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> Posted by Khadija Ali, Social Analyst, Pakistan Microfinance Network
The Pakistan Microfinance Network (PMN) – a national association of over 50 microfinance providers (MFPs) – has supported its members in conducting third-party client protection assessments using the Smart Campaign’s Smart Assessment tool. To date, 18 assessments have been conducted, covering over 60 percent of the market in terms of overall outreach to active borrowers. These assessments have been made possible with funding support from the State Bank of Pakistan (SBP) through the UK Aid-sponsored Financial Inclusion Program (FIP). The assessments provide a unique opportunity for PMN to observe the state of practice in client protection among member MFPs. For participating MFPs, the assessments provide an opportunity to evaluate their practices in comparison with globally accepted standards of client protection, and seek recommendations for institutional improvements to better comply with the standards. They also indicate whether an institution is ready to pursue Smart Certification, a designation recognized across the global market that an institution successfully integrates the Client Protection Principles into their practices. After undergoing an assessment and acting on its results, Kashf Foundation (KF) recently became the first microfinance institution in Pakistan to achieve Smart Certification.
The Pakistan Microfinance Network, a strategic partner of the Smart Campaign, sat down with Roshaneh Zafar, Managing Director of Kashf Foundation, to talk about the certification experience.
> Posted by Maria May, Senior Program Manager, BRAC
Babita Akhtar, BRAC customer service assistant, Kawalipara branch, Bangladesh
Even when introducing herself, Babita’s enthusiasm is contagious. “Maybe you think that you can’t change how you manage your money. It’s too hard. Well, I used to think that I could never get up in front of a group of people and give a presentation. But here I am. BRAC taught me how. So if I can do this, then you can do anything.”
Babita Akhtar is one of 900 women recruited by BRAC as a customer service assistant. She greets every person who walks into the branch office—people coming for loans, seeking support from BRAC’s legal aid clinics, teachers or community health promoters coming for training, and even visitors. Before loan disbursement begins, she runs a short orientation session for all borrowers that covers important information about the loans, BRAC’s services, and good financial practices. The branch manager comes in at the end to answer any questions and greet the clients personally.
The messages provided in this orientation are timed for maximum impact. Pranab Banik, who heads BRAC’s Financial Education and Client Protection Unit, said, “The time when clients are waiting at the branch to take a loan seems the best moment to deliver basic financial awareness at scale and cost effectively. Our pre-disbursement orientation is an integral precondition for comprehensive client protection; it is intended to empower all clients to better understand their options and manage their finances responsibly.”
> 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.
> Posted by Nadia van de Walle, Senior Africa Specialist, the Smart Campaign
#88296524 / gettyimages.com
The risks associated with the recent U.S. boom in subprime auto loans for the working poor are compounding, a series of articles recently published by The New York Times indicates. The articles report on the Times’ extensive investigation on the subject, which included the examination of over 100 bankruptcy cases, dozens of civil lawsuits against lenders, and hundreds of loan documents. The series draws attention to companies lending to those on the financial margins who often have questionable or missing credit histories and who are purchasing typically pretty old, low-quality cars. Lenders have lowered credit standards to widen their pool of borrowers, a risky practice incentivized by an influx of money from investors looking for a hot market and keen to securitize. Subprime auto loans have increased by 130 percent in recent years, and in 2014 they accounted for one in four auto loans.
In addition to viewing this through our did-we-learn-nothing-from-the-subprime-mortgage-crisis?! glasses and seeing potential systemic repercussions, one can take the consumer rights vantage point and see the scary picture of a world in which the underbanked or financially excluded are given two kinds of options: bad and really bad. We decided to score the features of this market against the seven Client Protection Principles of the Smart Campaign. Since the Client Protection Principles are a do-no-harm standard, we expect markets to meet seven out of seven principles to earn our endorsement. Let’s see how subprime auto loans stack up.
