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> Posted by Daniel Balson, Lead Specialist for Eurasia and MENA, the Smart Campaign
Smart Certification requires a substantial commitment from the financial institutions that choose to seek it. These institutions face a thorough audit by an independent third-party and may be required to improve client-related policies and practices at multiple levels, drawing in staff from the executive suite to the field offices.
In short, is it worth it? Why would a financial institution elect to participate in such a program – especially if the institution is operating smoothly?
A new survey conducted by Deutsche Bank and the Smart Campaign captures the perspectives and experiences of over 24 Smart Certified institutions and yields insights on why nearly 80 financial institutions around the world have achieved Smart Certification, with many more on the path to be certified.
The surprising result is that in addition to the benefit of publicly affirming that financial institutions treat their clients well, Smart Certification helps energize corporate culture and shift it toward client-centricity.
First off, Smart Certification allows financial service providers to distinguish themselves from the competition by demonstrating to their market and the industry that they provide a higher level of service to their clientele. Smart Certified institutions have to exhibit to independent auditors that at every stage from product design through customer acquisition and service delivery, they are governed by standards that ensure clients are treated fairly. Financial institutions have found a wide audience for their newly certified status. Half of all certified institutions reported that their regulators took positive and formal notice of their certification. Additionally, the majority reported positive media attention.
Respondents agreed that the biggest benefit of Smart Certification was in helping them see the world from their clients’ perspective and infuse client protection into the DNA of their operations. Over 90 percent of certified financial institutions agreed that Smart Certification has helped them prioritize their clients’ rights and reshape their institutional culture around client protection.
> Posted by Carmen Paraison, Project Associate, the Smart Campaign
On January 18th, 2017, the Consumer Financial Protection Bureau (CFPB) filed suit against Navient, the largest federal and private student loans servicer in the U.S., for “systemically and illegally failing borrowers at every stage of repayment.” Allegations include:
- Misallocating student loan payments by failing to follow instructions from borrowers about how to apply their payments across their multiple loans.
- Steering struggling borrowers toward multiple forbearances instead of lower payments via income-driven repayment plans. (Forbearance is an option that lets borrowers take a short break from making payments, but that still accrues interest.)
- Providing unclear information about how to re-enroll in income-driven repayment plans.
- Deceiving private student loan borrowers about requirements to release their co-signer (e.g. a parent or grandparent) from their loans, which can be advantageous given some lenders’ practices surrounding the death of a co-signer.
- And failing to act when borrowers complained.
Navient currently services more than $300 billion in loans for more than 12 million borrowers.
> Posted by Pablo Antón Díaz, Research Manager, CFI
Scott Graham, Daniel Rozas, and Pablo Anton-Diaz at the “Preventing Overindebtedness in the Microfinance Sector in Mexico” panel, XV National Microfinance Summit, Mexico City, Mexico, November 2016
For the past decade, in part fueled by regulatory changes in the financial sector, there has been an explosion in the availability of credit to low-income individuals in Mexico. The Mexican microfinance sector has become increasingly concentrated and highly competitive. In 2015, the 10 largest microfinance institutions (MFIs) in the country represented 81 percent of the total market size, with more than 1,500 smaller MFIs sharing the remaining 19 percent.
> Posted by the Smart Campaign
The Center for Financial Inclusion at Accion announced today a $4.4 million, three-year partnership with The MasterCard Foundation to tackle the challenges facing consumer finance in an increasingly digital world. As a reader of this blog, you’re almost certainly familiar with the work of the Smart Campaign. The Smart Campaign is a global campaign committed to embedding client protection practices into the institutional culture and operations of the financial inclusion sector. Since 2009, we’ve worked globally to create an environment in which financial services are delivered safely and responsibly to low-income clients. The partnership marks a shift in strategy for the Smart Campaign, as well as a deepening of its footprint in Sub-Saharan Africa.
To date, the Smart Campaign’s flagship certification program has certified over 68 financial institutions, serving 35 million clients worldwide. Recent certifications include Opportunity International Colombia, ENLACE in El Salvador, and BRAC Bangladesh, part of the world’s largest anti-poverty organization.
Under the partnership, the Smart Certification program will continue. But with support from The MasterCard Foundation, the Smart Campaign will increase its focus on convening a broader range of players in the financial services field—including regulators, industry associations and financial technology firms—to take on client protection issues emerging from new technologies, to elevate the voice of the clients they serve and to effect change at the national level.
> Posted by Alexandra Rizzi, Deputy Director of the Smart Campaign
The following is part of the Smart Campaign’s #FintechProtects series. We’re raising awareness about responsible digital financial services, spotlighting work from the Smart Campaign and others, and engaging with industry actors on how fintech can move forward in a way that’s best for clients. For more information on #FintechProtects, and to get involved, click here.
In financial inclusion circles there is palpable excitement around the promise of digital financial services (DFS) – most recently quantified by the McKinsey Global Institute as the potential for 1.6 billion individuals becoming banked, $2.1 trillion in loans disbursed, and 95 million new jobs. Yet, in order for this potential to be achieved, customers must trust the service. For instance, India-based MicroSave conducted research showing that while 85 percent of DFS customers said they would recommend DFS to others, they thought of it as a Plan B due to lack of trust. Issues that can erode or prevent trust from building include gaps in data protection and security, service downtime, insufficient transparency, agent misconduct and unauthorized fees, among others. As Graham Wright of MicroSave writes, “It is clear that there are immediate potential wins for DFS providers who address consumer protection issues.”
