loi m bakani : the importance of financial consumer protection keynote address by mr loi m bakani, governor of the bank of papua new guinea, at the cefi equity workshop “ smart campaign client protection principles training ”, port moresby, 21 october 2015. * * * acknowledgements 1. mr. marcelo minc, country director, adb 2. mr. cristian shoemaker, executive director, cefi 3. mr. amit gupta, manager, smart campaign 4. mr. muhammad awais butt, finance lead, good return 5. other workshop facilitators and organizers 6. managers and participants from participating financial institutions 7. representatives of development partners 8. invited guests 9. ladies and gentlemen. good morning ladies and gentlemen, welcome to this 3 day cefi equity workshop – smart campaign client protection principles training of trainers program, a collaborative effort of the asian development bank ( adb ), the bank of papua new guinea ( bpng ), the centre for excellence in financial inclusion ( cefi ), and the smart campaign. financial consumer protection & equity financial consumer protection and equity ( fairness ) in the microfinance industry are on the global finance agenda. people operating in the informal sector, and microfinance industry clients in general, are often found at the lower tier of society ’ s social - economic ladder. these segments of the population are vulnerable to economic shocks, and are least able to afford taking on new risks. financial literacy … knowledge of financial options, products and services, and consumer power in general, are often lacking. for microfinance clients, there are often information gaps, and inadequate re - dress mechanisms available to them. against this background, international commitments have been made at various levels to raise and address financial consumer protection. the 2012 g20 leaders meeting in los cabos, mexico, underscored the importance of financial consumer protection. that call is also taken up by many other international organisations, including the adb. as the financial inclusion agenda has risen to prominence in recent times, and microfinance institutions are one of the vehicles used to bring financial services to this segment of the population, the importance of financial consumer protection has grown. for microfinance institutions striving to reach and maintain sustainability, it is fundamentally important to work with this customer base by offering client centric financial services and financial literacy training, delivered by staff that understand the importance of financial consumer protection. a financially literate customer, one

and supervisors, and committees of central bank experts. the financial stability forum publishes a status report twice a year on recent and ongoing work relevant to strengthening financial systems. the welcome increase in transparency with regard to financial stability analyses, does however not preclude the question whether and to which degree central banks should react to threats of financial stability - potentially triggered by asset price booms - at times other policy makers like supervisory or fiscal and tax authorities are unable or unwilling to take appropriate action. are asset price bubbles dangerous? the question in the title of this section is not a rhetoric one. the answer is not so straightforward as one might tend to believe. certainly not all asset price booms are dangerous. booms are likely to be costly if associated with high leverage, which is, for example, usually the case in housing price booms. economists have argued since long that it is conceivable that a boom - bust cycle ridden development could potentially exhibit a stronger rising trend growth path than one would observe for a notoriously boom - free country. for example, some researchers have defended the idea that it is possible that asset price bubbles moderate the effects of financial market frictions, like credit constraints and improve the allocation of investment, despite the occasional busts. 13 of course, one cannot exclude that it could be beneficial for long run growth to ease borrowing constraints, but it should not be at the expenses of a stable financial system, which favours an efficient allocation of capital and it is thus intrinsically related to the good performance of the economy and its resilience to shocks. a different but related argument claimed by the literature is that the optimal degree of vulnerability to banking crises must not be zero. under certain conditions it can be optimal not to be fully insured against liquidity crises in the banking system, in order to spur financial intermediation, increase the amount of credit available for investment and thus foster growth in the long run. 14 borio and lowe ( 2002 ). the trend is estimated using information only up to the period under consideration. the evidence is compiled using evidence for 34 countries for the period 1970 - 1999. again, the trend is estimated recursively, meaning that no information on future developments is used in its computation. detken and smets ( 2004 ). see ventura ( 2003 ). gaytan and ranciere ( 2003 ). each of these theoretical findings is clearly derived under special assumptions, but nevertheless they provide food for thought. i mention these examples in