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> Posted by Fernando Botelho, Founder, F123 Consulting
Microfinance institutions (MFIs) may not be aware of tools and resources at their disposal that can make it easier for them to work with persons with disabilities (PWDs) as clients or staff. A new tool launched a few weeks ago attempts to close this gap, “Inclusion of Persons with Disabilities in Microfinance through Organizational Learning and the Strategic Use of Low-Cost Technologies.” This tool is part of the Framework for Disability Inclusion toolkit produced by CFI through work with Fundación Paraguaya and others.
The new tool provides concrete guidance for selecting appropriate technologies, forming partnerships with disability-related organizations, and incorporating disability inclusion throughout an organization. It was developed by myself and my organization, F123 Consulting, inspired by our work with the staff of Fundación Paraguaya, to make their organization more disability inclusive.
For example, free and open source assistive technologies can be used by organizations that have an interest in ensuring that operational and financial viability are maintained. In that regard, it’s important to take advantage of the many available low-cost, high performing technologies, and to adapt instead of replace existing processes whenever possible. Managers don’t have to roll their eyes and fret about cost. Small modifications to already existing systems can often make MFIs accessible to staff and clients with disabilities. And the best part is that some of these modifications are free!
> Posted by Laura Galindo and Alexandra Rizzi, Senior Associate and Deputy Director, the Smart Campaign
A few days ago a post on this blog detailed debt collections practices in the United States. The Smart Campaign, led by Jami Solli of Consumers International, is working to shed light on provider practices in microfinance through exploratory research in Peru, India, and Uganda.
Once a client becomes seriously delinquent and moves into default, the possibilities for serious consequences for the client arise. Yet little is known about how microfinance institutions treat clients at these later stages. What alternatives do providers offer to clients who are in protracted arrears? How are clients treated when they are defaulting on multiple loans? What do clients experience during this difficult and stressful stage? And after the default, are client debt obligations resolved? Is there a concerted effort to rehabilitate or re-include defaulters?
In September, the Smart Campaign kicked off a research project to explore what happens to clients who default. The project focuses on how microfinance practitioners treat defaulting clients. It is scanning for best practices around the world – like debt mediation projects in Europe and middle-income countries – and examining practices in detail through interviews with practitioners and regulators in Peru, India, and Uganda. Interviews were also conducted with credit bureaus, debt collections agencies, consumer advocacy/protection groups, and researchers specialized in those markets. These countries were chosen, in part, because of their variation in credit bureau infrastructure and the hypothesis that this would have significant impact on provider practices.
> Posted by Elisabeth Rhyne, Managing Director, CFI
The following post was originally published on the IFMR Trust Blog.
The Mor Committee Report offers a radical take on client protection, built around the concept of a legal right to suitability. After describing the recommendations briefly, I would like to tell IFMR’s readership why I’m excited about the approach (two big cheers), provide some thoughts on how to make it work (and how the Smart Campaign could assist), and raise a couple of questions.
Suitability is about ensuring that clients are sold financial services that are appropriate for their circumstances. A suitable product is one the client can be expected to manage with a low probability of serious hardship and a reasonable prospect that it will provide value. The concept has been present for some time in financial consumer protection regulation, most notably in the UK and Australia. The Mor Report proposes a unique approach to implementing suitability, which places responsibility on the service provider to install processes to ensure that clients are sold suitable products, e.g., client targeting and underwriting procedures that adequately assess repayment capacity. Regulation would hold the board of directors responsible for approving and overseeing the implementation of these processes, subject to external review. Hand in hand with this, the report recommends an energetic grievance redress system (which I will not address here), including both internal and external mechanisms to cope with individual problems.
The first big cheer goes to the decision to focus on suitability as the heart of client protection. This directs attention exactly where the greatest potential for harm occurs. Overindebtedness, is perhaps the greatest failure of suitability, resulting from selling loans that exceed a client’s debt threshold. This is why the Smart Campaign places Appropriate Product Design and Delivery and Prevention of Overindebtedness as Client Protection Principles #1 and #2, even ahead of Transparency. Among all the standard client protection problems, only overselling of credit has repeatedly caused sector-wide crisis and collapse, and thus if there is to be a focal point, this is the right one. (The report discusses the relative merits of suitability vs. disclosure as the core of consumer protection policy, which raises both practical and philosophical issues – an engaging topic for another day’s post.)
