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> Posted by Alexandra Rizzi, Deputy Director, the Smart Campaign
Defaulting on a loan can have very serious consequences for both financial providers and low-income families, but to-date the microfinance industry has not gathered systematic information on how financial institutions serving the poor treat defaulting clients.
While many assume that financial institutions treat defaulting clients in similar ways, anecdotally there appear to be big differences across countries and between providers. Many questions exist around what policies and practices kick into motion after a client defaults and what could drive differences in practice across or even within countries (i.e. regulation vs. culture vs. educational levels of loan officers vs. how an MFI prices for risk etc).
To begin to address this knowledge gap the Smart Campaign is launching an exploratory project to map out default management practices among providers in several key markets in order to analyze trends and determinants, and to extract good practices. But before jumping into the key markets, as an initial step the Campaign has created a basic survey for its endorsers, partners, and other interested parties to take so that we might first learn more about default management.
> Posted by Alyssa Passarelli, Communications and Operations Assistant, the Smart Campaign
In early June, the Smart Campaign traveled to Panama for a Steering Committee meeting and a Certification workshop, back-to-back with the annual Social Performance Task Force meeting, an event attracting over 300 microfinance practitioners and supporters.
In between all of the meetings Neal Kennedy and Eric Zuehlke from the CFI communications team caught up with event attendees to better understand how stakeholders are using the Client Protection Principles (CPPs) and why they think the work of the Campaign is important. We are pleased to release a series of interview videos in which these partners, stakeholders, and friends of the Campaign speak about their relationship with client protection.
> Posted by Nadia van de Walle, Senior Africa Specialist, the Smart Campaign
On June 18 and 19, I attended the “African Microfinance Pricing Transparency Leadership Forum“ in Nairobi, Kenya on behalf of the Smart Campaign. The conference convened key African microfinance market actors, including regulators, policymakers, and technical assistance providers, to discuss policies in support of pricing disclosure and client protection. It was hosted by MFTransparency (MFT), Planet Rating, and the Agence Française de Développement. Participants came from all over the continent, ranging from Ghana to Mozambique. As a new member of the Smart Campaign team, I took away a few thoughts for our own work.
The concept of transparency from MFIs is gaining ground. No longer can an MFI withhold pricing data without censure from peers. Participants voiced the need for greater intervention from their governments in the form of reporting standardization, regulatory oversight, and financial education programs so that clients can better interpret pricing information.
We should capitalize on this momentum and seek out partners who are truly committed to transparency and to improving the market environment. We should also encourage discussions among on-the-ground actors regarding difficult subjects such as pricing caps, improving small MFIs’ operating efficiency, and proper fee disclosure. And as MFIs commit to sharing more information, the industry should work to ensure that clients can understand and use pricing information to make good choices.
But many actors are reluctant to take on the responsibility and costs of bringing transparency to the market. Participants voiced concern about taking on greater costs and duties regarding regulation and providing recourse. Further, in some countries, confusion remains over how regulatory and oversight responsibility is allocated among government agencies.
Those working in microfinance can help lay the groundwork for sector transparency in Africa. We in the Smart Campaign should focus on forcefully communicating the incentives for transparency and the mid-to-long-term benefits to MFIs and their associations. We should support collaboration and knowledge-sharing among market actors and support the development of strong truth-in-lending legislation that protects borrowers. Actions must reflect the national regulatory context and engage local partners who understand specific local issues. Even with stronger legislation and increased regulation, there are many non-regulated actors slipping between cracks (e.g. very small, non-deposit taking organizations) and the Smart Campaign and others need to find ways to protect the clients of these institutions as well.
Populist policies are not always the most effective policies for client protection. MFT presented empirical evidence that, despite their recent popularity, pricing caps are not more effective than a client protection agency or strong client protection legislation. MFT’s evidence shows that if price caps are introduced, they must be comprehensive (i.e., address all fees and additional charges) and will result in the smallest borrowers and lenders being forced out of market. It is key to encourage legislative steps and the creation of a regulatory body rather than laws directly focused on interest rates and caps. At the same time, the lengthy timelines for legislation processes to introduce such protections can discourage people from taking action. Meanwhile, the thorough collection and effective communication of data being done by organizations such as MFT and MIX is an important part of improving the microfinance environment.
> Posted by Alyssa Passarelli, Communications and Operations Assistant, the Smart Campaign
The 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.
> Posted by Jeffrey Riecke, Communications Assistant, CFI
Global loan portfolio growth in developing countries slowed in 2011; total number of clients in developing countries shrank slightly in 2011 but increased in Africa and Latin America; and various initiatives aimed at ensuring socially responsible practices have received commitments on industry-wide standards and frameworks over the past few years. These are some of the takeaways from this year’s Microfinance Barometer, an annual report produced by Convergences 2015 that offers a global overview of microfinance activity. The report series shares recent industry figures and trends, and highlights best practices across stakeholder groups.
