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> Posted by the Smart Campaign
For a brief moment on Monday, all eyes in Tbilisi, Georgia were on the Smart Campaign and its findings on the well-being of microfinance clients. The Campaign presented its Client Voices report in a high-profile event at the Georgian Parliament. Joining the event were 12 Members of Parliament from both majority and minority factions of the Government; leadership from the Central Bank, Ministry of Finance and Ministry of Agriculture; a multitude of microfinance practitioners; press and three television stations. This was the first time government representatives of the majority party, minority party, executive branch, industry, and Central Bank all got together to talk about how microfinance clients are treated. Needless to say, it was immensely encouraging to witness this demonstrated interest in the fair and responsible treatment of microfinance clients in Georgia.
The Client Voices project is a four-country research investigation that directly asked microfinance clients about their experiences and treatment. Along with Georgia, the studied countries are Benin, Pakistan, and Peru. Georgia was selected because its market hosts strong and representative institutions conducive to consensus building, and the industry’s decision-makers are currently working to update its regulatory and legal framework. The launch of the Client Voices report positioned the market to act on the project’s recommendations.
The event was co-hosted by the Business and Economic Center (BEC), a non-partisan, not-for-profit institution that works to facilitate understanding and discussion among MPs around financial, economic, and business topics. Following opening remarks by Natia Katsiashvili, Executive Director of BEC, and Giorgi Volski, MP and Chairman of the majority Georgian Dream faction (think Majority Leader in the U.S. House of Representatives), the main findings from the Client Voices project were presented. Here are a few of the key findings:
> Posted by Nadia van de Walle, Lead, Africa Partnerships and Programs, the Smart Campaign
The Central Bank of Nigeria (CBN) is preparing to issue a Guide to Charges for Banks and Other Financial Institutions for providers in Nigeria, which sets out rules for commissions, charges, and rates on various products and services. It has shared the draft Guide on its website for a period of public review and commentary.
As a campaign that seeks to keep the client at the center, the Smart Campaign is always happy to see provisions in such financial sector guidelines or regulations related to thoughtful transparency and disclosure requirements. We are, however, more cautious when it comes to mandated pricing limits, given the unexpected implications we have seen them bring for clients’ lives. We notice that the CBN file introduces monthly interest rate caps.
This is at odds with the suggested policies in the Model Legal Framework for Financial Consumer Protection, which is based on the Campaign’s seven client protection principles. The Framework’s section on pricing procedures advises supervisory authorities to not set price or interest rate ceilings or floors, but rather to seek long-term solutions related to improving disclosures and facilitating market competition.
> Posted by the Smart Campaign
What do microfinance clients in Peru think about their experiences with financial services? A few weeks ago the Smart Campaign released its Client Voices reports, a four-country research investigation that directly asked microfinance clients about their experiences. After previously spotlighting Benin, Georgia, and Pakistan on this blog, today we’ll take a look at findings from the fourth country in the project, Peru.
The research was carried out by Bankable Frontier Associates (BFA) and IPM Research. A qualitative research phase was first conducted, which included focus group discussions, individual interviews, and a photography exercise to allow clients to visually describe how they view good and bad treatment. The quantitative survey that followed included a sample of 1,000 current and former microfinance clients.
What did the clients say? In Peru, a well-regulated market, a different set of problems emerged from those we found in less-protected Benin and Pakistan. While severe abuses have been curtailed, emerging problems in Peru tended to arise from aggressive competition for customers.
Overall, clients in Peru are satisfied with their providers, suggesting that they’re benefitting from the industry’s well-regulated, competitive market and effective credit reporting system. Less than 10 percent of respondents rated their experiences with microfinance providers as either “bad” or “very bad”. In an exercise where respondents ranked various formal institutions in terms of how they treat clients, microfinance providers scored above commercial banks.
