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> Posted by Alyssa Passarelli and Jeffrey Riecke, the Smart Campaign and CFI
One good deed often leads to another. Whether it’s by learning about new opportunities to do good or by an increase in peer pressure, positive changes are contagious. This also applies to business practices, including how financial institutions treat their clients. Still new on the microfinance scene, the Client Protection Certification program has certified six MFIs to date – three in India and three in Bosnia and Herzegovina. As more institutions become certified, it increasingly changes the expectations for how financial institutions are to serve the poor, especially the expectations in markets where groups of institutions have been certified, like those in India and Bosnia and Herzegovina.
Smart Campaign Director Isabelle Barrès recently traveled to Bosnia and Herzegovina for an event to publicly congratulate and recognize the country’s three MFIs that were certified earlier this year, EKI, Mi-Bospo, and Partner. Organized by stakeholders in the Bosnian market, in particular the IFC, the event also highlighted the significance of certification, for the institutions and for the market at large. Of the three Bosnian MFIs Isabelle said, “The three client protection certified financial institutions, EKI, Mi-Bospo and Partner, can distinguish themselves in a highly competitive market, as organizations that are meeting adequate standards of customer care. They deserve the spotlight, and the attention from responsible funders and from clients.”
> Posted by Alyssa Passarelli, Communications and Operations Assistant, the Smart Campaign
The launch of Client Protection Certification in January 2013 is a significant milestone for the Smart Campaign and for the financial inclusion community. As an initiative that is the first of its kind, it shifts awareness of client protection in microfinance to an industry standard. The Smart Campaign and the licensed certifiers have been working diligently to get the word out about certification to help build engagement and a market for this important program.
A frequent request from participants in the certification webinar series was to clarify the difference between a Smart Assessment and a Client Protection Certification mission. While they differ in purpose, the important message is how they work hand-in-hand. Both assessments and certification are based on the 30 adequate standards of care rooted in the Smart Campaign’s seven Client Protection Principles (CPPs).
- An assessment is a report for management. It used the standards as reference to give an in-depth-”diagnostic,” with a grade of the MFI’s practices. The Smart Campaign recommends Smart Assessments as an excellent way for an MFI to prepare itself for certification.
- Certification is aimed at the stakeholders of an institution. It applies the standards as a firm benchmark for achievement that merits certification. With certification, a financial institution can tell clients, investors, and regulators that it takes adequate care to ensure that its clients are protected.
A Smart Assessment typically lasts four to five days and is conducted by two trained assessors who examine an MFI’s policies and procedures, as well as interview staff and clients. After the assessment field-visit, the MFI receives a lengthy and detailed confidential report that presents the assessors’ comments on each indicator, grading, and supporting evidence. As such, a Smart Assessment is a very useful opportunity for an MFI to see which areas of operations are in adherence with the standards and which need improvement. The cost of an assessment will vary depending on the MFI and the partner with which it collaborates. To date, the Smart Campaign has conducted over 75 assessments across the globe. Most of the organizations that are now Client Protection Certified first underwent an assessment to make sure they were prepared for the certification mission. You can learn more about Smart Assessments from Sergio Guzmán, Lead Specialist for the Smart Campaign.
> Posted by the Smart Campaign
Smart assessments. You know, a tool to help MFIs diagnose if their institutional practices adequately account for the well-being of their clients and can help them towards becoming ‘Client Protection Certified?’ We’ve written about them through the years (The Dawn of Client Protection Assessments in India, Straight Talk on Client Protection – Aggressive Sales Techniques, Mapping the Numbers of the Smart Campaign, etc.) but this is our very first video on the subject. Smart Assessments examine an MFI’s implementation of the client protection principles, taking the institution through a process of internal review to identify strengths, weaknesses, and ultimately opportunities to enhance business practices around client protection.
In the video, Smart Campaign Lead Specialist Sergio Guzmán offers an overview of assessments, discussing the client protection principles, how assessments benefit MFIs, what the assessment process looks like, common client protection challenges, and next steps for interested institutions.
As Sergio mentions, to date the Smart Campaign has trained a total of 29 lead assessors and 45 support assessors, who have conducted roughly 75 assessments around the world. For more information – including the self-assessment Getting Started Questionnaire – head over to the Smart Campaign website. And stay tuned to our newly launched Smart Campaign YouTube channel for the release of more videos on client protection in microfinance.
