i nc lu s i ve f i nanc i ng
133
and regulatory focus of consumer protection. The crisis
made the industry and the global supervisory institutions
wake up to the reality that complex products, rapid
technological transformation and increased risk-taking by
consumers co-exist with financial exclusion and illiteracy
(KPMG International, 2012). Also the regulatory intent
has moved progressively towards outcomes, which in
turn has shifted the onus on financial providers to ensure
they offer products and services that responsibly satisfy
customer needs as well as generate profit.
The right to suitability is an important aspect of the
consumer protection framework suggested in the
Mor
Committee Report
. ‘[T]he “caveat emptor” principle has
led to fundamental flaws in India’s customer protection
architecture and has created large welfare losses for
customers. As the recent examples of customer protection
failure in India highlight, there is a pressing need to shift
away from this approach to financial customer protection.
There is a need to move to a customer protection regime
where the provider is held accountable for the service
to the buyer, by ascertaining that the products sold or
the advice given is suitable for the buyer considering her
needs and current financial situation, i.e. the customer
must have a Right to Suitability’ (p. 173). It is proposed
that every low-income household d small-business would
have a legally protected right to be offered only ‘suitable
financial services’. While the customer will be required to
give informed consent she will have the right to seek legal
redress if she feels that due process to establish ‘suitability’
was not followed or that there was gross negligence. This
appears a bold and empowering provision in the report.
But for the conscientious witnesses of the developments
in Indian microfinance over the past decade this may
sound more like a naïve hyperbole. As Rajasekhar and
Sivaramakrishnan (2014) argue suitability may work in
the case of well-run pilots and cannot be expected to be
systemised and scaled up to the national level. Further,
from the angle of financial services provider assessing
suitability would involve carrying out ‘a limited due
diligence of the customer’ using credit bureau information
along with assessment of her financial capacity and risk
tolerance. Would such a process help the systematically
‘excluded’ to access products and services on their terms?
The answer appears quite vague.
The RBI has codified the basic rights of consumers
of financial services into a Charter recently (Box 5.5).
The draft Charter has five fundamental rights—right to
fair treatment; right to transparency, right to suitability;
right to privacy; and right to grievance redress and
compensation.
5.6 CONCLUSION
Having been launched less than a decade ago, the current
bank-led version of the financial inclusion project is
young and evolving. Policies have also been evolving
often in response to the problems and opportunities that
emerge through implementation of various initiatives
and strategies. In that sense it would be somewhat
premature to evaluate the pros and cons of the current
policies. Also it is important to appreciate that the
policies of the government and motives of the different
other stakeholders may take time to match. The ‘face
line’ is critical in that it would define the strength and
sustainability of the edifice being built.
A close review of the current policy framework of
financial inclusion reveals that it has shifted decisively
towards a process of expansion of financial markets and
from a targeted approach to a more universal one. Pro-
motion of multiple tools, strategies and institutions has
come to be the central focus of RBI’s recent policy pro-
nouncements. In the process, many existing institutions
have been given the option of redefining or reorienting
themselves as niche players to be part of the expanding
financial markets. As different from the past, protection
of customer interests forms an important component of
the current phase of financial inclusion, though much
needs to be done to make the customers aware of their
rights and entitlements.
