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> Posted by the Smart Campaign

Momentum for Smart Campaign Certification is accelerating. Today, we’re thrilled to announce that there are now more than 20 million lower-income clients whose financial service provider has been certified as meeting the Campaign’s standards for consumer protection.

Since February 2015, the number of clients served by Smart-Certified financial institutions (FIs) has grown by 6 million, to a total of 21 million, with the certification of an additional 11 institutions. To date, 39 FIs, from 19 countries across Latin America to Africa and Asia, have achieved Smart Certification, including some of the world’s best-known institutions dedicated to serving the poor.

As you might be familiar, the Smart Campaign’s Client Protection Certification Program contains a core set of standards against which institutions are evaluated by independent, third-party evaluators. Smart Certification publicly recognizes those institutions providing financial services to microentrepreneurs with a standard of care that upholds the microfinance industry’s seven Client Protection Principles. Customers of Smart-Certified organizations can be confident that their financial service provider has policies and processes in place to ensure that they are treated responsibly.

“Twenty million clients is an exciting milestone – recognition of the fact that there’s growing momentum in the industry for client protection,” said Isabelle Barrès, Smart Campaign director. “These organizations are not just paying lip service to the concept of fair treatment, but actually working hard to improve practices,” she added.

In April 2015, having listened carefully to evaluation results and industry feedback, we launched certification program revisions to streamline the process while maintaining high standards. These revisions included an appeals and complaints system and a process for renewing certification validity. At the end of 2015, the Campaign will introduce an accreditation system to license existing and new certifiers, and a version 2.0 of the certification standards. Certification 2.0 standards remove duplication and ambiguity, and deepen standards for savings, insurance, and digital financial services.

Even as the coverage of the certification program approaches critical mass, the broader Smart Campaign continues to advance. For the Campaign’s next phase we are excited about working on the following:
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> Posted by Center Staff

Globally, the cost of fraud in the telecoms industry amounts to about 2 percent of total revenues, roughly US $46 billion. In the mobile money segment, it’s estimated that about 2 to 3 percent of revenues generated from phone-based banking are lost to fraudulent activity. In India, where the mobile subscriber base is over 980 million individuals, covering over 70 percent of the country’s population, mobile money presents a big opportunity for banking the unbanked. And awareness of this is catching on. Just this week Paytm, a mobile wallet service in India backed by Alibaba’s financial arm, announced that they’ve surpassed the 100 million client mark.

As more individuals are brought into the mobile banking fold, including those of lower income levels, it’s increasingly important that fraud risks are thoroughly managed. If they aren’t, clients will suffer, and so will their perceptions of formal banking services. A new report from Deloitte investigates the risks facing India’s mobile money market and how to best manage them.

The report outlines and offers the root causes of seven categories of fraud: phishing fraud; intrusion/ cyber attack; access to wallet through unauthorized SIM swap; fake KYC; commission fraud by agents; and application manipulation by authorized users. (The latter two are frauds carried out by internal stakeholders, like agents, employees, and third-party vendors.) As one example, in the case of phishing (when fraudsters dupe customers through phone calls/SMS/emails to share sensitive information), the root cause is inadequate customer awareness around information sharing and customer data theft.

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> Posted by James Militzer, Editor, NextBillion Financial Innovation

The following post was originally published on NextBillion, in two parts, here and here

The Smart Campaign was born in the midst of extraordinary upheaval in the microfinance sector. Its launch in 2009 was sandwiched between the 2008 global financial crisis, repayment crises in several microfinance markets, and the 2010 debtor suicides in Andhra Pradesh. Yet the turmoil served to amplify the campaign’s main point: that microfinance needs to focus on customer protection. In the succeeding years, it has labored to unite microfinance leaders and practitioners around this goal – most notably through its efforts to convince microfinance institutions (MFIs) to undergo the process of Smart Certification, in which independent evaluators verify that they are “doing everything [they] can to treat [their] clients well and protect them from harm.”

Over time, these efforts have started to gain traction. The campaign – which is steered by a group of prominent leaders in the industry and housed at Accion’s Center for Financial Inclusion – has certified 39 microfinance institutions. (Note: Accion is a NextBillion Content Partner.) Certified institutions include a number of leading MFIs in markets around the world, from Equitas in India to Kompanion in Kyrgyzstan. And the campaign calculates that certified MFIs now serve slightly more than 20 million clients. In a recent interview with NextBillion, its director, Isabelle Barrès, called the 20 million client mark “an exciting milestone, recognition of the fact that there is momentum growing in the industry for client protection –  not just paying lip service to it, but actually working hard to improve practices.”

But achieving this momentum hasn’t been an easy task for the campaign – or for the industry whose practices it’s trying to improve. Barrès discusses the challenges it has faced – and the controversy it has sparked – in this two-part Q&A.

James Militzer: Do you have any data on which markets have the highest percentage of Smart Campaign-certified MFIs?

Isabelle Barrès: I think Kyrgyzstan probably is the one where we currently have the most right now – 60 percent of microfinance clients are served by organizations that have been certified. This shows that when there are some substantial efforts that are put towards improving client protection – whether it’s at the market level or at the regulatory level, or through market infrastructure, such as supporting a good credit bureau – it can make a difference for the entire industry.

