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> Posted by Center Staff

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On Tuesday, the Smart Campaign recognized five Indian financial institutions with Smart Certification, acknowledging their high standards of client care: Arohan, Grameen Koota, Janalakshmi, Sonata, and Utkarsh.

The Smart Campaign’s Client Protection Certification Program contains a core set of standards against which institutions are evaluated by independent, third-party evaluators. Smart Certification publicly recognizes institutions providing financial services to low-income clients with a standard of care that upholds the microfinance industry’s seven Client Protection Principles. The Principles cover such critical practices as transparency, fair and respectful treatment, responsible pricing, and prevention of over-indebtedness. This is the third year in a row that the Campaign has recognized Smart-Certified Indian institutions at the annual Inclusive Finance India Summit in New Delhi.

Arohan Financial Services is a Kolkata-based MFI operating in five states and serving over 400,000 clients. Grameen Koota serves more than 673,000 rural clients through 222 branches located across the country. This is Grameen Koota’s recertification, as it was first Smart Certified two years ago, and through a recertification check-in, it has been able to extend the validity of its certificate for two years. Janalakshmi Financial Services is India’s largest urban microfinance organization, operating in 15 states through 229 branches, and has recently been awarded a Small Finance Bank licence by the RBI. Based in Lucknow, Sonata Finance has become one of the fastest-growing NBFC MFIs in northern India, with a network of 162 branches. Utkarsh Micro Finance serves over 170,000 clients through 92 branches in the northern states of India and has also recently been granted a Small Finance Bank license. Read the rest of this entry »

> Posted by Anne H. Hastings, Manager, Microfinance CEO Working Group

As a member of the Smart Campaign Steering Committee, I had the pleasure last week of attending the first ever Certification Summit held in Turin, Italy. The CEOs of 24 client protection certified microfinance institutions (MFIs) came together to discuss with one another their experiences with certification, their practices for preventing over-indebtedness, collections and grievance redressal, and their thoughts on how the certification process could be made more valuable.

I tried my best to talk with each and every participant there in order to get their honest thoughts about certification. I was surprised but pleased to discover that, without exception, every one of them said how happy they were that they had gone through the process and achieved the recognition. Some examples of the types of comments I heard are:

  1. Client protection has always been part of our DNA. It’s who we are. The certification process helped us align our practices with our values – and come closer to what we aspire to be.
  2. It has allowed us to improve our relations with the regulators in our country more than we imagined. They now turn to us for advice!
  3. It was great for our employees. It was a truly motivating exercise for them . . . and the recognition that comes with certification made them feel very special. Our employees are proud to be associated with a responsible institution.
  4. There was a cost to it, no question – but the process convinced us that it was well worth the investment.
  5. We wanted third-party validation of our practices, and this gave us that validation.
  6. The process was excellent. I have tremendous respect for the rating agency that conducted our mission. It was far more rigorous than I anticipated, and it did result in our making some very significant changes, especially to our disclosure practices.
  7. Our customers have told us that they appreciate the changes we made that were clearly visible to them. They especially like the improvements we’ve made to our grievance redressal mechanism.
  8. Certification must be seen as a risk management tool because that’s what it is. We need more MFIs to go through the certification process in order to control risk in our market. We need to engage more closely with investors and regulators about what it means and how it acts to mitigate risks.
  9. The process helped us to get back to our fundamentals, for the reason we were formed. This was something we had needed to do, without really realizing it, for a long time.
  10. There’s no question that it contributed to our ability to get new capital from our local bank.

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> Posted by the Smart Campaign

It’s been an exciting few months for client protection in the microfinance industry. FINCA Kyrgyzstan, MBK Ventura in Indonesia, SKS Microfinance in India, and a number of other MFIs around the world demonstrated that they successfully integrate the client protection principles into their practices and joined the rapidly growing list of institutions that are Smart Certified. Today, we’re pleased to share that the number of clients across all the Smart Certified institutions surpassed the 15-million-client benchmark.

To date, 28 microfinance institutions, from Latin America to Eastern Europe and South Asia, have achieved Smart Certification, including some of the world’s largest and best-known MFIs. These institutions are not only ensuring that their clients are equipped and best positioned to effectively use financial services, they’re also demonstrating to their respective markets and the global industry the good business that is responsible microfinance.

“Momentum to improve client protection is accelerating, with scores of MFIs across the globe improving their client protection practices, and being recognized for it through certification,” stated Isabelle Barrès, director of the Smart Campaign, in a press release. In Eastern Europe, there are certified institutions in Azerbaijan, Tajikistan, Bosnia, Serbia, and Kyrgyzstan. In Kyrgyzstan, with the certification of the nation’s network of FINCA MFIs, the country’s market crossed an important threshold. “As measured by MixMarket data, more than 50 percent of all microfinance clients in Kyrgyzstan do business with certified MFIs,” noted Barrès. The certified MFIs in Kyrgyzstan include the first formal financial institution serving low-income entrepreneurs in the region, as well as a relatively young institution, and encompass a range of service offerings like individual, group, and agricultural loans. Elsewhere in the region, the proportion of clients in certified institutions by country market is about 45 percent in Bosnia, and 40 percent in Tajikistan.

