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.
Sewing Floor, Armana Apparels, Dhaka. Photo: Shobha Shetty
Contradictory trends in female labor force participation in South Asia continue to pose a puzzle for policymakers. On the one hand, Bangladesh’s ready-made garment industry, one of the mainstays of the national economy, has a high female labor participation rate of 85%. On the other hand, the female labor force participation rates continue to fall in India in spite of recent high economic growth. During my recent visit to Dhaka, I was once again reminded about the enormous challenges of tackling these issues.
I was in Dhaka to attend the 7th Meeting of the BEES (Business, Enterprise and Employment Support for Women in South Asia) Network. Founded in May 2011, the BEES network, facilitated by the World Bank, brings together 15 civil society organisations that work for the economic empowerment of poor women across South Asia. Currently, the network represents women at the bottom of the economic pyramid, with a collective reach of over 100 million. It was a sombre coincidence that the week of our visit marked the first year anniversary of the horrific Rana Plaza disaster in which over 1,100 perished.
The rise of the ready-made garment industry in Bangladesh in the last decade has been stunning by every measure. By 2013, about 4 million people - almost 85% women - were working in the US$22 billion-a-year industry. The industry now contributes to over 75% of Bangladesh’s export earnings and accounts for over 10% of GDP, making it the world's second-largest apparel exporter after China.
But what does it mean for the millions of women employed in this industry? Thanks to Manusher Jonno Foundation (MJF), one of the Bangladesh BEES network members and co-host of the Dhaka meeting, I was lucky to visit the Awaj (“voice”) Foundation to understand this issue better. Founded in 2003, the organisation focuses on empowering female RMG workers. We got an opportunity to meet Nazma Akter, the feisty General Secretary of the foundation and a former garment worker. After spending 7 years in the ready-made garment industry as a young girl, she turned to activism on behalf of her fellow women workers. She is now a well-recognised national name and Awaj has a direct outreach to 60,000 women workers (and 600,000 indirectly).
Promoting competition is considered the best available option for increasing economic well-being. The recent global financial crisis prompted policymakers to reconsider basic assumptions, but the virtues of competition were not among them. However, gone are the days when practitioners slept sound thinking the economy, if left alone, is self-correcting.
The limitations of competition as a force for universal good are well-known. Consumers can be inadequately informed, making it possible for firms to take advantage of them. The intrinsic difficulty of matching skills to positions and the costs associated with moving jobs may make workers stay with abusive employers. More basically, in a world where people have imperfect information and workers can’t always leave their employer, firms may be able to respond by cutting corners and abusing consumers and workers.
Is the problem with competition itself or the legal and informal institutions that yield this type of competition? The answer depends in part on one’s ideological lens—namely the belief of competition existing outside a regulatory framework, necessitating governmental intervention in the marketplace versus the belief that regulatory forces help create, define, and nurture competition in the market, necessitating improvements to the legal framework if competition is failing.
Some policies that supposedly restrict competition are justified for promoting competition. Intellectual property rights, for example, can restrict competition along lets say the use of a trade name. But the argument is that intellectual property and antitrust policies complement, rather than conflict, one another in promoting innovation and competition.
Life will surely be more stressful if we needed to compete for everything. Cooperation is often more relaxing. Society and competitors at times benefit when rivals cooperate in joint ventures to address collective needs. Competition can make people less cooperative, promote free-riding, and reduce contributions to public goods, thus leaving society worse off.
The point is not all forms of competition are beneficial. Just as athletic contests distinguish between fair and foul play, the law distinguishes between fair and unfair methods of competition. Bangladesh’s garment industry is a contemporary case in point. The collapse of Rana Plaza in Bangladesh brought to the fore the pathetic state of working conditions in many factories serving the global supply chains. The structure of the supply chain itself—the relationship among regulators, buyers, suppliers, and workers—is fundamentally related to these problems.
The practice of subcontracting is routine in Bangladesh’s garment industry. The prevalence of competitive indirect sourcing strategies has resulted in a supply chain driven by the pursuit of nominal cost minimization. It has increased risks for business and workers by undermining prices, wages, working conditions, and investment in productivity and quality. The apparel units engaged in sub-contracting are mostly non-compliant particularly in paying wages and maintaining safety standards.
Question is why do compliant factory owners take recourse to such sub-contractors? Major global buyers see Bangladesh as a market where they can obtain the most competitive prices for a high volume of lower end products. Consequently, they set low price targets. The manufacturers compete for large orders by undercutting each other, further driving down the prices. They make delivery commitments far in excess of their capacity to produce without breaching compliance. When prices are dramatically driven down, the natural tendency of a garment manufacturer is to manage their unit at a least cost with regard to overheads and wages. The pressure to drive these down arise inevitably.
The 10th South Asian Economics Students Meet (SAESM) was held in Lahore, Pakistan, bringing together 82 top economics undergraduate students from the region. The theme was the Political Economy of South Asia, with a winning paper selected for each of the six sub-themes. In this post, Thilani Navaratne presents her winning paper on the political economy of energy and natural resource use. Posts from the other winning authors have also been featured on this blog, and can be found at the end of this post.
In the past, Sri Lankan policy makers and politicians paid considerable attention to creating surplus energy capacity at the national level in order to support rapid development while at the same time, embarked on rural development as a prime political initiative where the rural electrification infrastructure formed a crucial component of the policy framework.
I conducted an analysis of the dynamics and the characteristics of the political economy of access to energy in rural electrification in Sri Lanka. The study focuses on how national policies shaped rural energy access and what influence rural politics and demand at the grassroots level have had on the energy infrastructure.
