transparency and efficiency by reaching potential customers to increase their understanding of financial services.

Overall, the report identifies certain gaps and overlaps in the legal, institutional, and regulatory framework for consumer protection in Pakistan and finds that there is a need for some consolidation and much more coordination amongst a fragmented range of consumer protection institutions, including regulators, industry associations and ombudsman offices. Key stakeholders agree that a consolidated approach to regulating market conduct is necessary. One critical area is the microfinance sector which serves close to 3 million active borrowers and 6 million savers. Many of these clients have limited access to consumer protection institutions or information, leaving them vulnerable to consumer rights malpractices. In this sector, microfinance banks (MFBs) are regulated by the State Bank of Pakistan, but other non-deposit taking microfinance institutions (MFIs) are unregulated. In a number of geographical areas, both MFBs and MFIs are serving the same clientele, but there is a difference in market conduct regulations on consumer protection. For example, a microfinance bank is mandated by the prudential regulations of the State Bank of Pakistan to disclose annualized lending and deposit rates in the contract signed with their clients, and to also have an officer read out these terms to their clients. In contrast, a non-deposit taking institution is not subject to these regulations and has the discretion of quoting, say, rupee amounts that might not be representative or comparable.

The key finding on transparency and disclosure is that although financial regulators have strengthened disclosure requirements, there is a lack of standardized, comparable pricing information on financial products. As a result, consumers do not always have simplified, adequate, and comparable information about the prices, terms and conditions, and inherent risks of financial products and services. Regulators, market participants, and other stakeholders agreed with the recommendation on introducing a standard Key Facts Statement sheet, but also stressed the need for some demand-driven research on what information would be most beneficial to Pakistani consumers and what would be most effective way of communicating this information.

Reformers vs. Lobbyists: Where have We Got to on Tackling Corporate Tax Dodging?

Duncan Green's picture

The rhythm of NGO advocacy and campaigning sometimes makes it particularly hard to work on complicated issues, involving drawn-out negotiations where bad guys have more resources and staying power than we do. Campaigns on trade, climate change, debt relief etc often follow a similar trajectory – a big NGO splash as a new issue breaks, then activists realize they need to go back to school (I remember getting briefings on bond contracts during the 1998 Asia financial crisis) or employ new kinds of specialists who can talk the new talk. And then for a while we get geeky, entering into the detail of international negotiations, debating with lobbyists and academics. When it works (as in the debt campaign), we contribute to remarkable victories or to stopping bad stuff happening (which I would argue was a big civil society contribution at the WTO).
 

2014 India Development Marketplace Finalist Story: Selco - Providing those in slums access to productive lives; one solar battery at a time.

Cristina Navarrete Moreno's picture

One year ago, Kumar began renting out 40 Selco solar-powered batteries to the people living in his slum community in the heart of Bangalore. Prior to this, 400 families were left to rely on cheap, easily breakable lights, dangerous and flammable kerosene lamps, or simple darkness. Without affordable energy, the inhabitants of Kumar’s slum lose hours of otherwise productive time that would allow them to build a pathway out of the slum, and into a secure life. Within months, demand for Selco’s rechargeable batteries sky-rocketed and Kumar increased his inventory to 86. Now, he is requesting yet another 50.

East Asia and Pacific countries can do better in labor regulation and social protection

Truman Packard's picture

Those unfamiliar with the fast growing emerging economies of East Asia are likely to think that governments in these countries let market forces and capitalism roam free, red in tooth and claw. That was certainly my impression before coming to work in the region, and generally that held at the outset of our work by the group of us that wrote a new World Bank report “East Asia Pacific At Work: Employment, Enterprise and Wellbeing” .

The report shows just how wrong we were. We could be forgiven this impression—many of us had come from assignments in Latin America and the Caribbean or in Europe and Central Asia, where the distortions and rigidities from labor regulation and poorly designed social protection are rife, and where policy makers cast envious looks at the stellar and sustained employment outcomes in East Asia.

Well, it turns out that although they came relatively late to labor regulation and social protection, many governments in the region have entered this arena with gusto. We were surprised to find that, going just by what is written in their labor codes, the average level of employment protection in East Asia is actually higher than the OECD average.