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> Posted by Center Staff

Will microfinance continue to be relevant in 2020 and beyond? Should regulators or the industry lead on client protection? Will data analytics replace traditional credit reporting systems?

A new Financial Inclusion 2020 e-magazine explores these three essential questions debate-style, tapping industry leaders from around the world to weigh in with their perspectives.

Microfinance as a development strategy has in the past few years been eclipsed by the excitement around financial inclusion. This transition reflects the recognition that people need a full range of financial services. What does the future hold for microfinance institutions and other players like traditional banks and new fintech companies? Bindu Ananth, Chair of IFMR Trust and IFMR Holdings, Dean Karlan, President of Innovations for Poverty Action, and Liza Guzman, Vice President of Accion share their views.

The ideal balance in client protection is often conceived as a three-legged stool in which regulators, providers, and consumers work at equal levels of responsibility. Globally, regulators have often taken the lead, but initiatives such as the Smart Campaign prove that there is room for providers to move beyond compliance. Is a balanced three-legged stool realistic? Among the debaters are Alok Prasad, Principal Advisor of RBL Bank, Sanjay Sinha, Managing Director of M-CRIL, and Isabelle Barres, Director of the Smart Campaign.

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> Posted by Anne H. Hastings, Manager, Microfinance CEO Working Group

As a member of the Smart Campaign Steering Committee, I had the pleasure last week of attending the first ever Certification Summit held in Turin, Italy. The CEOs of 24 client protection certified microfinance institutions (MFIs) came together to discuss with one another their experiences with certification, their practices for preventing over-indebtedness, collections and grievance redressal, and their thoughts on how the certification process could be made more valuable.

I tried my best to talk with each and every participant there in order to get their honest thoughts about certification. I was surprised but pleased to discover that, without exception, every one of them said how happy they were that they had gone through the process and achieved the recognition. Some examples of the types of comments I heard are:

  1. Client protection has always been part of our DNA. It’s who we are. The certification process helped us align our practices with our values – and come closer to what we aspire to be.
  2. It has allowed us to improve our relations with the regulators in our country more than we imagined. They now turn to us for advice!
  3. It was great for our employees. It was a truly motivating exercise for them . . . and the recognition that comes with certification made them feel very special. Our employees are proud to be associated with a responsible institution.
  4. There was a cost to it, no question – but the process convinced us that it was well worth the investment.
  5. We wanted third-party validation of our practices, and this gave us that validation.
  6. The process was excellent. I have tremendous respect for the rating agency that conducted our mission. It was far more rigorous than I anticipated, and it did result in our making some very significant changes, especially to our disclosure practices.
  7. Our customers have told us that they appreciate the changes we made that were clearly visible to them. They especially like the improvements we’ve made to our grievance redressal mechanism.
  8. Certification must be seen as a risk management tool because that’s what it is. We need more MFIs to go through the certification process in order to control risk in our market. We need to engage more closely with investors and regulators about what it means and how it acts to mitigate risks.
  9. The process helped us to get back to our fundamentals, for the reason we were formed. This was something we had needed to do, without really realizing it, for a long time.
  10. There’s no question that it contributed to our ability to get new capital from our local bank.

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> Posted by Sonja E. Kelly, Fellow, CFI

Financial Inclusion 2020 Blog Series banner imageFinancial Inclusion 2020 (FI2020) is a global multi-stakeholder movement to achieve full financial inclusion, using the year 2020 as a focal point for action. This blog series will spotlight financial inclusion efforts around the globe and share insights from key thought leaders in financial inclusion, with a specific focus on quality beyond access.

Tuesday marked a historic day for Peru: the country launched its National Financial Inclusion Strategy. While Peru has been lauded in the past for its environment for financial inclusion, its public-private sector partnerships, and its leadership in conversations on international banking standards, this national strategy elevates Peru’s commitment to financial inclusion to a new level. In particular, we want to celebrate the strategy’s commitments to consumer protection, financial literacy, and the inclusion of vulnerable people.

Analysis of the World Bank Global Findex this year revealed that countries that have a national strategy (not merely a commitment or stand-alone programs) for financial inclusion saw twice as much bank account access growth in the last three years compared to countries that did not have a national strategy. For Peru, this is great news, as according to the same data source, less than 30 percent of adults in the country had access to an account in 2014.

The path to financial inclusion articulated in the strategy, however, is not focused on access to accounts, making Peru an outlier among its peers that have implemented national strategies. Instead, Peru has oriented its strategy toward improving systems for accessing a range of products and promoting supportive consumer protection, financial education, and attention to the most vulnerable. The national strategy has seven different lines of action: Read the rest of this entry »

> Posted by Magauta Mphahlele, CEO, National Debt Mediation Association (NDMA)

A few weeks ago, South Africa’s Department of Trade and Industry published new proposed regulations pertaining to the National Credit Act limiting fees and interest rates on short-term and unsecured loans along with credit cards. The public may lodge comments to the draft regulations up until 30 days after its publishing date of June 25th. The intelligence used to inform the proposals have not been released so it is not clear what policy, cost, or operational factors were taken into consideration to arrive at the outlined changes. Meanwhile, the microfinance industry in the country, which has been lobbying for the flexibility to charge significantly higher interest rates and fees, seeks to understand the regulators’ rationale.