> Posted by the Smart Campaign
What’s the state of client protection in Georgia? A few weeks ago we launched our Clients Voices project, a four-country research investigation that directly asked clients about their experiences with financial providers and their thoughts on what constitutes good and bad treatment. The four countries studied in the project are Benin, Pakistan, Peru, and Georgia. After previously spotlighting Benin and Pakistan on this blog, today we’ll take a look at some of the research findings specific to Georgia.
The research was carried out by Bankable Frontier Associates (BFA) and IPM Research. In the qualitative research phase, they used focus group discussions, individual interviews, and a photography exercise to understand what constitutes good and bad treatment by MFIs from the clients’ perspective. The quantitative survey that followed included a sample of 800 current microfinance clients and 200 former clients.
What were the results?
Overwhelmingly, microfinance clients in Georgia are satisfied with their MFIs. The large majority of respondents rated their experiences as “good” or “very good,” with only 5 percent of all respondents expressing a “bad” or “very bad” experience. In Georgia, clients appear to value maintaining a long-term relationship with MFIs. Sixty-six percent are happy with their institutions and stay with them for a long time. In the quantitative survey, approximately 60 percent of respondents had taken multiple loans with the same MFI over time. This is in contrast with findings in Pakistan showing that clients maintain short-term relationships. Microfinance institutions’ service and treatment was ranked as matching or exceeding that of commercial banks. Clients repeatedly ranked microfinance organizations as among the institutions (both financial and non-financial) that treated them best.
> Posted by Caitlin Sanford, Bankable Frontier Associates, and Alexandra Rizzi, the Smart Campaign
Caitlin Sanford presenting at the Client Voices launch event last week
“A ciega lo hacía…hacía mis préstamos a ciega.” – “Mariana”, microfinance client in Peru
“I was blind… I took out the loans blind.”
Mariana is a 42 year old single mother living in the outskirts of Lima. Microfinance loans have helped her to start a business, put herself through school as an adult, and even leave her philandering husband. When we met her, Mariana’s main financial goal was to pay tuition for her daughter, “Yessica”. (Names have been changed to protect identity.)
However, Mariana had fallen behind in her microfinance payments after the family was a victim of an extortion scheme that caused the loss of most of the family’s savings. Mariana felt that her microfinance provider (MFP) was indifferent to her plight, and was surprised to learn that she would have to pay late penalties associated with her loan. She said, “They did not inform me very well… the girls [MFP employees] that call you for the loan say, yes, we will give you this loan, and this and that, and they don’t explain in much detail… They give you the payment schedule, but then [if you have a problem] you will be surprised.” As Mariana describes it, she took out these loans “blind” because she did not understand the interest rate or fees.
Although she struggles with her existing credit payments, Mariana is constantly tempted by offers for new loans. She says that representatives from MFPs, banks, and retail stores often stop her in the street or call her cell phone offering loans. Recently, Mariana bought anti-theft insurance on the street because the salesperson was persuasive, but Mariana does not know how she would make a claim if she were to be robbed.
> Posted by the Smart Campaign
What are microfinance clients’ thoughts on fair treatment from financial services providers?
Today the Smart Campaign is proud to present the results from the Client Voices project, a four-country research investigation that directly asked clients about their experiences with financial providers and their thoughts on what constitutes good and bad treatment.
Today’s release includes the main synthesis report as well as country reports from Georgia and Peru. The Campaign has already released comprehensive country reports for the other two countries in which research took place, Benin and Pakistan.
The Campaign commissioned Bankable Frontier Associates (BFA), as research partner on the project, to talk with thousands of lower-income microfinance clients face-to-face in the four diverse country markets. The intent was to hear from clients in an open-ended way, without pre-judging their concerns, and then to follow-up this qualitative work with quantitative surveys to determine how representative the concerns expressed were. The intensive research captures, first-hand, clients’ interactions with the institutions that lend them money and keep their savings, and are therefore instrumental in their lives.