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> Posted by Alexandra Rizzi, Deputy Director of the Smart Campaign, and Jami Solli, Independent Consultant and Founder of the Global Alliance for Legal Aid

When clients are facing loan default, they’re often in the most precarious financial position of their lives. As we detailed on this blog last week, navigating the default process can be exceedingly complex for clients. It can be complex for providers, too. No doubt, on both ends the stakes are high. In a new Smart Campaign research report released last week, What Happens to Microfinance Clients who Default?, we examined how providers behave at this juncture and the factors informing these practices.

The research team selected three very different markets to compare – Peru, India, and Uganda.¹ An analysis of three markets does not represent the entire sector. However these three countries represented great diversity in legal and regulatory systems, market infrastructure, in particular credit reporting, and use of group versus individual loans, among other factors. These three countries are also locations where the Smart Campaign has cultivated supporters and partners, which persuaded providers to share information on sensitive debt collection practices.

In total, we conducted interviews with 44 providers. In addition to MFIs, the most helpful interviews were with credit bureaus. Fonts of information, they helped us understand the topography of market debt as well as the information MFIs have when making decisions. And, as we came to understand, information was a critical determinant to what actions MFIs took when a client defaulted.

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> Posted by Daniel Balson, Lead Specialist, The Smart Campaign

Visionfund Azercredit

Readers of this blog are likely familiar with the Smart Campaign, a global initiative to embed client protection into the institutional culture and operating principles of the microfinance industry. Smart Certification, introduced last year, awards special status to microfinance institutions (MFIs) that can demonstrate that they meet strong standards of client protection.

Getting Smart Certification is not easy. A third-party certifier conducts a thorough desk review and extensive field visit where the candidate MFI’s policies and practices are placed under a microscope. To become certified, MFIs must be in full compliance with all the Smart Campaign’s indicators, both in letter and in spirit. These indicators are derived from the seven Client Protection Principles and touch on everything from appropriate product design to the existence of effective complaint resolution mechanisms. The certification process often requires an MFI to make significant adjustments to its internal policies and practices. But once certified, an MFI can affirm its responsible practices to investors, staff, partners, regulators, and clients alike. To date, 26 organizations worldwide have received certification, covering nearly 9 million clients.

VisionFund Azercredit became the first MFI in Azerbaijan and in the Caucasus region to acheive certification. The Smart Campaign sat down with Mehriban Yusifova, VisionFund Azercredit’s Head of Marketing & Product Development, to better understand the significance of certification from the MFI’s perspective.

Smart Campaign (SC): When and why did VisionFund AzerCredit decide to get Smart Certified? What inspired you to pursue your certification?

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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, 100millionideas.org.

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 Hema Bansal and Pallavi Sen, the Smart Campaign and MFIN
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On June 16th the Microfinance Institutions Network (MFIN) was officially recognized as the Self Regulatory Organization (SRO) for non-bank financial company (NBFC) microfinance institutions in India. With this, MFIN not only became the first network to attain such recognition in India, but also in Asia and perhaps in the world.

An SRO is an organization that has been authorized by a statutory regulator or a government agency to exercise control and regulation on its behalf over certain aspects of an industry. Established in 2009, MFIN is an association of NBFC-MFIs acting as their primary representative body. As an SRO, MFIN will essentially support the RBI in ensuring compliance to regulatory prescriptions and the Industry Code of Conduct.

Subsequent to the Andhra Pradesh crisis, the RBI had instituted a subcommittee of the Central Board of the Reserve Bank under the chairmanship of Shri Y. H. Malegam to study issues and concerns in the microfinance sector in India. The committee submitted its report in January 2011, thereby providing concrete recommendations and guidelines for the creation and recognition of microfinance NBFCs in India. Except for setting in place an SRO, all the other recommendations of the committee were implemented by the RBI in 2012. These other guidelines included establishing a credit bureau, the Guidelines on Fair Practices Code for NBFCs, and additional guidelines on loan size, target clientele, interest rates, transparency, collection practices, and multiple lending. With MFIN recognized as an SRO, the RBI is now implementing the last remaining Malegam Committee recommendation.

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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 Anne Hastings, Manager, Microfinance CEO Working Group 

The CEOs of eight leading global microfinance networks – Accion, FINCA, Freedom from Hunger, Grameen Foundation, Opportunity International, Pro Mujer, VisionFund International, and Women’s World Banking – made six significant commitments at the Microcredit Summit Campaign’s Partnerships Against Poverty Summit last week in Manila. These eight CEOs make up the Microfinance CEO Working Group. Together they represent more than 250 retail microfinance institutions in 70 countries globally and provide financial and often non-financial services to more than 40 million families.

Here are the commitments:

1. Client Protection: Encourage all affiliates to progress toward Smart Campaign certification and be on a pathway toward certification by the end of 2014.

2. Pricing Transparency: Motivate our affiliates to commit to pricing transparency and integrity by agreeing to publish their pricing data using standard methodologies, such as those developed by MicroFinance Transparency, in order to allow investors and clients to make informed decisions.

3. Social Performance: Promote the Social Performance Task Force’s Universal Standards for Social Performance Management among our affiliates and commit to supporting their compliance.

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> 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.

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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.