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> Posted by Elisabeth Rhyne, Managing Director, CFI
We all hate fine print. On websites we click the “I agree” box without reading it. We want to get on with downloading our next app.
It may be surprising that many microfinance clients face similar fine print when they take out a loan. At the final moment, when their applications are completely approved and the loan is about to be disbursed, many microfinance clients are handed a sheaf of papers with tiny script and told to sign each one. The pages are covered with what looks like a magic incantation that makes everything possible but is understood only by the initiated.
Of course they sign. It’s the only thing standing between them and their money.
> Posted by Jeffrey Riecke, Communications Assistant, CFI
There are endless ways to measure the successes of a given year. Number of clients reached. Total new stakeholder endorsement. Amount of capital invested… Though when assessing almost anything, it’s important to think holistically and not be biased by the numbers. That said, I think I can speak for most of the Center in saying that we are excited to share that several CFI-affiliated publications were among the Microfinance Gateway’s Most Popular Publications of 2012. No small feat considering 546 new resources were added to the Gateway this past year. Here’s a brief listing of the CFI pubs that made this top cut:
Over-Indebtedness in Microfinance: An Empirical Analysis of Related Factors on the Borrower Level
This paper by Jessica Schicks analyses the over-indebtedness of microborrowers in Ghana, examining its relationship with poverty, adverse shocks, loan returns, and financial literacy. In defining over-indebtedness, the paper adopts a client perspective, taking into account clients’ repayment struggles and the sacrifices they make to fulfill payment obligations. Some of the paper’s findings are the following: Read the rest of this entry »
> Posted by the Smart Campaign
The Smart Campaign is pleased to announce the release of a new tool to be used during the “Compulsory Group Training” portion of many group lending methodologies.
The tool – available for download on the Smart Campaign website – is designed to help microfinance institutions incorporate the Client Protection Principles into their compulsory group trainings (CGT). These trainings are group-level customer education programs MFIs use to interact with and screen prospective clients. CGTs are conducted by institutions practicing village banking methodology, and Grameen-style Joint Liability Group methodology, prior to the client group’s obtaining credit. The trainings are often the first formal interaction between the prospective clients and the MFI.
> Posted by Vanesa Sanchez, Senior Analyst, Economist Intelligence Unit
The Economist Intelligence Unit’s 2012 “Microscope on Microfinance” benchmarking study – the sixth of the EIU’s annual microfinance markets assessments – features new indicators on responsible finance and client protection that cover two of the seven Smart Campaign Client Protection Principles. Transparency in pricing looks at the laws, regulations, and practices in place for interest-rate transparency among MFIs. And Dispute resolution evaluates whether a country has mechanisms for the timely resolution of disagreements, at a reasonable cost, between microfinance lenders and borrowers. These indicators were incorporated to recognize the growing importance of client protection and financial responsibility for the sustainable growth of the microfinance industry.
An empirical analysis of the Microscope by the World Bank’s research department found that after controlling for other potentially influencing factors, both of these indicators were positively correlated with market penetration measures, for example microcredit borrowers as a percentage of the country’s population or of the poor population. These indicators also correlate positively with the average loan portfolio size of MFIs at the country level. In other words, larger and more developed microfinance markets are also more likely to have consumer protections in place.
> Posted by Sergio Guzmán, Lead Specialist, the Smart Campaign, CFI
In preparation for the launch of its Certification Program, the Smart Campaign’s Straight Talk blog series highlights standards that may be overlooked by microfinance institutions but that are an important part of client protection. This seventh post in the series by Sergio Guzman describes what aggressive sales practices are and makes a call to industry practitioners to help further identify practices we’d like to see disappear.
“You know, Sergio, I strive to do what is best for my clients, but the competition makes it very difficult for me to be transparent. They use very aggressive sales techniques,” said a microfinance provider in a country that I won’t disclose. “What are these aggressive sales techniques?” I inquired with curiosity.
Sadly I have had similar discussions during many of the Smart Assessments I have done throughout my time at the Campaign. There appears to be a unified consensus among providers that they are treating their customers adequately, but that the competition behaves badly. Sometimes I think that aggressive, non-transparent practices may be everywhere!