Growing the Green Capital Markets in Dubai

Michael Bennett's picture
 Theodore Scott
Source: Flickr Creative Commons

Recently, the Dubai Supreme Council of Energy (DSCE) and the World Bank agreed to design a funding strategy for a green investment program in Dubai that would look at financing green investments through a variety of sources, including green bonds and sukuk (Islamic certificates). 

Media (R)evolutions: The Mobile Wallet’s Global Popularity

Roxanne Bauer's picture

New developments and curiosities from a changing global media landscape: People, Spaces, Deliberation brings trends and events to your attention that illustrate that tomorrow's media environment will look very different from today's, and will have little resemblance to yesterday's

An estimated 2.5 billion people  in lower- to middle-income countries lack access to formal financial services, limiting their ability to benefit from economic opportunities and raise their income levels. Nevertheless, with more than 1 billion of these people owning a mobile phone, mobile money services, also known as mobile wallet, offer a possible solution by allowing individuals to pay for goods using a mobile phone instead of currency or credit cards. Already, there are around 220 services in 85 countries, and more continue to emerge.




 

Emerging market sovereign bonds: Does it cost more to issue a bond under the English law?

Dilip Ratha's picture

It seems it does. During 2008-2012, post-crisis, launching under English law increased spreads by more than a third on average. In other words, by choosing the UK law, a nation rated B+ (for example, Ecuador, Ghana, Greece, Pakistan and Zambia) apparently paid 7.7% interest rate per annum instead of 6 percent, and a nation rated BB (for example, Bangladesh, Nigeria, Serbia or Vietnam) paid nearly 5.7% instead of 4.5% (figure 1). Such an increase in spread is equivalent to a rating downgrade of 3 notches or more.

Why Private Sector Development is Crucial for Morocco

Joumana Cobein's picture
 Arne Hoel

Like many economies in the Middle East and North Africa (MENA) region, Morocco’s depends on the public sector, but with its economy expected to grow by only about 3 percent in 2014—having slipped from about 5 percent in 2011—it is clear that the public sector needs all the help it can get. The best way to help the public sector is to grow the private sector, and the International Finance Corporation believes the best way to grow the private sector is to provide advisory services and comprehensive investment solutions to attract foreign money, help local businesses help themselves, and create those desperately needed jobs. 

Will China’s economic slowdown affect its reforms?

Bingjie Hu's picture

The latest macroeconomic data released by China’s National Bureau of Statistics (NBS) on April 18 suggest that China’s economic growth has moderated in the first quarter of 2014. GDP growth has decelerated from 7.7 percent (year-over-year) in the last quarter of 2013 to 7.4 percent (year-over-year) in the first quarter of 2014.

On a sequential basis, the quarter-on-quarter seasonally adjusted growth slowed from 1.7 percent in Q4 last year to 1.4 percent in Q1 2014.

The deceleration in the first quarter of this year is in line with World Bank expectations (see our latest East Asia Economic Update) (Figure1).


Figure 1: Official growth data on the demand side reflect subdued export growth and a moderation in investment growth. Consumption led growth in the first quarter of 2014, contributing 5.7 percentage points to growth, followed by investment, contributing 3.1 percentage points. Net exports dragged down growth by 1.4 percentage points.

Many economists speculate that the weakening trend in growth may put more pressure on the government to implement more and stronger growth supportive fiscal and monetary policies, following the stimulus measures unveiled recently that include accelerated expenditures on railway construction and social housing, as well as tax breaks for small businesses.

Why are Africans Getting Ripped off on Remittances?

Duncan Green's picture

Whatever your views of migration, a consensus ought to be possible on one thing: if migrants do send money home, as much as possible of the hard-earned dollars that they send should actually get there, to be spent on putting feeding the kids, putting them through school or even having a bit of fun (that’s allowed too).

But according to some excellent new research by the ODI, one in eight dollars remitted to Africa is creamed off by intermediaries – a much higher level than for other regions. They launched the report at a meeting in London last week, and the high preponderance of Africans at the launch bore witness to the anger this level of rent-seeking arouses.


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