You are currently browsing the tag archive for the ‘Client Protection Principles’ tag.

> Posted by Alexandra Rizzi and Alyssa Passarelli, Deputy Director and Communications and Operations Assistant, the Smart Campaign

The Smart Campaign has worked tirelessly for over five years to embed the Client Protection Principles into the microfinance sector, and increasingly, the broader financial inclusion community. Yet until now, the Campaign has had minimal input from the very clients whose well-being drives the entire movement.

In order to better understand the concerns and experiences of the individuals who use microfinance, the Campaign has launched a client voice research and learning project. Through listening directly to clients, market stakeholders can raise awareness, dialogue with each other to identify potential issues, and in turn integrate this learning into their work. The Smart Campaign has a unique role in shining a light on potentially harmful or negative experiences that low-income users of financial services have had and bringing those experiences to the attention of those who can do something about them.

To conduct this project, the Campaign will be working with Daryl Collins and her team at Bankable Frontier Associates (BFA). BFA has conducted extensive global research with low-income households, including projects with an explicit focus on consumer protection. The client voice project will be conducted in four markets – Pakistan, Benin, and two others to be chosen this summer. The markets are selected based on geographic diversity as well as engagement by local stakeholders with the Smart Campaign. In Pakistan and Benin for example, the project is working closely with the Pakistan Microfinance Network and the Alafia Consortium, who have helped convene local stakeholders to give feedback on project design, research locations, and results. This ensures that the research has input and support at all stages from local expertise and will be used by those who are best placed to take action in response to the findings.

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> 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.)

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> Posted by Calum Scott, Program Impact Director, Opportunity International 

An Opportunity International client talks with her loan officer while examining her cocoa beans.

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.

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

Smart CampaignOver 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.

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> 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.

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> Posted by Jimena Vallejos, Project Coordinator, Fundación Paraguaya

Non-discrimination is embedded in the fifth Client Protection Principle, Fair and Respectful Treatment of Clients. A microfinance institution (MFI) may work, knowingly or not, with clients that have particular disabilities or conditions. In order for MFIs to operate without discrimination, it’s essential that they are inclusive of persons with disabilities and that they offer services that account for these clients’ unique needs. Fundación Paraguaya (FP) is an MFI that operates in Asunción, Paraguay and employs an impressive non-discrimination policy and code of ethics, fully taking into account those with disabilities and physical conditions. These documents can be viewed on the Smart Campaign website:

Fundación Paraguaya and CFI are working together on a specific project, “Non-Discrimination: Making Microfinance Institutions Disability Inclusive and Smart Campaign Certifiable,” establishing and testing guidelines for a model comprehensive non-discrimination policy. As part of the project, Thomas Meriaux and Caroline Cervera from Handicap International are currently visiting Fundación Paraguaya to provide trainings on disability inclusion for clients and employees at the MFI. We recently spoke with Thomas about his visit, and he told us about an incident that brought it all home.

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> Posted by Alyssa Passarelli, Communications and Operations Assistant, the Smart Campaign

Smart CampaignThe Smart Campaign offers dozens of free tools on its website for microfinance industry stakeholders, including microfinance practitioners, to use as resources to help advance client protection. A great way that an MFI can make the first step to actively instilling responsible client care in their practices is with the “Getting Started Questionnaire”, a self-diagnosis that examines institutional practices in light of the Client Protection Principles and identifies areas for improvement. The Smart Campaign is pleased to announce the debut of the newest version of this tool.

The Getting Started Questionnaire has been revised and updated to align with the standards for the certification program launched in January. It is more user-friendly than the previous version. For example you can choose the desired language from within the spreadsheet interface. The current languages available are English, Spanish, French, and Portuguese.

The Getting Started Questionnaire is often the first step an organization makes after endorsing the Smart Campaign. Smart Campaign staff are pleased to have enhanced how an MFI begins the journey. To download the Getting Started Questionnaire tool, click here. To browse all of the Campaign’s tools and resources, click here

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> Posted by Maria Perdomo, YouthStart Programme Manager, UN Capital Development Fund

Opening a bank account in Senegal gave me first-hand experience in how a bank can fail to apply the client protection principle on transparency. On my visit to open the account, I spent one hour waiting and another hour completing forms and asking the sales representative questions. When I decided that I had spent too much time trying to understand exactly what fees were associated with the account, I asked the representative for a brochure that explained it all. She looked at me as if I were speaking another language because, in fact, the bank did not have a single document disclosing all the fees associated with the account. So there I was, writing down all the fees the representative could remember. In the end—and after a lot of probing—together we estimated that I would have to spend about US$30 (CFAF 15,000) to open the account and then US$10 to US$15 on monthly fees! But, of course, I would not know exactly how much I was paying in fees before receiving my first statement.

A couple of months later, I went to visit a financial service provider in Uganda and interviewed the group of young women and girls that you can see in the photo. I was completely taken by how these empowered young women were saving in their individual accounts as little as 1,000 Uganda shillings (US$0.39) per week. For them, every penny counts, and they can only afford saving in an institution that is transparent about its fees and responsible about its pricing. Seeing this group of young women and girls, in contrast with my not-so-positive experience at the bank, reinforced my commitment to client protection for youth, who are among the most vulnerable clients.

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> Posted by Alyssa Passarelli, Communications and Operations Assistant, the Smart Campaign

Sergio Guzmán conducting a Smart Assessor’s Training in Budva, Montenegro

Sergio Guzmán conducting a Smart Assessor’s Training in Budva, Montenegro

The month of May was filled with many exciting events for the Smart Campaign. Smart Campaign director, Isabelle Barrès traveled to Guatemala and Bosnia and Herzegovina for two Client Protection Certification events (please see our last blog post). Smart Campaign Lead Specialist, Sergio Guzmán also traveled to this corner of the world to conduct a Smart Assessor’s Training and to attend the 16th Annual Microfinance Centre Conference in Budva, Montenegro. Although the Campaign is based in Washington, D.C., Campaign staff thrive on opportunities to engage in client protection efforts beyond the office.

It’s a good thing that Sergio does not have a fear of heights. With the amount of time that Sergio spends in the air each month, he might as well be Superman. The Smart Assessor’s Training in Budva brought together a diverse group of financial services experts including donors, investors, consultants, and CEOs of microfinance institutions (MFIs), among others in the Eastern Europe/Central Asia region. Even with the ranging backgrounds of these participants, Sergio notes that the evident common denominators are the enthusiasm to incorporate the Client Protection Principles (CPPs) into their work and a keen desire to improve their commitment to those they serve.

It is very exciting for the Campaign to generate interest among such a wide range of actors at events like the training in Budva. The Smart Campaign’s growing involvement in activities among participants from different backgrounds reflects client protection’s increasing foothold. This layered interest and further desire to cement client protection into business practices is a promising achievement for the movement.

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> 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.

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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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