Responsible Finance Forum

Making Recourse Work for Base-of-the-Pyramid Financial Consumers

Megan Chapman and Rafael Mazer
01 December 2013
Source:  Consultative Group to Assist the Poor (CGAP)

A microfinance client lives hundreds of miles from the capital city, where her microfinance provider has its central office. Her entire village was “unbanked” until the microfinance provider started providing services via a single loan officer two years ago. She was happy with her first loan, but is struggling to make biweekly repayments on her second loan, and the loan officer insists she cannot withdraw from her savings to help her to repay because these savings are supposed to be for loan collateral. She feels this is unfair because she has had to withdraw a child from school to make the payments, but does not know what else she can do.

In the meantime, the Financial Superintendent has begun a series of monthly fairs around the country to educate the public on their rights as consumers and available recourse or complaints channels. The microfinance client attends one such fair in the provincial capital and approaches the representative with her story. The representative gives her information about the microfinance institution’s (MFI’s) complaints channels and the Superintendent’s own consumer hotline for unresolved complaints or general inquiries.

The client calls the complaints staff at the MFI to report the problem. A manager then works with the loan officer to adjust the client’s loan repayment schedule to avoid undue hardship. Based on a pattern of similar complaints, the MFI also begins a review of its mandatory savings policies.

This case demonstrates some of the challenges base-of-the-pyramid (BoP) consumers face with the products and providers they use, and how access to effective nonjudicial recourse options can help bridge gaps that are essential to building healthy financial inclusion in emerging markets and developing economies. This Focus Note explores innovative ways for policy makers and providers to raise awareness and improve accessibility of recourse mechanisms, tailor recourse to suit new products and delivery channels, and proactively use recourse data to address systematic problems in BoP markets.