> Posted by Stephen Thomas, Director of Risk Management, Credit Suisse
Morocco has one of the most extensive and vibrant microfinance sectors in the Middle East/North Africa region, with roughly 800,000 clients and $60 million in outstanding loans. The country’s microfinance industry hasn’t always undergone steady growth. After years of early, strong growth in a relatively lightly regulated environment, Morocco’s microfinance industry underwent a period of crisis beginning around 2006. During this time default rates rose to worrisome levels and the financial soundness of a number of microfinance institutions became imperiled.
The country’s government moved swiftly, both over this period of time, and continuing to the present. It enacted a number of laws designed to improve industry regulation. In 2006, it formalized the country’s Central Bank’s regulatory authority over the industry through Law No. 34-03. The Bank then took a series of steps to effectively enforce the government’s laws and expand its oversight of the lending activities. These steps included enacting additional legislation, conducting on-site inspections, and, when necessary, intervening. In September 2009, additional regulatory requirements were issued through the Directive on the Governance of Microfinance Associations. The Directive provided further clarification of managerial obligations with regard to governance, internal controls, external audit, the management of credit, liquidity and operations risks, and transparency. Other government-led measures during these years following the 2006 crisis include enhancements to regulations regarding risk management practices and contract transparency, and formally defining industry client protection principles. Adopted in 2010, these client protection principles were outlined in the Microfinance Code of Ethics and incorporate the concepts that are enumerated in the Smart Campaign’s Client Protection Principles.
> Posted by Adriana Magdas, Senior Associate, CFI
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
As more and more people gain access to financial services, it is important to ensure that this expansion of access is accompanied by protections that enable them to use services safely. That’s why the Financial Inclusion 2020 project’s Working Group on Client Protection is so important.
> Posted by Jeffrey Riecke, Communications Assistant, CFI
Client protection needs to be at the core of the microfinance industry in order to maintain sustainable growth, a recent report from Deutsche Bank asserts. “Microfinance in Evolution: An Industry Between Crisis and Advancement” explores the current state of the industry—including its present challenges—and offers insight into how it can sustainably achieve its social and commercial goals.
The report is based primarily on individual MFI financial and social performance data from The MIX and concludes that a new balance between social development and a commercial approach is needed to “rehabilitate microfinance as a development tool.” A new approach is needed due to widespread MFI performance deterioration since 2008 (increases in client delinquency, declines in MFI profits, and decreases in asset growth), stemming largely from market growth, and changes in the MFI client base and lending methodology. To put the industry on the right track, the report’s authors call for an overhaul of practices that have proven to be unsuccessful and more specifically, instilling client needs as the focus of all MFI operations.
> Posted by Alex Rizzi and Leah Wardle, Deputy Director and Tool Development Specialist, The Smart Campaign, CFI
The Smart Campaign will soon launch its certification program on client protection for microfinance institutions (MFIs). In this fourth post in a series, Smart Campaign members Leah Wardle and Alex Rizzi discuss how experience from the field sheds light on standards that are often overlooked by MFI managers but are a crucial part of client protection.
A Dominican loan officer once told me that if I really wanted to know what clients thought of the institution, I should ask a client who had already exited the program. These are the only people, he told me, who speak honestly about the institution’s failures.
In some ways, he was right about exit clients. They have little to lose, and can freely complain about their former lender without repercussion. But I think MFIs should also expect to hear from current clients, and to address problems before they lead to client exit. The key is to have a complaints system that is easy for clients to use (so they’ll actually complain if they need to) and to respond quickly to issues (so the concern is addressed). Increased client satisfaction is one of those fantastic “win-win” achievements, and the effective handling of client complaints is one way to get there.
At a high level, the Smart Campaign Certification standards require that an institution a) has policies and procedures that provide a straightforward way for clients to submit complaints, b) teaches clients (and staff) how to use the system. The institution should also c) have a protocol for resolving complaints in a fair and timely way, and d) should ultimately analyze trends in the complaints data to improve their operations.
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