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> Posted by the Smart Campaign

Smart CampaignToday, the Smart Campaign released for public comment new draft Client Protection Standards – which will be the basis for what we term Certification 2.0. The new standards streamline the previous Client Protection Standards, and reflect the evolving financial inclusion industry. They incorporate client risks pertaining to insurance, savings, and digital financial services. The standards operationalize where the financial inclusion industry sets the bar in terms of the minimum behaviors clients should expect from their financial service providers. Now open, the public comment period extends through November 30, 2015.

We’d love your feedback!

The new standards build off of the first set of Client Protection Standards, released in January 2013, as the basis for the introduction of Smart Certification. The standards and their corresponding indicators, which put the Client Protection Principles into practice, are used to benchmark institutions seeking Smart Certification.

Like the first iteration, the development of Certification 2.0 standards has been a highly collaborative process. Over the past 18 months, the campaign consulted a wide array of stakeholders and up to 30 experts to strengthen and update the standards and indicators.

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> Posted by Susy Cheston, Senior Advisor, CFI

In three days the Center for Financial Inclusion will unveil the FI2020 Progress Report. In it, we define progress made toward financial inclusion and make predictions about the most critical issues facing the industry.

This web-based report has been a year in the making, the result of FI2020’s monitoring of industry trends, interviews with experts, and an analysis of financial inclusion data from both the supply and demand side. We organized the report around the five areas identified in the 2013 Roadmap to Financial Inclusion: Addressing Customer Needs, Client Protection, Credit Reporting & Data, Financial Capability, and Technology.

Perhaps the most fun—and most debatable—aspect of the report is the rating we will reveal for each area, marking where we are on the road to financial inclusion along these five dimensions. The financial inclusion community around the world will have the opportunity to weigh in with their vote – and we expect there will be some disagreement with our opinions. We hope you will not only mark your own rating, but also leave comments with your views. Most of all, we hope this thought exercise will help focus all of our attention on how to close the gaps to get to a 10 in each area.

To offer a sneak preview of the content, I thought I would reveal how we rated progress made on client protection:

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> Posted by Susy Cheston, Senior Advisor, CFI

What financial inclusion stakeholders believe is most important in advancing client protection

Regulators take the lead in advancing client protection in financial services, we’ve heard.  Providers “merely comply.”

If you are of the view that providers can, and should, take a leading role in client protection, then the results of a recent survey conducted by the Aspen Institute are discouraging.  The survey, carried out on behalf of the Smart Campaign as part of its strategic planning, took a look at the three-legged stool of client protection—providers, regulators, and consumers—and asked which element was the most important.  Of the financial inclusion stakeholders who were interviewed, only 24 percent said that provider-led initiatives were the most important element in client protection.  By comparison, 39 percent thought regulation and governance were the most important, and 37 percent put their faith in consumer awareness and activism.

I disagree!  We believe action from the financial services providers themselves is a vital missing link.  But what is holding them back?  In a consultative process carried out by the Financial Inclusion 2020 project over the past year, here are the top six reasons we heard for providers not taking the lead in consumer protection. Read the rest of this entry »

Gail Buyske, Advisory Committee, Microfinance Information Infrastructure Project

> Posted by Center Staff

Convening of Stakeholders

Several weeks ago we learned that MFT has suspended its operations. Moody’s has discontinued its Social Performance Assessment Program. The MIX is trying to increase revenue through its MixGold program. Should we care about these developments? What are they telling us about the state of microfinance’s information infrastructure?

The Center for Financial Inclusion undertook an analysis of these issues to follow up on Elisabeth Rhyne’s provocative blog of March 11, 2014, in which she argued that the microfinance industry needs an “infrastructure fix.” Today’s blog summaries the key issues, which will be discussed at a stakeholder discussion in DC on April 14, followed by one at a later date in Europe.

Let’s start by thinking about why we should care about microfinance’s information infrastructure. Information and its natural outcome, transparency, have been guiding principles of the microfinance industry practically since its inception. These are not just feel-good concepts: they played a fundamental role in the development of microfinance. Information and transparency were critical in microfinance’s early days in enabling donors and investors to identify promising MFIs that they could support. Readily available information enabled MFIs to benchmark their performance and set goals to improve their performance. And we can never forget that a commitment to transparency is a pact between MFIs and their clients.

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> Posted by Joshua Goldstein, Principal Director for Economic Citizenship & Disability Inclusion, CFI

Last June, in my hotel room in Delhi, I read in the Sunday edition of the Times of India that hiring white girls to work wedding parties is the new status symbol in Bangalore. Though this might sound surprising, alabaster skin as the ideal of beauty (and the status that goes with it) is neither new to nor specific to India. This is not a trivial matter but a deadly serious business.

One need only look at skin whitening products, like Unilever’s “Fair and Lovely”, which are great sellers in the beauty product category in India, Bangladesh, and Thailand—indeed, in 30 countries around the world. The Unilever Sri Lanka website reads: “Today, 250 million consumers across the globe strongly connect with Fair and Lovely as a brand that stands for the belief that beauty empowers a woman to change her destiny.”

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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 Anne Hastings and Tyler Owens, Microfinance CEO Working Group

The following post was originally published on the Microcredit Summit Campaign’s blog,

Since its inception in the spring of 2011, the Microfinance CEO Working Group has worked diligently and collaboratively to define the concept of Responsible Microfinance around the globe and lead by example to try to fulfill this vision. It has focused on three key pillars on which Responsible Microfinance is built: client protection, pricing transparency, and social performance management. A responsible microfinance institution (MFI) is one that, at a minimum:

  • Does all in its power to protect its clients from harm;
  • Is transparent about fees and interest rates; and
  • Implements best practices in social performance management including monitoring effectiveness in achieving desired client level outcomes.

An MFI can achieve this by complying with the industry-developed standards of the Smart Campaign, MicroFinance Transparency, and the Social Performance Task Force, known as the Universal Standards for Social Performance Management.

The Working Group is a collaborative effort of the CEOs of Accion International, FINCA International, Freedom from Hunger, Grameen Foundation, Opportunity International, Pro Mujer, VisionFund, and Women’s World Banking. At the Microcredit Summit in Manila in October 2013, the Working Group publicly encouraged its collective 224 affiliated MFIs around the globe to embrace Responsible Microfinance by sharing a list of commitments. Since making those commitments, the group has made significant headway toward strengthening each one of the pillars of Responsible Microfinance.

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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 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.

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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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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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