> Posted by Joshua Goldstein, Principal Director for Economic Citizenship & Disability Inclusion, CFI
Over the last two years, the Center for Financial Inclusion has worked to develop a series of tools and trainings (a how-to guide) for MFIs that have decided to become disability inclusive but don’t know how to do so.
Through our strategic partnership with Handicap International, Fundación Paraguaya, and the Smart Campaign, we have now completed a comprehensive toolkit. And today, we are pleased to announce that we are making these tools and trainings available to the industry in English, Spanish, and French on the Persons with Disabilities (PWD) page on the CFI website. Everything is open source and available to any MFI or other financial services provider that wishes to use the tools.
The Center made inclusion of PWD an institutional priority because at 15 percent of the global population, PWD represent a very large vulnerable minority, and are largely unbanked – no more than 0.5 percent of current MFI clients worldwide are PWD.
In its Responsible Treatment of Clients principle, the Smart Campaign emphasizes the importance of non-discrimination. As the Smart Campaign’s principles evolve, MFIs are encouraged to broaden their scope of services to minorities like PWD and promote equal opportunity to financial services.
The Convention on the Rights of Persons with Disabilities (2006) stipulates in Article 27 on Work and Employment that countries that have ratified the treaty must level the playing field so that persons with disabilities have an equal right to employment. The Center’s White Paper “A New Financial Access Frontier: People with Disabilities” made the case for disability inclusion, drawing on the approaches used around the world to guide implementation of the Convention. Now we present the industry with practical implementation guidelines for those institutions seeking to close the financial inclusion gap for persons with disabilities.
> Posted by Eric Zuehlke, Web and Communications Director, CFI
Client protection (and the Smart Campaign) had a big year in 2013 in India, with five Indian MFIs becoming client protection certified and the release of the Implementing Client Protection in Indian Microfinance report.
Following the Andhra Pradesh crisis in 2010, client protection became a priority in India across microfinance stakeholders including the Reserve Bank of India, industry associations such as MFIN, Sa-Dahn, and DFIs, and investors such as IFC, the World Bank, Oikocredit, and SIDBI. In 2011, the Smart Campaign began a two-year capacity-building program with support from Accion and the International Finance Corporation to move MFIs from endorsement of the Client Protection Principles to actually improving their practices.
The results of this Accion-IFC-Smart Campaign project are presented in the Smart Campaign’s State of Practice Report Implementing Client Protection In Indian Microfinance, launched at the Microfinance India Summit 2013 in Delhi, India in December. By examining client protection through the lens of the seven Client Protection Principles, the report takes a comprehensive look at the status of client protection in India, including areas where progress has been made and areas that still need improvement.
Based on self-reported questionnaire results and 18 in-depth Smart Assessments, the report presents areas where there has been marked improvement in client protection practices in India, and a few areas that require additional attention. High scores were reported for the principles of Responsible Pricing, Ethical Staff Behavior, and Appropriate Collections Practices. This is in part due to MFIs incorporating Code of Conduct trainings and providing guidelines for staff behavior. Less progress has been made in Complaints Resolution. Even when MFIs have a complaint policy, this is often not communicated to clients and many staff members aren’t trained on how to handle customer complaints. Privacy of client data remains an issue as well as most MFIs don’t recognize client data protection as a major issue and clients are not educated on how to keep their passbooks safe. The lack of external regulation on these issues magnifies this trend.
A major focus since the 2010 crisis has been avoiding over-indebtedness. According to the report, “Both RBI directives and the Smart Campaign emphasize evaluating borrowers’ repayment capacity and loan affordability. Out of the total MFIs assessed, around 70 percent of the institutions demonstrated adequate analysis of their clients’ capacity to repay.” Over the past two years, MFIs have started to provide a wider range of products and regulations mandate that institutions offer a variety of repayment options.
> Posted by Calum Scott, Program Impact Director, Opportunity International
As a network of 40 microfinance institutions in 22 countries, Opportunity International is well positioned to play a powerful role in supporting the positive development of the microfinance industry. For client protection, we believe that the Smart Campaign’s Client Protection Certification represents the highest standard of assurance that an institution’s practices are responsible.
To promote client protection and certification among our network, we’ve engaged the support of MicroFinanza Rating – a specialized microfinance rating agency and one of the Smart Campaign’s licensed certifiers.
