The World Bank Group Approach to Responsible Microfinance

Why are financial services – microfinance institutions in particular – important for economic growth?

Businesses are engines of economic growth. They create the jobs needed to lift people and whole societies out of poverty. In addition to the 1.3 billion adults who remain unbanked, formal micro, small, and medium-sized enterprises (MSMEs) in emerging markets and developing economies face a $5.7 trillion financing gap. Microfinance institutions help fill this gap for those who are under-served by traditional banks.

The World Bank Group supports the microfinance sector through financing and by advising policymakers to adopt appropriate regulatory frameworks. The goal is for low-income households and micro and small enterprises, who often are susceptible to external shocks, to be able to invest, manage risks, and create employment for themselves and others.

Good financial consumer protection regulation and responsible finance practices help improve borrowers’ financial health and reduce their exposure to potential harm.

How does the World Bank Group Promote Responsible Finance Practices?

Supporting policy and regulatory reforms that establish a business-friendly environment, including clear land laws, predicable tax systems, good governance, and transparent institutions is key to creating jobs. Good financial consumer protection regulation and responsible finance practices are crucial to the healthy development of the financial sector, financial inclusion, and broader economic growth. The World Bank Group provides advice to policymakers to address the range of risks consumers may face and to be responsive to new and evolving consumer issues from innovative products and providers. For example, the World Bank advises regulators on setting appropriate standards for credit affordability assessments, which are evaluations of whether borrowers can comfortably manage new debt. We also advise regulators on transparency and disclosure initiatives, including in the emerging context of digital financial services.

Our research in this sector is publicly available: The Good Practices for Financial Consumer Protection brief provides guidance on current and emerging issues such as digital finance and effective supervision. The consumer risks in fintech report and guidance on the supervision of financial consumer protection helps regulators address the risk of indebtedness, financial literacy and vulnerability. The Global State of Financial Inclusion and Financial Consumer Protection Report highlights the importance of having a regulatory framework and supervision that address financial consumer and market conduct issues.

Following crises within the microfinance sector in multiple countries, IFC played a leading role working with the broader financial inclusion industry to promote efforts to strengthen responsible finance and consumer protection practices. IFC helped establish a rigorous certification program that validates responsible practices by financial service providers and industry-wide client protection principles led by the Center for  Financial Inclusion. As a result, more than 135 financial institutions serving some 62 million low-income customers across 42 countries, including many IFC clients, were certified. IFC remains committed to the ongoing development of an ethical, responsible and inclusive finance sector, through its membership in CERISE+SPTF. 

How does the World Bank Group strengthen policies and microfinance institutions globally to advance consumer protection?

The World Bank advises and supports governments, regulators and central banks in establishing legal, regulatory and supervisory frameworks for financial consumer protection in Ghana, Zambia, Ethiopia, Rwanda, South Africa, Philippines, Indonesia, China, Pakistan, Georgia, Azerbaijan, Dominican Republic, and others. The goal is to make financial institutions accountable for fair business practices in an evolving landscape of new technologies, providers, and business models. This includes helping authorities develop, supervise and enforce robust regulatory safeguards necessary to prevent aggressive, predatory lending or abusive debt collection practices.

The World Bank’s Global Financial Inclusion & Consumer Protection Survey benchmarks efforts by financial sector authorities to improve the enabling environment for financial consumer protection in 141 countries. The World Bank also helps train supervisors and supports the development of supervisory tools to monitor the market effectively and respond to consumer risks, harms and irresponsible industry practices. This includes identifying what data and analytical tools are needed to monitor lenders and stay ahead of emerging risks to consumers.

The World Bank’s Guidance Note on Developing a Risk-based Approach to Financial Consumer Protection Supervision provides guidance on developing effective and efficient approaches to market conduct supervision. Current World Bank policy priorities include assisting authorities to prevent and mitigate over-indebtedness risks. A forthcoming publication by the World Bank will discuss policy options to prevent, mitigate and resolve consumer over-indebtedness, including the need for authorities to consider product design, creditworthiness assessments, and assisting borrowers in financial difficulty, debt collection and consumer insolvency. It also encourages governments to consider in policymaking broader economic factors, such as insufficient income and cost-of-living pressures, that may impact borrower vulnerability and exposure to predatory lending.

On the private sector side, IFC collaborates with microfinance institutions and other stakeholders to integrate responsible finance practices into business operations, including training, capacity building, and risk management. IFC provides financial and advisory support to both clients and the broader community of leading microfinance institutions committed to responsible finance principles. This support aims to help them adopt responsible finance practices comprehensively, elevating the local industry to international standards of responsible finance. Over twenty years, IFC has implemented responsible finance projects at the sector and institutional levels in Bosnia, China, India, Indonesia, Papua New Guinea, Vietnam as well as regional initiatives in MENA and sub-Saharan Africa, among others. IFC has ongoing responsible finance engagements in Botswana, Cambodia, Egypt, India, Thailand, and Uzbekistan.

