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.

Now, our creating this tool isn’t to say that MFIs rarely address client protection in their compulsory group trainings. In fact many institutions have unique CGT practices in place to address specific Client Protection Principles. Without comprehensive CGT guidelines available for the industry, however, there is a greater risk of the principles being unevenly applied. Even worse, without guidelines, there’s a risk that some institutions will not place adequate emphasis on any client protection area.

In this new tool we offer a guiding framework for how to conduct CGTs while addressing all relevant aspects of client protection. By the end of all trainings, prospective clients should be well informed on product features, terms and conditions, lending methodology, and their rights and responsibilities. The tool also features examples of group training best practices taken from some of India’s leading MFIs.

The Smart Campaign would like to thank those who helped develop this tool, including the Indian MFIs Ujjivan, Grameen Koota, SKS, Equitas, and Swadhaar. It is through such knowledge sharing that the quality of client protection standards and practices throughout the industry will continue to grow.

To learn more about – and download – the Campaign’s client protection tools, visit the Smart Campaign website. 

Image credit: the Smart Campaign

Have you read?

Eager Investors, Conflicted Teachers, Reluctant Students: The Promises and Pitfalls of Teaching Financial Literacy

The New Client Education Resource Library: Tools for the Microfinance Industry

Implementing Client Protection: Smart Campaign Tools

We have seen this before:  controversy around small loans making big money for a select few.  An article in today’s New York Times examines the SKS IPO, and raises some familiar, difficult questions:
Can an institution built to serve a public good also be highly profitable?  How profitable is too profitable, and where does the money raised from an IPO really go?

Today SKS, an Indian MFI and one of the largest in the world, finds itself at the center of a firestorm of such questions as it will soon raise up to $350 million through a stock offering.

Another question often asked during an IPO relates to compensation for investors; in the case of SKS, this includes a broad swath of players, including commercial funds like Sequoia, individual venture capitalists, non-profits like Unitus, and members of SKS’s senior management. Compensation for management can make for a particularly heated conversation: how can you do good and become rich?   (According to the Times, SKS CEO Vikram Akula has already sold nearly $13 million worth of shares, and still retains stock options worth up to $55 million)

The Center for Financial Inclusion addressed precisely this question through the paper, “Aligning Interests: Addressing Management and Stakeholder Incentives during Microfinance Institution Transformations”, published with Calmeadow Foundation in 2009.  The paper examines methods that have been used to recognize and align the interests of MFI leaders, investors, donors, and staff during institutional transitions as well as mergers. A common practice includes giving CEOs or members of senior management the opportunity to purchase equity shares in the new institution; this not only gives them a stake in the future success of the institution but can include future incentives for reaching social benchmarks – like reaching more low-income clients, expanding its products and services, and even targeting new markets and regions.

For more on this topic, check out our “Aligning Interests” paper.  But, to be sure, there are no easy answers to these questions.