The agreement with MicroFinanza will facilitate our network partners to undergo certification missions, and promote the sharing of lessons learned from certification experiences across our network of institutions. This agreement also demonstrates our confidence in the quality of the work that MicroFinanza does.
> Posted by Alexandra Rizzi, Deputy Director, the Smart Campaign
Over 165 investors and donors have endorsed the Smart Campaign and the Client Protection Principles. But our Campaign staff wanted to dig deeper: what does this support mean in practice? Are investors using the Client Protection Principles in their everyday work? How? Earlier this year, we embarked on a project to find out.
The Campaign worked with three Virtual Volunteers from Credit Suisse - Lloyd Yetton, Meha Jain, and Nicolas Vucekovic – to create a short survey aimed at understanding how investors incorporate client protection into their due diligence, post-investment monitoring, and reporting. The virtual volunteers spoke with representatives from 12 of the leading microfinance investors.¹ The findings, highlighted below, will help the Campaign shape its engagement with this pivotal stakeholder group.
Client Protection Universally Important But Not Uniformly Applied
All the investors interviewed stated that client protection was important to them from both a social perspective and for their bottom line. Most had seen first-hand the positive influence from strong client protection practices as well as the problems and instability that sprang up in their absence. Such universal recognition is an encouraging step forward from earlier days of the Campaign. In addition to understanding the importance of client protection, nearly all respondents said that client protection was already explicitly incorporated into due diligence. Investors are indeed scrutinizing a microfinance institution’s client protection practices before investing in it.
> Posted by Alyssa Passarelli, Communications and Operations Assistant, the Smart Campaign
The findings in the Study of Client Protection Practices in Latin America and the Caribbean (LAC), a new report from the Smart Campaign, are intended to help microfinance stakeholders reflect on the current state of practice among institutions in LAC and on how performance gaps can be addressed.
Over the past two years, the Smart Campaign conducted a study on the client protection practices of twelve Latin American microfinance institutions, examining their implementation of the Client Protection Principles. The study looked at an assortment of organizations such as NGOs, banks, and credit unions in different countries, analyzing their client protection performance from the point of view of practitioners, and offering recommendations to improve their client protection practices.
Overall, the MFIs studied in the report performed well in the principles of Preventing Over-Indebtedness, Responsible Pricing, and Ethical Staff Behavior, but there was (sometimes significant) room for improvement in the principles of Transparency, Appropriate Collections, and Mechanisms for Complaint Resolution. The report revealed that client protection performance is not easily generalized, and that it’s often essential that particular client protection areas be improved if clients are to be served responsibly.
> Posted by Jami Hubbard Solli, Senior Policy Advisor, Consumers International UK
We originally published “D” Is for Default a few weeks ago in English. We’re pleased to now share the post in French and Spanish, made possible by the Smart Campaign’s Nadia van de Walle and Laura Galindo, respectively. Read the post in French here, and in Spanish here.
What really happens to microfinance clients who do not repay their obligations?
As a late-comer to microfinance in 2005, I bustled from the Boulder training, to the Blue Book conferences, to the MicroCredit Summits (and back), trying to understand the dynamics of microcredit. At all these events, I heard proclamations of very high repayment rates, which sparked curiosity about what happened to that small percentage of borrowers who couldn’t (or wouldn’t) repay their microloans. This topic wasn’t presented at any conference I attended.
There has been industry research done on why clients default, as well as interesting work highlighting the gap between providers’ and borrowers’ perceptions and experiences related to over-indebtedness.¹ However, there is very little work done that details the actions taken by practitioners when a borrower doesn’t repay, nor on the experience for defaulting clients in the short-term, or over time.
The knowledge gaps on default management include what providers actually do, as well as what influence (if any) legal and regulatory frameworks have on industry practices. For example, what guidelines or boundaries does a country’s legal framework offer on debt collection? Is there a prescribed manner in which MFIs can collect a past due debt, including how to go about the seizure, valuation, and the sale of collaterals? Is there a limit to the length of time which a borrower is legally responsible for a debt? What are MFI practices regarding collection post write-off? Are there any insolvency or personal bankruptcy provisions available to debtors, either by law, or through voluntary debt counseling centers? More importantly, if the legal framework does exist, is it enforced? Are MFIs aware and in compliance with requirements? And, lastly, there does not appear to have been any industry research on the consequences of default from the client perspective.