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

Defaulting on a loan can have very serious consequences for both financial providers and low-income families, but to-date the microfinance industry has not gathered systematic information on how financial institutions serving the poor treat defaulting clients.

While many assume that financial institutions treat defaulting clients in similar ways, anecdotally there appear to be big differences across countries and between providers. Many questions exist around what policies and practices kick into motion after a client defaults and what could drive differences in practice across or even within countries (i.e. regulation vs. culture vs. educational levels of loan officers vs. how an MFI prices for risk etc).

To begin to address this knowledge gap the Smart Campaign is launching an exploratory project to map out default management practices among providers in several key markets in order to analyze trends and determinants, and to extract good practices. But before jumping into the key markets, as an initial step the Campaign has created a basic survey for its endorsers, partners, and other interested parties to take so that we might first learn more about default management.

Since its founding the Smart Campaign has always been a collaborative initiative working to advance thinking (and action!) around client protection through the involvement of stakeholders from across the microfinance industry. For example, the 30 certification standards were finalized after over two years of careful consultation and piloting with an industry taskforce that included raters, financial institutions, networks, and donors. In addition, many of the tools showcased on the Smart Campaign’s website are directly derived or based off of actual microfinance institutions’ tools and best practices. When it comes to Codes of Ethics, for instance, the Campaign website has over 30 example Codes from Campaign endorsers, spanning parties as diverse as Kashf Foundation in Pakistan, ACME in Haiti, and the Tanzanian Association of Microfinance Institutions.

The Campaign firmly believes that industry momentum and improvement around the sometimes challenging issues inherent in client protection will only come through consistent and thorough stakeholder engagement. This survey is in the same vein. Only through rigorous feedback and input from providers can the Campaign work towards understanding the state of practice around default management and make recommendations, however preliminary, on the best way forward. If you are a financial service provider lending to low-income clients, please fill this survey out and help the Campaign in its endeavor to broaden industry knowledge around this very important topic. Also if you have opinions or ideas for the market-level “deep-dives” that will happen later in the project, please share your thoughts by emailing us here.

And to sweeten the deal, 10 respondents to this survey will be drawn at random and will receive a free “Smart Campaign Kit” with client protection materials including post-cards, Smart-Campaign-emblazoned thumb drives, and more. To access the survey, click here.

Image credit: YIPC

Have you read?

When Access to Finance Means the Difference Between Life and Death

A Challenge to Flat-Earth Thinking in Microfinance

Can Providers Take More Responsibility for Client Protection? The Smart Campaign Says Yes.