Consumer Protection in Microfinance Services in Ethiopia: Analysis of the Law and the Practice in West Shoa Zone

Abstract

This study examined the extent to which consumers of microfinance services in Ethiopia are protected under the current legal framework and the practical case in West Shoa Zone. Specifically, it entailed the exploration of the legal framework for financial consumer protection in microfinance services in Ethiopia, an examination of the extent to which consumers in microfinance services are protected under the existing legal framework, and the practice of certain MFIs found in West Shoa Zone. The study deployed more doctrinal research where a documentary review was conducted by reviewing various materials including statutes, books, journal articles, conference papers, thesis, and online materials. The study also conducted a little field research where interviews and questionnaire survey were used to collect data from the relevant respondents in the selected studied area. The findings reveal that while consumers of microfinance services are protected under the current legal framework, it has been found that, in assessed areas of the Western Shoa Zone particularly, the law of financial consumer protection has not been recognized and/or implemented well by the MFIs. As a result, the problem of consumer’s over-indebtedness, lack of understanding with terms and conditions of contracts, interest rate, fees and charges by consumers, abusive debt collections, and unawareness of the consumers about their data and lack of complaint handling systems are among the practical gaps which have been found by the study. In light of the above findings, it has been recommended to clearly specify and enhance respective responsibilities of different involved regulatory body, to sensitize MFIs for playing their missions, and to speed up the concrete application of the law protecting consumers in microfinance services.