In this post the Smart Campaign spotlights a fast-growing fintech company, JUMO, that is helping to define what responsible digital finance means.
> Posted by Nadia van de Walle, Lead, Africa Partnerships and Programs, the Smart Campaign
Almost two years ago, the Smart Campaign surveyed financial service providers in Uganda as part of our study, What Happens to Microfinance Clients Who Default (WHTCWD). In summarizing what they described, we did not mince words, reporting the environment as “Hobbesian” at the time. Providers in Uganda described default as a major issue of concern for them. Borrowers in arrears would skip town or change their name, behaviors enabled by the lack of government IDs and credit bureaus.
MFIs often adjusted for these thin credit envelopes and their high distrust of clients by meting out harsh, inflexible punishments on an immediate basis to those who missed a repayment. For instance, providers, suspecting customers of being at flight risk often seized collateral immediately after missed payments in ways that contrasted sharply with the Client Protection Standards and best practices guidance. Some providers explained that they had to act quickly because borrowers have multiple loans and if they didn’t seize the collateral quickly, another lender would swoop in, leaving them with nothing. Unfortunately, all of this was occurring in an environment of weak due process and slow legal enforcement, and we heard about instances where lenders were paying off local law enforcement, turning to local councils to pressure defaulters, and even getting clients thrown in jail.
> Posted by Daniel Balson, Lead Specialist for Eurasia and MENA, The Smart Campaign
The following is the second post in a four-part blog series on the financial inclusion of refugees and the internally displaced. The first post can be found here.
In 1992, sporadic clashes between ethnic Armenians and Azerbaijanis in the mountainous region of Nagorno Karabakh erupted into full scale war. By the time a ceasefire was reached two years later, the territory lay under Armenian control, and between 800,000 and 1 million Azerbaijanis were displaced from their homes. Since the end of hostilities, ethnic Azerbaijani internally displaced persons (IDPs) who fled from Armenian-controlled to Azerbaijani-controlled territory have continued to face difficulties accessing economic opportunity. However, a financial sector inclusive to IDPs is emerging, lessening these difficulties and demonstrating that IDPs can be a bankable client segment. Read the rest of this entry »
> Posted by Kathleen Yaworsky, Lead Specialist, Channels & Technology, Accion, and Alexandra Rizzi, Deputy Director, the Smart Campaign
Sure, I’ll help you do that here. Here’s what you’ll need…
A similar scene unfolded across 80 small merchant agent locations (business correspondents or customer service points, as they’re called in India) as the Smart Campaign conducted mystery shopping research to uncover and understand the client protection risks in the provision of financial services at agent network outlets.
Agent networks play a critical role in increasing financial access by helping financial service providers broaden their reach beyond branches, but in order for an agent network to succeed, the client must trust the agent and be able to perform transactions with confidence. The current rapid growth in agent networks is driven by a push to build out the infrastructure and increase access points. Future growth will require quality from the services delivered through that infrastructure. That’s why it is critical to identify and address potential risks early on.
Complicating the identification and mitigation of client protection risks are several common characteristics of agent banking, including limited agent control over product design and pricing, and the part-time nature and lack of employee status of agents.
> Posted by the Smart Campaign
When most microfinance clients start out they’re first-timers at a formal financial institution. Like anything unfamiliar, a first foray with banks can be intimidating. You don’t want to be duped or make a mistake and lose precious savings. Peace of mind was granted to clients of two microfinance institutions, one in Paraguay and the other in the Dominican Republic recently as the first Smart Certifications in those countries were awarded. Fundacion Paraguaya and Banco ADOPEM were certified as meeting all the standards needed to treat their clients with adequate care. This certification demonstrates to prospective clients as well as investors and other industry stakeholders that their institutions are operating responsibly.
Fundacion Paraguaya and Banco ADOPEM are both market leaders in their own right. Banco ADOPEM is one of the largest microfinance institutions in the Dominican Republic. According to the MIX, 351,000 depositors in the Dominican Republic bank with Banco ADOPEM. When Banco ADOPEM pursues and achieves Smart Certification, that sends a message to MFIs and other stakeholders in the country that client protection is a key priority. In 2014 ADOPEM was named “Most Innovative Microfinance Institution of the Year” by Citi, in part because of ATA-Movil, a portable electronic application that allows credit advisers to assess customers in their businesses or in their homes. The mobile information system also allows for convenient and direct communication with clients.
> Posted by Nadia van de Walle, Lead, Africa Partnerships and Programs, the Smart Campaign
Organizational change doesn’t always start from the top, but if it originates elsewhere, and the change is to last, it’s essential that leadership and management eventually get on board. For years, most of us in financial inclusion have advocated client centricity. If previously unserved client segments are to take up and use products and services for the first time, it’s essential that these products and services meet their needs. But how do institution leaders look at client centricity? I attended the recent Africa Board Fellowship (ABF) seminars in Cape Town, South Africa and joined discussions among financial inclusion CEOs and board members on this topic.
The CEOs and board members participating in the ABF program are from financial service providers offering a range of products and services in countries ranging from Kenya to Burundi to Tunisia and Uganda. On our first day, we discussed client centricity, a trending topic and one of interest to me as a manager of the Smart Campaign. The fellows’ varied experiences and ideas led us to some takeaways:
- Board members and CEOs see a clear business case for client centricity. Participating leaders viewed actively listening to their clients and mapping customer preferences and journeys as imperative for designing better products, building customer loyalty, fostering referrals, and developing competitive advantages.