> Posted by Alexandra Rizzi, Deputy Director, the Smart Campaign

Client Protection Certification sealAs the market for the Smart Campaign’s recently launched Client Protection Certification Program kicks off, we’d like to acknowledge the important role that investors will play in the success of the program. What we mean by success is the creation of a viable, sustainable market for certification that encourages the industry’s standards of practice to improve. As suppliers of funds to retail financial providers who serve the poor, investors are in a key position to incentivize their portfolios to improve practices and work towards certification. And by encouraging their investees to get certified, they are helping them to meet public, industry-wide standards of practice that can be understood by everyone – including indirect investors, regulators, and ultimately even clients.

Certification can help investors distinguish among retail providers, particularly in complicated markets where the microfinance label is applied to actors with varying motivations. While it is not meant to replace the investigative rigors that funders conduct prior to an investment, certification conveys that an organization has met a concrete set of operational standards. “We see the Smart Campaign’s Certification Program as similar to a Fair Trade standard for microfinance. It weaves client protection into all aspects of the business relationship between a customer and a financial institution,” said Asad Mahmood, Managing Director of the Global Social Investment Fund at Deutsche Bank.

The Smart Campaign has long enjoyed support from the investor community, with over 200 investors and donors having endorsed the Campaign. Investors have also provided co-financing for activities like assessments and tool creation. But now that certification is available, there are additional ways that investors can support the program and build the market:

  • Urge your investees to seek certification.
  • Support organizations to become certification-ready through self-assessments, third-party assessments, and other tools available to diagnose and improve practices. Most providers will require improvements in practice to become certification-ready. Certification is achievable for most providers with time and effort, but each institution will have its own timeframe.
  • Reward and highlight organizations that become certified in whatever ways are available. For example, it may be possible to offer margin reductions to organizations that have achieved the high standards set by the Campaign.

We’ve been excited by the enthusiasm from the investor community, particularly the examples of Oikocredit and Deutsche Bank, who are taking concrete steps to incorporate certification into their work .

We recognize that client protection certification is a brand new feature of the microfinance scene, and we ask for your help to build this market. It will take some time to build up a critical mass of certified institutions, and the Smart Campaign is aiming for dozens of certifications to take place in 2013. As institutions make the effort to meet the standards, their client protection practices improve, and the certificate allows them to stand as public examples, influencing others. Our dream is that as the number of certified organizations grows, the process will create a virtuous circle that raises the standards of client protection practices across the whole industry. That will be good for microfinance institutions, good for investors, and especially good for clients.

The Smart Campaign looks to engage with all investors interested in incorporating the Client Protection Certification Program into their work. Please contact Alex Rizzi if you are interested. 

Have you read?

Microfinance CEOs: Smart Campaign Certification is a “Clear Step” Toward Responsible Microfinance

The Investor of My Dreams

Making History: Investors in Microfinance Agree on Principles of Conduct