> Posted by David Grace, Managing Partner, David Grace & Associates
As noted in a recent blog post by Beth Rhyne of CFI, supervisors need to upgrade their skills if they are going to keep pace with an additional 2-3 billion people over the next decade potentially entering financial services for the first time.
The financial inclusion movement is taking shape at the same time that banking supervisors globally are searching for more “forward-looking” indicators to help them detect early problems in institutions and financial systems. Whether it’s the subprime crisis in the United States and Europe, or over-indebtedness problems in Bosnia and Southern India, many of the early warning signs were evident in consumer abuses before they showed up on the balance sheets and capital ratios of institutions. As such, one of the best avenues for supervisors to improve their quantitative-focused prudential oversight is to start putting greater emphasis on qualitative-based consumer protection indicators.
Through a World Bank-sponsored program in the Eastern Caribbean to improve the quality of supervision of non-bank financial institutions, the Smart Campaign inspired consumer protection supervision to become integrated into new prudential examination procedures.
> Posted by Antonique Koning and Kate McKee, Microfinance Specialist and Senior Adviser, CGAP
The following post was originally published on the CGAP Blog.
Microfinance investors are now openly discussing responsible investment, including balancing returns and how to reduce risks of market saturation and over-indebtedness, more than ever before. Investors agree it’s time for action. At the mid-year Social Investor Roundtable, convening of the Sangam Group (CEOs of the ten largest MIVs) and annual Development Finance Institutions (DFI) consultation on responsible finance last month they agreed on a “to-do” list of six concrete actions:
1. Join the discussion on balanced returns: Many participating investors had signed the Principles for Investors in Inclusive Finance (PIIF). Most agree that the balanced returns principle is the most difficult to pin down. The topic came up frequently: How much is too much, when it comes to prices and profits in the sector? Several MIV CEOs asserted that their commercial business model was the most effective way to drive responsible financial inclusion at scale. Eyebrows around the room shot up when one fund manager stated the target return of his fund: 20 percent. Other fund managers disagreed with the philosophy that such returns are consistent with responsible practice and desirable client outcomes. “We’re fooling ourselves” to suggest that there are few trade-offs between the financial and social bottom lines, they said. By policy some funds agree to take a lower return in the short run if it translates into better rural outreach or services like deposits that clients need and want. Sangam MIVs formed a working group on balanced returns and will feed their perspectives into related discussions led by the PIIF and Social Performance Task Force (SPTF). If you’re an investor, you should join one of these processes and help the search for a pragmatic but meaningful understanding on balanced returns.
2. Use the new Lender Guidelines on avoiding over-indebtedness. Market saturation was another hot topic: What can and should investors do about risks of market saturation and over-indebtedness? Investors in the AvOID Working Group have developed a Lender Code of Practice, which outlines steps investors should take in market analysis, due diligence, monitoring, and governance engagement. The Code has now been finalized and integrated in the PIIFs. Your investment organization can benefit by integrating the guidelines into your processes.
3. Support country-level research on market saturation and over-indebtedness: In addition to guidance that individual investors can use to rein in over-indebtedness, investors are also working together on analyzing such risks at the country or market level. DFIs and MIVs have supported this work in countries such as Azerbaijan, Bosnia-Herzegovina, Kosovo, the Kyrgysz Republic. Most recently, Blue Orchard, Incofin, and Oikocredit stepped up to jointly fund an innovative methodology in Cambodia that combined country-level proxies for market penetration, indicators of MFI lending practices, and surveys and qualitative research on borrower indebtedness and related factors. Findings were presented at the Social Investor Roundtable and will be formally released later this month. Sangam members committed funding to replicate the study elsewhere. Other investors can join and support expansion of this important work in additional markets.
> Posted by Alexandra Rizzi, Deputy Director, the Smart Campaign
As 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 .
> Posted by Alexandra Rizzi, Deputy Director, the Smart Campaign
The Smart Campaign’s just wrapped up its Steering Committee meeting in Switzerland this week. This twice-a-year event is a wonderful opportunity to take stock of the Campaign’s accomplishments, goals, and challenges, and receive feedback from stakeholders who represent the global microfinance market. One of the issues that came up often during this meeting was the opportunity for interaction between the standard-setting work of the Smart Campaign and the policymakers and regulators involved in setting regulatory frameworks for client protection. The need for such interaction is particularly important in countries where client protection regulation for financial services is not yet well developed.
