Financial Crime World

Here’s the rewritten article in Markdown format:

Nicaragua Takes Steps to Prevent Banking Fraud with New Consumer Protection Law

============================================================

The global financial crisis of 2008 and the subsequent “no-payment” movement in Nicaragua opened the door to abusive financial practices, leaving a trail of damage to the country’s financial system. Between 2009 and 2010, 19 microfinance institutions lost over $60 million in foreign financing and saw their credit portfolio in arrears skyrocket to nearly 17 percent.

Strengthening Financial Sectors

However, with the support of the Financial Sector Reform and Strengthening Initiative (FIRST), a multi-donor trust fund for strengthening financial sectors in middle- and low-income countries, Nicaragua has taken significant steps to improve consumer protection in its banking and microfinance sectors.

A National Program for Consumer Protection

A national program was developed by the Superintendency of Banks and Other Financial Institutions of Nicaragua (SIBOIF) with FIRST’s assistance to establish a system that provides adequate consumer protection for financial services. The project aimed to strengthen consumer protection, ultimately increasing access to finance for the lower-income population.

Key Activities

  • Assessing the legal, regulatory, and institutional frameworks for consumer protection
  • Building consensus among key stakeholders
  • Implementing priority measures identified in an action plan

Enactment of a New Consumer Protection Law

In June 2013, Nicaragua enacted a new consumer protection law, which was followed by the publication of related regulations in September 2013. These regulations aim to:

Transparency in Financial Transactions

  • Increase transparency in financial transactions, including:
    • A method for calculating total annual costs of credit products
    • A model (summary sheet) for disclosing terms and conditions of active and passive financial products

Other Key Regulations

  • Rights and obligations of clients
  • Applicable criteria for fees and expenses
  • Transparency on advertising
  • The role of board of directors and internal audit
  • Disclosure of formulas for calculating interests and fees
  • System for attention to financial users’ claims

Expected Benefits

The expected benefits of the new regulations include:

  • 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

The FIRST Initiative funded this technical assistance project at a cost of approximately $165,000. SIBOIF was the main counterpart for the project, with the National Commission for Microfinance (CONAMI) also involved as the project progressed.

Future Support

While it is too early to assess the impact on individual citizens, countries where similar initiatives have been implemented have seen a decrease in interest rates and higher levels of competition. The Bank team will continue to follow up with SIBOIF and CONAMI to coordinate future support on this topic.