Comments on: Can Self-Regulation Protect Microfinance Clients? http://cfi-blog.org/2013/02/07/can-self-regulation-protect-microfinance-clients/ Wed, 06 Nov 2013 12:32:34 +0000 hourly 1 http://wordpress.com/ By: Michael Kihato http://cfi-blog.org/2013/02/07/can-self-regulation-protect-microfinance-clients/#comment-9623 Sun, 17 Feb 2013 12:25:42 +0000 http://cfi-blog.org/?p=9724#comment-9623 Hi Daniel, interesting you are raising this issue. I was recently reading an interesting article tracing the trajectory of savings banks regulations and comparing this with possible regulatory options for micro-finance. There were some questions raised on the ability of donors to encourage compliance, although this was about day to day management. If its about applying pressure that organisations meet certain industry qualifications, it should work. Incidentally, we are grapplng with something similar around housing micro-finance lending. At the very least we should learn from the experiences of micro-finance which has been down this path. HMF while broadly the same in terms of the principles (transparency, indebtedness, pricing etc etc) has some important additional elements around tenure security, basic services, land as collateral etc etc

]]> By: dunfordevidence http://cfi-blog.org/2013/02/07/can-self-regulation-protect-microfinance-clients/#comment-9482 Mon, 11 Feb 2013 18:21:51 +0000 http://cfi-blog.org/?p=9724#comment-9482 I agree with Daniel Rozas’s contention that reaching a critical mass of certified MFIs is essential for the microfinance industry. Even widespread but optional third-party certification of provider adherence to the Client Protection Principles (CPP) does not assure the kind of nationwide coordination that constrains the third and fourth lenders to a household or enterprise as well as the first and second lenders. I also agree that the Development Finance Institutions (DFIs) that invest in both MFIs and MIVs are uniquely positioned to kick-start enforcement of the CPP by mandating that MFIs become Smart Certified as a precondition for investment.

The launch of the Smart Campaign Certification program is an important and welcome milestone in what has been an impressive journey. However, because this launch is only a milestone in a long journey, I caution the DFIs to exercise due restraint before requiring Smart Certification.

I understand the Smart Campaign and its donors have wisely envisioned an 18-month, post-launch shakedown cruise for the Smart Certification program. This should be ample time to further test the Smart Certification process against the realities of MFIs and the four microfinance-focused rating agencies that have been licensed by the Smart Campaign to certify compliance with the CPP. At minimum, there are important questions about cost-efficiency. Experience-driven adjustment will improve the certification process.

Moreover, Smart Certification is envisioned to be modular; that is, a module that can stand alone or be added to standard financial/institutional ratings and/or be embedded in broader social ratings that assess adherence to the Universal Standards for Social Performance Management (USSPM). The USSPM, which include the CPP, are for the benefit of those MFIs and investors committed to social objectives that exceed the “do no harm” minimum set by the CPP.

There are important questions about how Smart Certification will fit with these other types of MFI assessment. The marginal time and cost of Smart Certification would be lowered dramatically for an MFI to the extent Smart Certification is one module of a broader financial/institutional/social rating. Yet both Smart and USSPM assessment processes are in evolutionary states of iterative testing, feedback and adjustment. Each needs more time to settle into a sustainable and effective model going forward.

In short, the DFIs would be premature in requiring Smart Certification for all until it is much clearer what Smart Certification will mean for MFIs and their investors alike.

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