Banking Law Reform and Users-Consumers in Developing Economies: Creating an Accessible and Equitable Consumer Base from the "Excluded"
Norton, Joseph J., Texas International Law Journal
The subject-matter of this article was originally conceived of as consumer protection issues in banking sectors of developing countries. In first approaching this topic area, the author had on his "industrialized country hat" which automatically assumes that there preexists a broad consumer base from which to work. But in stepping back and putting on his "developing country legal reform hat," the author came to realize that approximately two-thirds of the world's people are effectively excluded from the mainstream banking and financial sectors of their respective countries, thus denying them an ability to meet basic financial needs and any realistic prospects of wealth creation, and foregoing the mainstream financial systems in these countries from more fully maturing in the sense of contributing more fully to the developmental needs of these countries. As such, what consumer base would exist in a developing country would only encapsulate the top of the socioeconomic pyramid of that country. Thus, the critical, foundational issue that needs to be addressed respecting consumer banking issues in developing countries is that of "inclusion."
The primary proposition being set forth in this article is that, notwithstanding the plethora of global banking sector reform over the past two decades, the equitable and accessible provision of banking services has never been a core component of modern banking sector legal reform and assessment in the developing world. As such, before one can sensibly talk about a viable banking and financial sector framework in a developing country, a reasonably broad user (i.e., consumer) base needs to be developed. In effect, the banking and financial system of the developing country needs to become accessible to the "excluded": serving just the top of the economic pyramid is shortsighted and, in the long term, counterproductive. Once a broad and equitable base is established, a developing country can sensibly and effectively address the formulation of an adequate consumer protection framework so that new entrants and those still remaining outside the mainstream financial sector are not discriminated against or treated unfairly. While these conclusions seem to be obvious, it is only most recently that the International Financial Institutions (IFIs), particularly the World Bank, have begun to more systematically address these fundamental deficiencies in developmental legal reform agendas respecting the banking/financial sector.1
From this author's perspective of over two decades of study and practical involvement with financial sector reform in developing, transitioning, and emerging economies, he is of the considered view that: (i) the modern banking and financial sector law reform policies and infrastructures process is of relatively recent vintage; (ii) this reform process has been largely crisis-oriented and reactive by necessity and has become driven largely by industrialized countries' systemic objectives of preventing financial crises and related contagion, fostering global financial stability, and more recently, maintaining financial sector integrity; and (iii) this "first generation" of reform has never had the luxury of being clearly thought through in terms of how developmental factors such as access, equality, and user protection can be incorporated into the overall financial sector legal reform processes in an integrated and coherent manner that promotes the United Nations' Millennium Development Goal of alleviating poverty.2
It is the general view of this author that the future banking and financial sector legal policy and infrastructure reform process of the IFIs and others in the economic development arena should systematically and thoughtfully undertake this reform process within, or alongside of, a complementary framework and context of meaningful and relevant economic-social development policy objectives, including the object of making the financial base broader and more inclusionary. …