This year’s report explores microfinance activity in developing and developed countries, and examines mobile money, capacity building, responsible investing, client protection, and social performance management, among other pertinent topics. The report also features an article from Deutsche Bank’s Asad Mahmood on microfinance and ethics, a feature on Accion Texas Inc., which manages the largest microloan portfolio in the United States, and a call to endorse the Global Appeal for Responsible Microfinance. Other key findings include:
- Global loan portfolio in developing countries totaled $US 78 billion in 2011, with portfolio growth slowing to 15 percent compared to 25 percent in 2009
- Activity in developing countries remained concentrated in 2011, as the leading 100 institutions represented 80 percent of the total lending portfolio and 75 percent of borrowers
- Client outreach in developing countries totaled 94 million in 2011, reflecting a 3 percent decrease since 2009
- Still affected by the Andhra Pradesh crisis and subsequent shutdowns of activity, in 2011 client outreach decreased by 10 percent in South Asia and by 20 percent in India
- Client outreach increased by 15 percent in both Africa and Latin America in 2011
- Local funding continues to drive the developing-country sector through increasing deposits and borrowings
- In 2011, 54 percent of institutions in developing countries provided both credit and savings, while 26 percent offered insurance products, and 54 percent offered non-financial services Read the rest of this entry »
> Posted by Alyssa Passarelli, Communications and Operations Assistant, the Smart Campaign
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.
> Posted by Alyssa Passarelli and Jeffrey Riecke, the Smart Campaign and CFI
One good deed often leads to another. Whether it’s by learning about new opportunities to do good or by an increase in peer pressure, positive changes are contagious. This also applies to business practices, including how financial institutions treat their clients. Still new on the microfinance scene, the Client Protection Certification program has certified six MFIs to date – three in India and three in Bosnia and Herzegovina. As more institutions become certified, it increasingly changes the expectations for how financial institutions are to serve the poor, especially the expectations in markets where groups of institutions have been certified, like those in India and Bosnia and Herzegovina.
Smart Campaign Director Isabelle Barrès recently traveled to Bosnia and Herzegovina for an event to publicly congratulate and recognize the country’s three MFIs that were certified earlier this year, EKI, Mi-Bospo, and Partner. Organized by stakeholders in the Bosnian market, in particular the IFC, the event also highlighted the significance of certification, for the institutions and for the market at large. Of the three Bosnian MFIs Isabelle said, “The three client protection certified financial institutions, EKI, Mi-Bospo and Partner, can distinguish themselves in a highly competitive market, as organizations that are meeting adequate standards of customer care. They deserve the spotlight, and the attention from responsible funders and from clients.”
> Posted by Alyssa Passarelli, Communications and Operations Assistant, the Smart Campaign
The launch of Client Protection Certification in January 2013 is a significant milestone for the Smart Campaign and for the financial inclusion community. As an initiative that is the first of its kind, it shifts awareness of client protection in microfinance to an industry standard. The Smart Campaign and the licensed certifiers have been working diligently to get the word out about certification to help build engagement and a market for this important program.
A frequent request from participants in the certification webinar series was to clarify the difference between a Smart Assessment and a Client Protection Certification mission. While they differ in purpose, the important message is how they work hand-in-hand. Both assessments and certification are based on the 30 adequate standards of care rooted in the Smart Campaign’s seven Client Protection Principles (CPPs).
- An assessment is a report for management. It used the standards as reference to give an in-depth-”diagnostic,” with a grade of the MFI’s practices. The Smart Campaign recommends Smart Assessments as an excellent way for an MFI to prepare itself for certification.
- Certification is aimed at the stakeholders of an institution. It applies the standards as a firm benchmark for achievement that merits certification. With certification, a financial institution can tell clients, investors, and regulators that it takes adequate care to ensure that its clients are protected.
A Smart Assessment typically lasts four to five days and is conducted by two trained assessors who examine an MFI’s policies and procedures, as well as interview staff and clients. After the assessment field-visit, the MFI receives a lengthy and detailed confidential report that presents the assessors’ comments on each indicator, grading, and supporting evidence. As such, a Smart Assessment is a very useful opportunity for an MFI to see which areas of operations are in adherence with the standards and which need improvement. The cost of an assessment will vary depending on the MFI and the partner with which it collaborates. To date, the Smart Campaign has conducted over 75 assessments across the globe. Most of the organizations that are now Client Protection Certified first underwent an assessment to make sure they were prepared for the certification mission. You can learn more about Smart Assessments from Sergio Guzmán, Lead Specialist for the Smart Campaign.
> 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.
> Posted by David Grace, Managing Partner, David Grace & Associates
As noted in a recent blog post by Beth Rhyne of CFI, supervisors need to upgrade their skills if they are going to keep pace with an additional 2-3 billion people over the next decade potentially entering financial services for the first time.
The financial inclusion movement is taking shape at the same time that banking supervisors globally are searching for more “forward-looking” indicators to help them detect early problems in institutions and financial systems. Whether it’s the subprime crisis in the United States and Europe, or over-indebtedness problems in Bosnia and Southern India, many of the early warning signs were evident in consumer abuses before they showed up on the balance sheets and capital ratios of institutions. As such, one of the best avenues for supervisors to improve their quantitative-focused prudential oversight is to start putting greater emphasis on qualitative-based consumer protection indicators.
Through a World Bank-sponsored program in the Eastern Caribbean to improve the quality of supervision of non-bank financial institutions, the Smart Campaign inspired consumer protection supervision to become integrated into new prudential examination procedures.
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