For developing countries, the most vulnerable financial consumers are considered to be those who have previously been excluded from the financial system or due to their characteristics have challenges with accessing it at all (Ledgerwood and Gibson 2013). Some of the features which have been identified as tending to increase the likelihood of financial exclusion are (i) being particularly young or old (Financial Sector Deepening Kenya 2016), (ii) living in rural as opposed to urban areas (Ledgerwood and Gibson 2013), having another religion than the majority population (Harris-White 2005), belonging to an ethnic minority (Ledgerwood and Gibson 2013), being female (Johnson 2000) and living just above or below the poverty line (Hashemi and Montesquiou 2011). Among the adults who live on less than 2 USD per day, around 38% are small-holder farmers, 23% casual laborers, 19% low waged salaried, 11% microentrepreneurs and 5% fishermen or pastoralists (Wyman 2007). It is hence large and heterogeneous groups that cannot fully satisfy their needs for financial services.

In the beginning, approaches aiming at financially including these societal groups primarily evolved around one product: Microcredit. Microcredits targeted microentrepreneurs and aimed to alleviate poverty by investing in and, by this, growing their economic activity. The perspective, however, has changed with the experience that the loans were frequently not used for productive business purposes but rather for consumption or other needs like, for example, school fees. The poor and vulnerable need a variety of financial services in addition to microcredit to enable them to manage their liquidity and risks. As a consequence, the diverse financial services designed for and targeting the poor or other formerly excluded groups of the society are today covered by the term microfinance . For policymakers, yet another, broader concept has gained momentum over the past years: Financial inclusion. ³ While the term microfinance includes credit, savings, insurance and non-financial services offered to the defined target group in a financially sustainable way, financial inclusion is multifaceted. It comprises the access to an appropriate and affordable range of products, the effective use of this offered product range and financial consumers who are well prepared and informed so that they can make good financial decisions for their households. Financial inclusion thus deliberately puts a focus on both, sustainable operations of the providers and the clients ’ interests and protection. The concept hence can be understood as a reaction to the mission drift identified in some markets, which has resulted in increased financial and social vulnerabilities for the affected clients (Ledgerwood and Gibson 2013). The term mission drift in this context stands for a deviation from the original social and development-oriented approach towards a profit-maximizing one by those financial institutions focusing on vulnerable target clients —the so-called microfinance institutions (MFIs). A mission drift can manifest in diverse ways with one being the cutting of costs by either increasing the average loan size or decreasing outreach to disadvantaged or rural groups (Hermes and Lensink 2011). ⁴ Another is the improvement of the financial performance by infringing basic business ethics imperatives when dealing with these vulnerable target groups (Hudon and Sandberg 2013; Serrano-Cinca and Gutiérrez-Nieto 2014). The latter has diverse implications. Some MFIs have designed products and prices that cater to their profit-maximizing activities yet do not meet the needs of their clients and in some cases even exploit their vulnerabilities (such as a lack of understanding of the concept of interest rates). Some MFIs have engaged in reckless lending and ultimately over-indebted their clients . A number of these specialized financial institutions were also found to engage in illegitimate or even illegal selling and collection practices with their clientele (Hulme and Arun 2011). These developments do not only negatively affect these vulnerable target groups but can have destabilizing effects on the financial system as a whole (Hudon and Sandberg 2013). They hence create the need for a protection of the concerned vulnerable financial consumers , which on the one hand is induced by the legal and regulatory framework and on the other by self-regulation of the involved financial institutions (Giggy and Wong 2015).

In its yearly assessment of the enabling environment for financial inclusion in 55 countries, the Economist Intelligence Unit takes into account two indicators related to the protection of the clients : (i) Market-conduct rules ⁵ and (ii) grievance redress and operation of dispute-resolution mechanisms ⁶ (Economist Intelligence Unit 2016). In its 2016 report the legal and regulatory environment for financial client protection was found to be weak and underdeveloped in numerous developing countries. Many lack specific microfinance laws, and the existing ones frequently do not cover client protection issues or are inadequately enforced (Sluijs et al. 2014; Economist Intelligence Unit 2016). Many stakeholders have, however, endorsed the most prominent initiative of industr...