How does IFC’s investment process work to prevent abuse in the microfinance institutions we support?

IFC conducts due diligence to verify that prospective investees meet appropriate standards for responsible finance. At its core, responsible finance is about the appropriate design and delivery of products that ensure consumer protection through fair treatment and ethical business conduct, appropriate disclosure and transparency, data privacy and protection, and dispute resolution mechanisms. For low-income consumers, avoidance of over-indebtedness and fair pricing are particularly important considerations. IFC incorporates affirmative covenants in its legal agreements requiring its microfinance institution clients to maintain and comply with appropriate internal codes of conduct, procedures and controls for responsible finance and consumer protection consistent with their business and customer profile, in compliance with applicable national laws and regulations, and in furtherance of applicable requirements of good industry practice.

Over time, IFC has enhanced its ability to identify, monitor, and strengthen the practices of responsible financial service providers committed to continuous improvement in this area. The primary focus has been on microfinance providers, though the approach has recently expanded to include other financial institutions that interact directly with individual consumers, particularly low-income customers.

What work has the World Bank Group done to support MSMEs and advance consumer protection in Cambodia, specifically?

The World Bank has advocated for public policies in Cambodia that protect consumers, especially in the use of digital financial services, and those that target support for small and medium enterprises.

• In 2021, the World Bank Group implemented a project on insolvency and debt resolution, facilitating commercial mediation and the training of insolvency professionals, with regulatory reforms formalized by the Ministry of Justice in 2024.
• The World Bank and IFC have also advocated for financial literacy programs, including integrating financial education into school curricula and supporting institutions and industry associations in consumer awareness campaigns. These efforts target both the general public and specific groups such as low-income and rural populations.

IFC supports the private sector in Cambodia through investments and advisory services that help create jobs, raise income and reduce poverty. Since 1997, IFC has invested and mobilized more than $950 million in Cambodia, focusing on financial, education, infrastructure and agribusiness services.

• Together with international financial institutions, IFC has financed Cambodian banks and microfinance institutions to on-lend to hundreds of thousands of MSMEs, especially women-owned businesses and individual borrowers.
• IFC has provided advisory services to clients in Cambodia to help them transform from nongovernmental organizations to commercial microfinance institutions and to commercial banks, improving corporate governance and risk management capacity, and raising the standards of their responsible finance practices.
• Additionally, IFC has engaged with global debt fund managers – which lend directly to microfinance institutions and channel investor funds into the industry – as a co-investor and as a partner in embedding responsible lending practices across their portfolios.

IFC also has a long history in Cambodia of advancing responsible finance and consumer protection at the sector level. Since 2008, IFC has supported the establishment of Credit Bureau Cambodia, enhancing transparency, credit risk management, and helping prevent over-indebtedness, with the credit bureau now covering 76 percent of the adult population. In 2015, IFC issued a report on the present state of financial consumer protection in Cambodia which recommended that Cambodia put in place more consistent practices and standards for market conduct by financial service providers to protect its consumers and strengthen the stability of the financial sector. Following the report, IFC has worked with the National Bank of Cambodia, the Association of Banks of Cambodia, and the Cambodia Microfinance Association in promoting responsible lending practices to reduce the risks of overheating of the credit market and over-indebtedness.

IFC has sought to help fill gaps in the country’s financial consumer protection regime through ongoing engagement with the National Bank of Cambodia, helping to develop a general financial consumer protection framework and increase its supervisory capacity. IFC has also advocated for an independent dispute resolution mechanism and helped the National Bank of Cambodia to work with the main industry associations and other sector-level bodies to raise consumer financial capability, enhance industry self-regulation, and establish a Financial Consumer Center, in operation since July 1, 2025. In addition, IFC has continued to organize focused meetings and events in Cambodia to discuss financial consumer protection and build capacity in areas such as debt collection, complaint handling, and reprisals.

In addition to its own advisory work, IFC participates in multi-stakeholder consultations led by the National Bank of Cambodia and the UN, which commenced in 2023 and defined 22 priority actions across regulation, borrower support, technical enhancement, informal lending, and insurance, ensuring inclusive, responsible finance and sustainable economic growth in Cambodia. Significant progress has been made in enhancing responsible lending standards, implementation of a sector code of conduct, adoption of a standardized consumer protection assessment tool, and reinforcement of the prohibition of using Indigenous Communal Land Titles (ICLTs) as collateral and prevention of forced sales of such titles.

The World Bank Group remains committed to supporting the integration of responsible finance principles in the core delivery of financial services in Cambodia, enabling financial institutions to balance profitability with inclusive finance, and advancing sustainable growth.