In addition to that the study explores the budgetary policies that had a direct bearing on national energy policies, and more specifically in creating rural energy infrastructure itself. While the provision of energy is the main component of rural energy access, the affordability of energy at rural level remains a key factor in the ultimate, tangible outcomes of energy usage. Clearly, rural economic development and enhancement of living standards are intrinsically linked with the degree of access to energy at affordable prices.
My paper finds that rural access to energy has come about both as a direct outcome of specific policies as well as a result of broader policies of rural development. Specific policies include the National Energy Policy which addresses the basic energy needs of the nation and sets out strategies to be followed to fulfil such needs. Much broader, macro level policies relating to Rural Development and energy accessibility are captured in the “Mahinda Chinthana”- The long term plan for the future of the nation, presented by the governing regime and in the Ministerial Policies.
Photo by Mahfuzul Hasan Bhuiyan
Life for people living in the Jalekhali village of the Sathkira District in Bangladesh has not been the same since Cyclone Aila made landfull in 2009. In this coastal village, not only did people suffer in the aftermath of the cyclone, but health effects still linger from salinity intrusion into their ponds and other bodies of water. In addition to an increase incidence of water borne diseases among women and children, the increased intake of salt has resulted in increased prevalence of high blood pressure among pregnant women. The issue not only affects Jalekhali but is prevalent across coastal towns and villages in Bangladesh. In many of these villages the ground well water is also contaminated with arsenic leaving the people with acute shortage of safe drinking water.
Female farmers in Tamil Nadu after attending a farmer training session in the village.
In India, the state of Tamil Nadu has about 4% of the geographical area of the country, 7% of the population and only 3% of the water resources. Hence, it is one of the most water stressed states in India and its crops rely on river water and monsoon rains. Yet, Tamil Nadu is one of the leading producers of agricultural products in India, famous for its turmeric and rice among others. Thus the need to conserve and manage scarce water resources is critical to the success of agriculture of the state, which accounts for more than 20% of its economy.
In Unit #95 (Photo: Martje van der Heide)
“This is unit number 95”, Preeti told me. “It is the standard model.” Geeta Devi the owner shook her head. “Look up”, she said, “This is our house.” I looked up and saw what she meant: there was a beautiful lotus flower design in the ceiling. “My husband made it” Geeta said proudly. “This is our house”.
The tireless Preeti works with village communities to help them build back better (Photo: Martje van der Heide)
Preeti Bisht is the community worker for SUDHA who is mobilizing the victims of the Uttarakhand floods in this small village on the Mandakini River, well on the way to Kedarnath. She took me all the way to unit number 107 and in passing showed me the school. I soon discovered that none of the house units were standard. Some people added a room, others an extra window in the kitchen to show the amazing view up river. And the houses that were already finished were painted in every color imaginable as houses in Uttarakhand are meant to be.
The 10th South Asian Economics Students Meet (SAESM) was held in Lahore, Pakistan, bringing together 82 top economics undergraduate students from the region. The theme was the Political Economy of South Asia, with a winning paper selected for each of the six sub-themes. In this post, Rumela Ghosh presents her winning paper on the political economy of social security. Posts from the other winning authors will follow over the next few weeks.
Employment is one of the burning problems affecting South Asia. India now has a diminished growth rate below 6% per year. In recent years although the living standards of the 'middle classes' have improved, reform for underprivileged groups has not been so exciting. According to National Service Scheme (NSS) data the average per capita expenditure rose at the exceedingly low rate of 1% per year in India. There has been a sharp decline in real agricultural wages also. A quantitative assessment of the impact of various rural wage employment schemes during the last two five-year plans and the current one shows that the results in terms of employment generated have been steadily decreasing.
My paper looked at schemes to tackle unemployment in India. A Bird's Eye View into Mahatma Gandhi National Rural Employment Guarantee Act firstly examines the Maharashtra Employment Guarantee Scheme (MEGS) introduced in the 1970s. It examines how at different time frames and contexts the elite managed to maintain their support base and reinforced its legitimacy by supporting a poverty alleviation program – the EGS. It also highlights the issue of gender concern and the problem of migrant workers.
Among various EGS, the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is the flagship program implemented at the national level which achieved measurable success, though with some flaws. It guarantees every rural household up to 100 days of wage employment in a year within 15 days of demand for such employment. My study highlights the significant interstate differences in the supply of employment and tries to explore the reasons why. Supply falls far short of demand, particularly in low-income states, where the organizational capacity to implement the scheme is limited.
The paper examines the conceptual design and delivery of MGNREGA to assess its effectiveness against unemployment and poverty. I discuss existing labor laws applicable to workers in the unorganized sector covering wages, contract and poverty incidence. The paper also seeks to derive the short run and long run implications of a minimum wage law. A detailed empirical analysis of the spatial dimension of implementation, problems of funding, and budgetary incidence of MGNREGA.
A comparative study of MGNREGA scheme as implemented in Tamil Nadu where it is largely fair and corruption free with respect to that in Uttar Pradesh where the implementation has some serious flaws with corrupt practices of local officials paying wage payments to non-existing laborers has been illustrated. It studies the differences in utilization, extent of targeting, magnitude of income transfers and the cost-effectiveness of food subsidies.
I designed a game-theoretic model to design a near-perfect scheme with suggestions to eliminate the loop holes. Various falsified implementation strategies by contractors like fictitious names in muster rolls, commission to the contractor for partially/not working laborers has undermined the objectives of MGNREGA. This illegal money laundering from a subsidized scheme like MGNREGA digs a deep hole in India's economic pocket when the economy is reeling under inflation and rupee value depreciation pains. The model attempts a systematic game theory based solution approach for restricting these scheme implementation faults. A graphical presentation shows that, with such a policy laborers in the long run will have an incentive to deliver under MGNREGA only.