The draft regulations were published after a protracted court battle where one of the industry associations representing micro-lenders requested the court to force the regulator and policymakers to review the fees requirements of the National Credit Act. The fees and interest rates hadn’t been reviewed since the Act became effective in 2007 – a concern when taking into account factors like inflation.

Credit providers have responded with dismay and concern about the proposed changes, especially the interest rate caps on unsecured loans. They have expressed the fear that the proposed interest and fee changes will affect the cost of administering credit, reduce profits, and constrict access to credit for borrowers. Other commentators have viewed the reductions favorably considering consumers are already over-indebted to a large extent and the interest rate cycle is predicted to start trending upwards. On this blog a few months ago, I shared that in 2014, the National Credit Regulator (NCR) Credit Bureau Monitor revealed that out of South Africa’s roughly 23 million credit active individuals, about 11 million have impaired records.

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> Posted by Center Staff

fi2020 issue five

Good afternoon! Freshly published is this week’s Financial Inclusion 2020 News Feed, sharing the big news in banking the unbanked. Among its stories are a new partnership between MetLife Foundation and Opportunity International to expand financing and skills training in rural China, the launch of a World Food Programme initiative that integrates climate risk reduction with financial services, and the release of the first annual Consumer Banking PACE Index, which gauges bank performance to consumer expectations. Here are a few more details:

  • MetLife Foundation and Opportunity International have embarked on a three-year partnership to support thousands of small businesses in rural China with financial services and business development training via banks, mobile vans, and rural service centers.
  • The World Food Programme launched the R4 Rural Resilience Initiative, which helps smallholder famers in Zambia navigate environmental demands using index-based agricultural insurance, improved natural resource management, credit, savings, and productive safety nets.
  • The new Consumer Banking PACE Index, drawing on input from over 9,000 consumers, examines bank performance in a handful of countries around the world to conclude that, among other findings, fair and transparent pricing falls below consumer expectations, and trust in banks remains an issue.

For more information on these and other stories, read the fifth issue of the FI2020 News Feed here, and make sure to subscribe to the weekly online magazine by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.

Have you come across a story or initiative you think we should cover? Email your ideas to us at ezuehlke@accion.org.

> Posted by Ros Grady, Senior Financial Sector Expert, the World Bank Group

The following post was originally published on the World Bank Private Sector Development blog.

The Client Protection Principles: Model Law and Commentary for Financial Consumer Protection (the “Model Law”), recently launched by the Microfinance CEO Working Group, has the potential to be a useful resource for the many developing and emerging economies that are seeking to design and implement international best practices in financial consumer protection, having recognized that consumer protection is a critical element in building and maintaining trust in the financial sector and achieving financial inclusion targets.

The Model Law was prepared on a pro-bono basis by the international law firm DLA Piper on the basis of the seven Client Protection Principles of the Smart Campaign. The project, which took place over a 15-month period and was managed by Accion on behalf of the Council of Microfinance Counsels, included consultations with financial inclusion stakeholders and legal experts, who undertook a review of existing legal frameworks in various countries. Reference was also made to international best practices and principles such as the World Bank’s Good Practices on Financial Consumer Protection and the G20 High Level Principles on Financial Consumer Protection.

The Model Law is a high-level, activities-based law that is intended to apply equally to all financial services providers. This includes “banks, credit unions, microfinance institutions, money lenders and digital financial service providers.” The apparent aim is to ensure an equal level of protection for all consumers and a level playing field. The consumers concerned may be an individual or a micro, small or medium-sized business, and so the law will apply equally to consumption and small-business facilities. Many of the provisions are framed in terms of principles, the detail of which would need to be filled out in related legislation.

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PERC, a “think and do tank” advancing financial inclusion through information services, has been effective in addressing credit invisibility by advocating the use of alternative data in credit reporting, including in Australia, Brazil, China, Kenya, and the U.S. We invited Michael Turner, PERC’s CEO, to submit an opinion piece, and are publishing the results in a three-part series. The following is part one.

Recently, a number of players have flaunted an impressive array of promising digital technologies to expand credit access, advertising nothing less than a full on revolution in financial inclusion. While the promise of many of these solutions is inarguable, in most cases they are limited to lower-value, higher-interest consumption loans at best, or, at worst, are at risk of being useless as they suffer from the classic error of putting the cart before the horse. The principle limitation on these solutions is a lack of access to sufficient quantities of regularly reported, high-quality, predictive data upon which to base credit decisions and develop credit products.

Consider the case of Safaricom, which revolutionized the payment systems market in Kenya with its M-Pesa offering. The rapid uptake of M-Pesa by lower-income Kenyans was proof positive of the value of digital financial services and spawned a wave of investment into hundreds of copycat service providers around the world.

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The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.
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