I was also reminded of the importance of a regulatory framework for client protection by news coming out of the U.K. today. The U.K.’s Office of Fair Trading has cracked down on 50 of the biggest providers in the £2 billion pay-day lending market, giving them approximately 12 weeks to improve their practices or be closed. The Office of Fair Trade had been monitoring the payday lending market and found many problems, including:
- Failure to adequately assess the affordability of the loan for customers (see the Client Protection Principle, Avoiding Over-Indebtedness)
- Aggressive debt collections practices and lack of transparency in how repayments are collected (Client Protection Principle on Fair and Respectful Treatment of Clients)
- Advertising that lured customers into loans they could not afford (Client Protection Principle on Transparency)
The Smart Campaign has been developing guidance on good practices in each of these three areas. The Smart Campaign’s perspective is that providers can and should take affirmative responsibility to install responsible practices, and it assists in this process through capacity building, tools, and development of standards of practice. We are proud of our reach to date, resulting in thousands of organizations that are now aware of and actively improving their practices. However we realize that financial markets are complex, that microfinance providers are not the only financial organizations interacting with the poor, and that capacity building and standard setting needs to be complemented by a regulatory framework that creates an orderly marketplace that is safe for clients. The Campaign hopes to explore ways in 2013 that it can interact with regulators to exchange knowledge and viewpoints.
> Posted by the Smart Campaign
We’re excited to announce a new beginning in our work with the MasterCard Foundation to ensure the protection of clients throughout the microfinance industry. The MasterCard Foundation will be teaming up with the campaign for a $4.3 million partnership to support the recently launched Client Protection Certification Program.
The team will work together to implement a wide range of activities related to client protection, including developing training materials and other tools, conducting research and assessments of financial institutions, and capacity building. This new beginning builds off previous collaboration, as the MasterCard Foundation has been an essential partner to the campaign for the past several years.
> Posted by the Smart Campaign
The Smart Campaign recently launched the Client Protection Certification Program (CP2). In designing the certification program the Campaign worked with many stakeholders in microfinance, and especially with the four specialized microfinance rating agencies, M-CRIL, Planet Rating, MicroFinanza Rating, and MicroRate. These four have been licensed by the Smart Campaign as certifiers and are now welcoming calls from organizations that wish to become certified.
We urge organizations that are scheduling ratings in 2013 – and that have strong client protection practices – to consider requesting a client protection certification at the same time as a rating. Here’s why:
- Assurance about client protection standards. Client protection certification treats client protection in more depth than ratings and measures practices against specific, industry-wide standards. The certification provides greater assurance that client protection practices meet these standards.
- Use of certification as a public mark of achievement. Client protection certification carries a message about an issue of public concern that can be shared with a broad array of stakeholders, including investors, the media, and even clients. It can be used to convey a simple and powerful message.
- Costs less and is less disruptive. Client protection certification was designed to work in tandem with ratings. When a client protection certification visit is combined with a rating visit it adds a relatively small amount to the cost of the rating, a cost that is much less than a standalone certification. And because only one on-site visit is needed, combining ratings and certification is less burdensome for the organization.
- Upgrading practices. The process of preparing for and passing certification assists organizations to upgrade their client protection practices.
> Posted by Josh Goldstein aka Mr. Provocative
The painful crawl toward full inclusion of all citizens in all realms of activity is one of the major storylines in American history. It is a key measure of the success of our democratic experiment that we, the people of the 21st century, continue to work with uneven success to perfect our society. How far we have come from the republic of our 18th century founders when only white male property owners enjoyed the privileges of full citizenship! But the advances toward equal rights and opportunities for women, African Americans, gays, persons with disabilities, and other minorities have come through the hard work over many generations of devoted citizen activists fighting for their causes and constituencies.
The point is that rights are not obtained by one Presidential decree, like the Emancipation Proclamation freeing the slaves in Confederate territory, or one legal remedy, like the 19th Amendment to the United States Constitution that enshrined women’s right to vote. These were essential milestones that secured progress, but they were preceded by decades of struggle and would have proven ephemeral if the generations that followed had not persisted in that struggle. There were many setbacks and detours along the way. Nothing was automatic or achieved without extraordinary persistence and sacrifice.
In pursuing financial inclusion, the Center for Financial Inclusion works toward this ideal of non-discrimination, with a special emphasis on economic equality and opportunity for poor people around the world. Nowhere is this more pointed than in the “Responsible Treatment of Clients” principle, one of the Smart Campaign’s Client Protection Principles for customers of financial institutions.
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