Financial Crime World

Nicaragua Enhances Financial Institution Security Measures to Protect Consumers

The Financial Sector Reform and Strengthening Initiative (FIRST), a multi-donor trust fund for strengthening the financial sector in middle and low-income countries, has helped Nicaragua develop a national program to improve consumer protection in the banking and microfinance sectors.

Establishment of National Program

The program aimed to establish a system that would provide adequate consumer protection for financial services and ultimately greater access to finance. The initiative was implemented by the Superintendency of Banks and Other Financial Institutions of Nicaragua (SIBOIF) with support from FIRST.

Project Objectives

  • Establish a system for providing adequate consumer protection for financial services
  • Increase transparency of financial transactions
  • Require lenders to disclose total annual costs of credit products
  • Ban abusive clauses in financial contracts

Regulatory Framework

As part of the project, SIBOIF assessed the legal, regulatory, and institutional frameworks for consumer protection, built consensus among key stakeholders, and implemented priority measures to strengthen consumer protection in Nicaragua. The project also developed a new consumer protection law and related regulations, which were enacted and published in 2013.

Key Regulations

  • Increase transparency of financial transactions
  • Require lenders to disclose total annual costs of credit products
  • Ban abusive clauses in financial contracts
  • Address issues such as rights and obligations of clients, fees and expenses, and advertising practices

Impact

Experts say that the new regulations are likely to lead to:

  • Improved household confidence in financial services
  • Increased citizens’ use of financial products
  • Enhanced fair competition among financial service providers
  • Increased soundness and stability of the financial system

Funding and Partnerships

The project was funded by FIRST at a cost of approximately US$165,000. SIBOIF served as the main counterpart for the project, with the National Commission for Microfinance (CONAMI) also involved.

Future Plans

SIBOIF is planning to create a consumer protection department and dedicate staff to the issue. The Bank team will continue to follow up with SIBOIF and CONAMI to coordinate future support on this topic.

Success Story

Countries that have implemented similar initiatives, such as Peru, have seen a decrease in interest rates and increased competition. With the new regulations now in place, Nicaragua is expected to benefit from improved consumer protection and increased access to financial services.