Consumer Protection Takes Center Stage

May 25, 2011

As momentum builds for microfinance initiatives in the United States, it's important not to lose sight of the need for consumer protections. This was a key message delivered last week at the Microfinance USA Conference, held in New York.

"Microfinance is building momentum in the United States, and together we can determine the nature and success of this growth," Eric Weaver, Founder and CEO of Opportunity Fund, told the group of nearly 800 microfinance professionals. "This is our moment to ensure the future of microfinance is an industry that does right by the consumer."

Opportunity Fund is a microfinance institution based in the San Francisco Bay Area, organized the event, its third annual. The online micro-lending site Kiva and ACCION International were co-hosts of the event. All three organizations are members of the Smart Campaign, an industry initiative to rally micro-lenders around a set of Client Protection Principles.

Basic tenants of the Smart Campaign include: transparent pricing, terms and conditions; prudent lending; respectful colleciton processes; and readily available avenues of redress. The Smart Campaign is also developing a certification process for microfinance professionals; that program is expected to be made public later this year.

One need look back only a few years - to the heydays of subprime mortgage lending - for a reminder of just how financially un-savvy some consumers are and how unscrupulous some lenders are.

"Adoption and adherence to [the Smart Campaign] principles will, I believe, significantly strengthen the microfinance industry and elevate it as a model of responsible banking around the world," said Michael Schlein, President and CEO of ACCION International.

Don't Forget Savings

The Microfinance USA Conference also focused attention on the need for micro-savings products, debunking "myths" that low-income Americans don't have enough money to save.

"Low-income people can save. In fact, many want to save," said Weaver, pointing to Opportunity Fund's experience. "We've enrolled 3,500 families who are saving %85 each per month. They've exceeded $5.3 million total - remarkable, given the annual household income of our clients is $25,000."

"Savings is an essential pillar of financial inclusion," said Bob Annibale, Global Director of MIcrofinance and Global Development at Citibank, a lead sponsor of the event. To that end, Annabale noted that City has offers a new educational savings plan in partnership with the City of San Francisco, which goes by the moniker Kindergarten to College. "Working together, we can expand economic empowerment in the communities we serve," the Citi exec said.

Americans use nonbanks to cash $60 billion in checks yearly

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