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> Posted by Alexandra Rizzi and Sonia Arenaza, Deputy Director of the Smart Campaign and Director of Accion Channels and Technology

This is the first of two blog posts about responsible digital financial services, on the occasion of the Responsible Finance Forum in Perth, Australia.

The Smart Campaign has watched with excitement as new forms of digital financial services (DFS) stand poised to bring financial access to millions of lower-income households previously excluded from the financial system. The potential benefits of this new ecosystem are enormous and include an array of positive outcomes ranging from lowered transaction costs to consumption-smoothing, among many others. Nevertheless, the excitement over new possibilities must not obscure the need to evaluate and respond to new risks to clients.

In an ongoing mapping exercise conducted by the Smart Campaign and Accion’s Channels and Technology team, we identified various things that can go wrong for clients of DFS, such as:

  • Clients lose their funds after an agent fails to take proper security measures or after a service outage
  • Agents charge unauthorized fees for transactions under guise of complicated pricing and fees
  • Clients lack or are not offered adequate customer care channels
  • Lack of data privacy due to clients not being informed or misinformed on how their data and history is being used or shared
  • Agents lacking liquidity serve only their favored clients

While these risks are grounded in anecdotes from the field, there is still much more evidence needed on the consumer harms that actually happen, including where they happen and how often. The Responsible Finance Forum in Perth will host several sessions that present demand-side evidence to help identify high priority risks.

But, what then? Once risks are known, how best to try to minimize them?

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> Posted by Nadia van de Walle, Senior Africa Specialist, the Smart Campaign

The Smart Campaign secretariat does a lot of things – manage a Certification program, provide technical assistance, develop and promote industry standards, and conduct research. Our small team is always putting on different hats, and we joke about trying to explain our jobs to friends. At the end of the day, the one thing many of our friends can understand is that we are an industry-facing organization offering a “public good.” The Smart Campaign’s public good is not a road or a lighthouse. It just happens to be standards and guidance on protecting clients. These standards are a public good because they belong to everyone, and one individual or institution’s use does not reduce the availability of the resources for others.

Some of our ever-thoughtful friends then ask if this means that we contend with other classic public goods challenges.

The answer is yes, absolutely. One of the biggest issues we struggle with is the lack of a market feedback mechanism. Industry stakeholders can use Smart Campaign tools and resources without paying and thus without providing feedback on their experience. Without a price signal, it can be difficult for the staff to assess demand and user experience. This makes it hard to know how to tailor, expand, or improve offerings. We are curious to hear examples from readers about how other similar organizations consistently improve their offerings without market feedback.

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> Posted by Rafe Mazer, Financial Sector Specialist, Government & Policy, CGAP

It’s a great time to be working on consumer protection. Even while risks change or expand in scope as new products evolve and access increases, it seems that there are just as many talented researchers and new approaches to making consumer protection work emerging. Some of the most important breakthroughs are coming from consumer and behavioral research. This includes insights into what sales staff really do and why (see, for example, this infographic on a recent World Bank/CGAP/CONDUSEF audit study in Mexico), how consumers make financial decisions—not always for purely economic reasons, and what the context of low resources or scarcity means for financial behavior.

The next step is to take these research insights and turn them into improved consumer protection policies in emerging markets. CGAP’s recent publication, Applying Behavioral Insights in Consumer Protection Policy, describes a range of current and potential ways we can bridge the research and policy fields. But what about providers? What can we take from the recent behavioral insights emerging for the Client Protection Principles?

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> Posted by Jeffrey Riecke, Communications Associate, CFI

Understanding the cash flows and money management practices of the poor is a requirement for effectively designing financial services. Complex income scenarios and impossibly-thin budgets make finances for many poor people complex. It takes time and resources to capture such information in a meaningful way. Insight into these practices was sought in the ambitious Kenya Financial Diaries project, which included biweekly interviews with 300 lower-income households in Kenya over the course of one year. Results from the project were released earlier this week.

The Kenya Financial Diaries, a joint research project by Bankable Frontier Associates and Digital Divide Data, comprehensively tracked the transactions of households across Kenya using a customized, “intelligent” questionnaire. The questionnaire was tailored to each household’s composition, income sources, and financial devices used. As new information became available, the questionnaire adapted accordingly. Along with the quantitative records on their financial lives, researchers interviewed household members on their perceptions, stories, and life events affecting their finances.

The results?