> Posted by Alexandra Rizzi, Deputy Director of the Smart Campaign, and Jami Solli, Independent Consultant and Founder of the Global Alliance for Legal Aid
Imagine you are a new microfinance loan officer in a rural area of your country and extremely proud to have found a stable, well-regarded job. Your sales territory, while requiring significant travel, is familiar – this is where your father’s extended family is from, and in fact, a few of the borrowers in your portfolio are distant cousins. You manage a portfolio of just under 300 borrowers, most of whom you see on a weekly basis.
This week, at one of the repayment meetings, you are approached by a client in distress and near tears. She apologizes that she is unable to pay back the outstanding balance on her loan due to circumstances out of her control, and asks for an additional six months to repay. Her fellow group members have been covering for her for the past two weeks and seem to be losing patience with her. Given that this was the woman’s first loan and that your country’s credit bureau covers only five percent of the microfinance market, you have no information on her credit history or current debt burden.
> Posted by Juan Blanco, Associate, Financial Inclusion 2020, CFI
#103296657 / gettyimages.com
In the client protection section of the FI2020 Roadmap to Financial Inclusion, a specific recommendation was made for financial providers to embrace consumer protection as part of their professional identity, and applying a “financial consumer bill of rights” was identified as a key action point.
Looking into the state of this industry area for our upcoming FI2020 Progress Report on Financial Inclusion, I came to realize that the subject of consumers’ bills of rights is not as straightforward as it seems. Although the recommendation from the roadmap was aimed specifically at providers, the truth is that this is an area where a diversity of players is getting involved. I found a range of approaches: codes of conduct, codes of ethics, charters of rights, and bills of rights, coming from a wide spread of stakeholders, from MFIs to global associations to governments. At the heart of each of these initiatives was the same objective: for service providers to operate ethically and responsibly.
> Posted by Karin Malmberg, PIIF Manager, PRI
How do institutional investors in inclusive finance ensure that their investee institutions manage their social as well as financial performance? How do these investors contribute to the sustainable growth of the industry? And, perhaps most importantly how do they ensure that end clients are fairly treated and adequately protected?
The Report on Progress in Inclusive Finance 2014 by the Principles for Investors in Inclusive Finance (PIIF) Initiative addresses these questions, analyzing data submitted by inclusive finance investors on their responsible investment practices.
> Posted by Dan Balson, Lead Specialist, The Smart Campaign
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?
> Posted by Susy Cheston, Senior Advisor, CFI
The Credit Reporting section of the FI2020 e-zine (click to read)
The Financial Inclusion 2020 Round-Up 2014 e-zine, found on the CFI website, takes a look at progress toward financial inclusion in the year following the FI2020 Global Forum. It was at the Global Forum that five Roadmaps to Financial Inclusion were presented after two years of being developed and debated by dozens of financial inclusion experts. Now, imagine the editorial challenge of collapsing a year’s worth of activity around each Roadmap into just two pages each.
While it’s a fun read, I admit to a little cognitive dissonance as I page through the Round-Up. The brief analyses of where we stand around each of the Roadmaps to Financial Inclusion can be summed up in the quote “we’re not as far along as we think we are.” While that quote was about the Technology Roadmap, it could just as easily be said of the other Roadmaps: Financial Capability, Addressing Customer Needs, Client Protection, and Credit Reporting.
Yet despite the clear-eyed look at the ongoing challenges, the e-zine also tells a story of intense and productive activity by a wide range of actors. Legacy financial service providers—the heavy hitters with big resources and even greater reach—are investing heavily in financial inclusion. It’s not just for corporate social responsibility any more; it’s part of a new business strategy inspired by the discovery of an untapped and (they hope) profitable new market. Sprinkled in and around those vignettes are stories of scrappy start-ups doing the social entrepreneurship thing. Some of those services may not make it past 2015, but some of them have a “why didn’t I think of that” inevitability about them. The diversity of actors and the energy are impressive.
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