Presented at the 1 st International Islamic Financial Inclusion Summit Solo, July 18th, 2012

1. Consumer Protection and Financial Literacy:The principle of Product Development in Financial Services Sector Presented at the 1st International Islamic Financial Inclusion Summit Solo, July 18th, 2012 Yoko Doi, Financial Sector Specialist Financial and Private Sector Development Unit World Bank Jakarta Office

2. Outline of Presentation: Importance of Consumer Protection and Financial Literacy (CPFL) for Financial Inclusion The Principles of Product Development: Financial Inclusion & Consumer Protections: Good Practices from other countries World Bank’s engagements on CPFL Globally and in Indonesia

3. Importance of Consumer Protection and Financial Literacy (CPFL) for Financial Inclusion

4. Financial inclusion is a four dimensional aspects 4

5. CPFL is Important for Financial Inclusion • Benefits of increased financial inclusion may be undermined (or lost) by weak financial consumer protection • Weak regulation of consumer finance leaves consumers vulnerable to abuse • reduced consumer trust in financial sector • reduced use of formal financial services • Weak financial literacy means that consumers cannot protect themselves • CPFL one of 9 principles of innovative financial inclusion

6. Many Stakeholders …but Financial Supervisors Play the Key Role

7. Roles of Financial Supervisors in CPFL Programs • Issue regulations on minimum standards of financial consumer protection • Require clear consumer disclosure & easy access to comparable quotes, prohibit unfair/deceptive/misleading practices • Review consumer complaint files to identify trends of consumer abuses. • Encourage industry associations to develop conduct codes, standard formats on disclosure, redress mechanisms. • Research consumer behavior in use of financial products. • Monitor financial markets for new risks to consumers. • Promote financial education of consumers.

8. The Principles of Product Development: Financial Inclusion & Consumer Protections: Good Practices from other countries

9. What Can Go Wrong? Cross-cutting consumer protection concerns Product-specific concerns

10. World Bank’s Good Practices for Financial Consumer Protection support G20 High Level Principles

11. Consumer Disclosure • Simple • Easy to understand • Accessible • Comparable • How do you know if it is working? • Try consumer testing

12. Helping Consumers Shop Around Makes a BIG Difference Credit Card Loans Average Interest Rates in Peru Source: Superintendence of Banking, Insurance and Private Pension Funds of Peru

13. Business Practices • Free choice of financial products • Prohibition of unfair, abusive, misleading practices • Retail sales officers trained and qualified

14. Consumer Redress • Financial ombudsman • Complaints department in every financial institution

15. Financial Literacy • Household Surveys of Financial Literacy & Consumer Behavior • Financial education targeted on: • Risks/rewards • Rights/obligations • Impact Measurement Studies

16. World Bank’s engagements on CPFL Globally and in Indonesia

17. World Bank Strategy for Country CPFL Programs Input Baseline Household Survey of Financial Literacy & Consumer Behavior Action Plan to Implement Recommendations Implementation Program Follow-up Household Survey • Diagnostic Review of Legal & Regulatory Framework Feedback Loop

18. World Bank CPFL Programs Implementation Programs Action Plans -In pipeline Household Surveys -In pipeline Diagnostic Reviews -In pipeline

19. World Bank Engagement and Contribution to Global Dialogues • Methodology for assessing country financial consumer protection regimes: “Good Practices for Financial Consumer Protection” • “Consumer Protection and Financial Literacy: lesions from Nine Country Studies” • 18 Country Diagnostic Reviews • 18 Country Household Surveys • 3 Country Action Plans + 2 Implementation Program • Member of Financial Stability Board Consultative Group on Financial Consumer Protection • Member of OECD Task Force for High Level Principles on Financial Consumer Protection www.worldbank.org/consumerprotection

20. The Range of Financial Inclusion Engagements in Indonesia • 2012 NSFI development • Two Diagnostics Studies Reform on GoI funded PNPM Mandiri RLFs Scheme Fin Literacy ToT for GoI Pilot Project (Research on Fin. Literacy Assessment on MWs) Microinsurance Regulatory Framework Microinsurance Marketplace Review on MW Microinsurance Islamic Finance for MSMEs Assessment on KUR (GoI Credit Guarantee Program) Strengthening Savings & Loans Cooperatives Branchless Banking regulatory review Evaluation of TabunganKu (Basic bank account)

21. Pilot Project on Financial Literacy Training for Indonesian Overseas Migrant Workers and Their FamiliesPartners: CMEA, BNP2TKI,Disnakertrans Malang, PPTKIS • WB Initiatives Output and Outcome Activities • Modules: Training Guidelines, Trainer’s Guide for Migrant Workers, Trainer’s Guide for Migrant Workers’ Family; and supporting training tools: poster, comic book, financial book, and brochure • Overall, 432 migrant workers and/or their families from Greater Malang area have been trained • Currently, the pilot is analyzing all the data collected from the monitoring stage. Report on the results are expected to be published in mid June 2012. • Preliminary analysis of the monitoring data shows that there is a positive correlation between financial literacy training and opening savings account. • This pilot is a randomized research. The main objective is to evaluate the impact of financial literacy training for migrant workers and their families and to explore the effective ways to improve their knowledge in managing their remittances • Development of financial literacy training modules for migrant workers and migrant workers’ families, and development of training supporting tools • Providing financial literacy training: trainings are conducted for migrant workers who have registered to recruitment agencies (PPTKIS) to work overseas and/or their families. • Phone and face to face monitoring were carried out to assess how the training affected the household’s financial behavior.

22. TA to Support GOI’s Financial Literacy Initiatives for Indonesian Overseas Migrant Workers and their FamiliesPartners: CMEA, BNP2TKI, BP3TKI, Disnakertrans, Government-owned Banks • Supporting Government Initiatives Activities Output • ToTon financial literacy for staffs of BNP2TKI, BP3TKI (regional office of BNP2TKI, in 19 provinces across Indonesia) & Govt-owned banks; 2 batches in 2011 & 1 batch in 2012 • Mentoring and monitoring during BNP2TKI – BP3TKI financial literacy trainings to MWs and MWs families: 17 provinces in 2011 (April – November 2011) and 9 provinces in 2012 (March – July 2012) • ToT implementation: March 29 – April 8, 2011, 58 staffs from 19 BP3TKIs, Bank BRI, Bank BNI, Bank Mandiri, TIFA Foundation, and SahabatWanita Foundation participated in the training. March 5 – 8, 2012, 37 staffs from 19 BP3TKIs, Bank BNI and Bank Mandiri participated in the training. • Monitoring tools formulated: checklist, pre test/post test questionnaire, time keeping form, mentoring & monitoring form • Overall, 1,287 people were trained in 2011 (542 MWs, 723 MW’s families, 22 ex MWs) • Mailing list established (for BNP2TKI & BP3TKI staff) as a media to discuss, learn, and share experience in conducting FL training • FL advocacy video produced, and FL training tutorial video in production process • Website on MWs financial education is under construction Outcome • BNP2TKI staff gained competency as mentor & Master Trainer during ToT in 2012 • Banks (BRI, BNI and Mandiri )committed to provide support to BNP2TKI by involving their trainers in the ToT • Bank Mandiri committed to expand FL training as part of its CSR activities

23. TerimaKasih