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> Posted by Nadia van de Walle, Senior Africa Specialist, the Smart Campaign

Serve clients with suitable products. Prevent over-indebtedness. Be transparent and price products reasonably. Treat clients respectfully, listen to their grievances, and protect their privacy.

The seven client protection principles make undisputedly good sense on paper. It’s hard to argue against any one of these practices, either normatively or from the perspective of the financial bottom line. We assume that well-treated, well-understood clients using appropriate products through the right delivery channels are more loyal, satisfied, and likely to refer their friends and family, provide useful feedback, and repay loans. Right?

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This post was originally posted on the Grameen Foundation blog by Alex Counts, President and CEO of Grameen Foundation and a member of CFI’s Advisory Council.

Alok PrasadAs a result of a complex combination of unwarranted attacks and self-inflicted wounds, the microfinance sector in India experienced a crisis starting in late 2010 after many years of strong growth and recognition for its contribution to poverty alleviation and financial inclusion.  When I was asked to give a keynote address at a microfinance conference in India in 2012, I said that it was important to leverage the sector’s strengths and accomplishments, while also addressing its failures and shortcomings.

I visited India in May and July and found that these things were finally happening and leading to on-the-ground progress as well as tangible support from both the outgoing and the newly elected Indian governments.  And as this blog went to press, there was another promising development: the government published draft guidelines on creating a pathway for NBFC-MFIs to become specialized or “differentiated” banks, which would enable them to take deposits directly for the first time legally.  (Though not all NBFC-MFIs would likely be eligible unless the “stringent norms” proposed are made more flexible.)  

My May visit to Mumbai was centered around Grameen Foundation’s workshop “Designing for Adoption and Scale” (click here for highlights and here for my closing address).  

One of the highlights of the second trip was speaking with Alok Prasad, the CEO of theMicrofinance Institutions Network (MFIN), a respected microfinance industry association.  He spoke eloquently about the progress the industry has made recently and the reasons behind it.  Below are excerpts from our conversation. 

Alex Counts (AC): I sense a new optimism related to Indian microfinance after some difficult years.  Would you agree?  How would you characterize the last 12 months in terms of how the Indian microfinance sector has developed? What were some of the key contributions of MFIN?

Alok Prasad (AP): Clearly the mood is buoyant, but not in an irrational way! Looking at the last fiscal year (April 1, 2013 to March 31, 2014), much has gone well for the industry. Growth, both in terms of gross loan portfolio and clients, has been strong. Portfolio performance stays at levels which commercial banks can only dream of (for unsecured lending). Branch networks have expanded, and new geographies have been covered. Funding (both debt and equity) has improved markedly. The regulatory environment remains broadly positive, notwithstanding the Microfinance Bill falling by the wayside.

In specific terms, the aggregate gross loan portfolio of MFIN’s member institutions (Non Banking Financial Company-Microfinance Institutions or NBFC-MFIs) stood at Rs. 279.31 billion (US$4.63 billion), an increase of 35%, over the prior fiscal year. Clients covered stood at 28 million, representing growth of 20% over the previous year. Debt funding grew by 46%, along with a definite revival of investor interest.

MFIN, I believe, has played a key role in bringing stability to the sector. Deep and sustained dialogue with the government and the Reserve Bank of India (RBI) has resulted in regulatory changes that are conducive to growth; a much greater appreciation of our industry’s role in promoting financial inclusion; and, the recognition that the industry is an essential component of the national financial architecture. From a systemic standpoint, the development of the credit bureau ecosystem had been a big win. As of this date, more than 150 million client records are present on the databases of two national bureaus. These records are updated on a weekly cycle; and, all lending is only after a bureau check. This has given remarkable results in controlling multiple lending and over-borrowing by clients. Our recognition by the RBI as the self-regulatory organization (SRO) for NBFC-MFIs is a sign of both a certain maturing of the industry and the regulator’s acceptance of that reality. A nice ‘new normal’ for an industry which just 18 months ago appeared deep in the throes of a crisis!

AC: MFIs outside of Andhra Pradesh have begun growing again.  Can you give us a sense of this growth and how it compared to other parts of the financial sector?  What are the main reasons?  Are there risks?

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> Posted by Jeffrey Riecke, Communications Associate, CFI

A proactive step for client protection was recently taken in Laos when the country’s Microfinance Association (MFA) established an industry code of conduct focused on client protection. Laos’ code centers on the client protection principles and the accompanying Smart Certification standards, which designate how institutions can instill fair client treatment in their practices. The code was developed by the MFA following a Smart assessor training in late 2013, and was reviewed by the Campaign to ensure accurate reflection of the client protection principles and standards. In April, the code was presented at an MFA member meeting, where all members present committed to embedding it throughout their institutions. This new code fills an important gap, given that client protection regulation for financial services is not well developed in the country.

