Independent Research and Policy Advocacy

Strong consumer protection regulation in financial services need of the hour

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Every day, billions of low-income households all over the world are saving, borrowing and insuring in myriad ways, formal and informal. The “market” for financial services is well and alive and will continue to be so as long as people have a demand for liquidity and risk management.

However, financial services for the poor are predominantly expensive, unreliable and inconvenient. Markets have the potential to solve the problem of financial services access in a high-quality and sustainable manner, given the inherent ability to attract capital and talent, but markets are not good at self-disciplining.

The case for regulation stems from this feature, so that the growth in financial services does not occur at the cost of customer welfare or systemic stability. It is worthwhile to precisely understand where the trade-offs are between market expansion and consumer welfare in financial services.

Above is an excerpt from an article published in The Economic Times today. Read the full article here.

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  1. This is an excellent piece.  The points raised in the article also make it clear why provider capacity combined with provider liability is a far superior choice to relying on financial literacy and / or transparency as the means by which customers will be protected.  These points also provide support for the argument that simplicity as a design principle for financial services is seriously flawed because, for one, simple products may detract from the ability to the financial service to simplify the life of the customer, and secondly, apparently simple products, as the article points out, may not be quite so simple after all when viewed from the ability of the customer to fully understand its impact on her life.

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