Established in 2007, the Microfinance Association and its members represent a growing share of the country’s industry. Members include MFIs, as well as donors, training institutes, and individual experts and advocates. The 32 MFIs that are members make up roughly 50 percent of Laos’ formal microfinance industry by number of clients.

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> Posted by Hema Bansal and Pallavi Sen, the Smart Campaign and MFIN


On June 16th the Microfinance Institutions Network (MFIN) was officially recognized as the Self Regulatory Organization (SRO) for non-bank financial company (NBFC) microfinance institutions in India. With this, MFIN not only became the first network to attain such recognition in India, but also in Asia and perhaps in the world.

An SRO is an organization that has been authorized by a statutory regulator or a government agency to exercise control and regulation on its behalf over certain aspects of an industry. Established in 2009, MFIN is an association of NBFC-MFIs acting as their primary representative body. As an SRO, MFIN will essentially support the RBI in ensuring compliance to regulatory prescriptions and the Industry Code of Conduct.

Subsequent to the Andhra Pradesh crisis, the RBI had instituted a subcommittee of the Central Board of the Reserve Bank under the chairmanship of Shri Y. H. Malegam to study issues and concerns in the microfinance sector in India. The committee submitted its report in January 2011, thereby providing concrete recommendations and guidelines for the creation and recognition of microfinance NBFCs in India. Except for setting in place an SRO, all the other recommendations of the committee were implemented by the RBI in 2012. These other guidelines included establishing a credit bureau, the Guidelines on Fair Practices Code for NBFCs, and additional guidelines on loan size, target clientele, interest rates, transparency, collection practices, and multiple lending. With MFIN recognized as an SRO, the RBI is now implementing the last remaining Malegam Committee recommendation.

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> Posted by Nadia van de Walle, Senior Africa Specialist, the Smart Campaign

According to a recent Overseas Development Institute (ODI) report, of every eight dollars sent to Africa, a whole dollar is lost to accompanying transaction fees. This loss, estimated by ODI to be between $1.4 and $2.3 billion annually, is particularly significant given that remittances comprise a significant share of African states’ economies and are rapidly increasing; the World Bank estimates they totaled around $32 billion in sub-Saharan Africa (SSA) in 2013 and may reach $41 billion by 2016. These numbers attracted The Economist to ask, “Do the middlemen deserve their cut?

Looking at these practices through the lens of the Smart Campaign’s Client Protection Principles, we question whether they are in keeping with responsible pricing. These charges can’t be explained by distance. In fact, large amounts of remittances are intra-country or intra-Africa, transmitted from urban to rural areas or by migrant workers from one country to another. Remittance corridors within Africa have some of the highest charge structures in the world. The 12.3 percent average charge for sub-Saharan Africa compares to a global average (without SSA) of 7.8 percent.

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> Posted by Hema Bansal, India Director, the Smart Campaign

As a child growing up in India, I was always intrigued by stories from Myanmar, but disturbed by conflicts that it had witnessed. Not knowing much about the country, as an adult I still had an innate desire to visit. On May 7th and 8th, I attended the Responsible Finance Seminar, organized by Entrepreneurs du Monde (EDM), held in Myanmar’s city of Yangon. I was completely awed by the mystical peace of the city, I was also impressed by the demonstrations of support at the seminar for instilling client protection in Myanmar’s microfinance industry. It’s a great opportunity for a young market to secure responsible practices from its outset.

Myanmar, the second-largest country in Southeast Asia, remains one of its poorest. Decades of isolation have severely affected its development. In terms of financial inclusion, a large proportion of the population in Myanmar relies on informal lenders. The formal sector only serves about 20 percent of the population, largely because of the existing financial institutions’ limited capability.

In May 2011, President Thein Sein publicly recognized microfinance as a means of development by enabling local and foreign investors to establish fully privately-owned MFIs. Since the rationalization of licensing in Myanmar, around 110 MFIs have been registered. Deposit-taking institutions have been allowed to set-up shop rather easily due to low minimum capital requirements and the absence of separate prudential regulations from non-deposit-taking institutions, such as rules pertaining to reporting standards and portfolio quality management.

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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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