Through the project, the Campaign sought to learn whether assumptions made about what constitutes problematic treatment of poor clients (such as those embodied in the Client Protection Principles) rightly reflected what clients themselves worry about. The research was conducted so that it might serve as a catalyst for improvement in client protection by financial service providers, regulators, industry associations, consumer advocacy groups, and others – not only in these four countries, but as guidelines for the protection of lower-income clients around the world.
Here is some of what we found.
> Posted by the Smart Campaign
Next Thursday we’re launching the Client Voices project, our four-country research investigation that went to the source and directly asked clients about their experiences with financial providers and their thoughts on what constitutes good and bad treatment.
The four studied countries are Benin, Georgia, Pakistan, and Peru. You might have seen our spotlighting the release of the Benin and Pakistan country reports here on the blog in the fall. On Thursday, we’re sharing those for Georgia and Peru, as well as a “synthesis report” that summarizes and analyses the key findings, takeaways, and recommendations across the four comprehensive country reports.
We have a few launch event opportunities for you to participate in. But first, we wanted to give you a glimpse into what’ll be released on Thursday…
Transparency. One of the overarching findings across the studied countries was that clients have an inadequate understanding of the basic aspects of their microfinance products. For example, in Benin, Pakistan, and Peru, 50 percent, 49 percent, and 43 percent of respondents indicated that they either somewhat or didn’t at all understand loan terms at the time of taking out their loan. Even when institutions are following mandated disclosure rules, this lack of understanding persists.
> Posted by the Smart Campaign
Transparency sounds simple – in business, government, relationships, and most areas of life. Take the business of offering financial products and services. As a provider, you inform prospective and current clients of everything they need to know about your product. As a client, you use this information to make sound decisions about buying and using said product. Consequently, providers can claim full disclosure and hope to benefit from increased loyalty of clients. Clients have the information to make educated decisions and rest easy knowing exactly where that provider stands.
Similarly, in relationships, transparency (read: honesty) is always the best policy. The best practice is always to say everything that’s on your mind. After all, the truth will set you free… Except for maybe when your partner is already overwhelmed with information. Or when what you’re trying to share is incomprehensible. Or when your partner is trying to concentrate on something else. What I’m trying to get at is this: transparency may seem simple, but it’s not. Effective transparency provides information in a way that enables the person receiving the information to understand it and use it.
Inclusive finance providers need to hit the sweet spot – sharing the optimal amount of the most critical information with clients, in an understandable format, at appropriate times. To make matters more challenging, inclusive finance clients are often illiterate, poorly educated, or new to formal institutions.
The good news is that around the world, including in Mexico, the inclusive finance industry is hard at work to embed transparency effectively. In 2014, the Mexican government passed widespread financial reform that emboldened the role of the consumer protection agency, CONDUSEF, and made its rules mandatory for all credit institutions. CONDUSEF was enabled to issue and publicly publish recommendations to financial institutions. In the last year, CONDUSEF imposed important new regulations in areas of transparency and money laundering, and ended up revoking the operating permits of 1,449 non-regulated (SOFOM) institutions that did not meet the standards.
> Posted by Rafe Mazer, Financial Sector Specialist, CGAP
CGAP recently launched a Mystery Shopping Technical Guide, based on our experiences sending lower-income consumers to seek financial products in markets as diverse as Ghana, Kenya, Malaysia, Mexico, Peru, and the Philippines.
The method of training actual consumers to conduct mystery shopping has proven helpful to understand the challenges they face in achieving financial access and receiving quality product advice. In several markets we found that sales staff often restrict information on fees and charges and do not provide consumers with the lowest cost product option that matches their needs. For example, in Mexico and Peru we saw sales staff who neglected to offer low-fee savings products available at their institution, while in Ghana sales staff never mentioned the APR of a loan, as they are required by law to do. In Malaysia, insurance sales staff did not use the mandatory Customer Fact Find Form which helps assess customers’ needs and product suitability.
These findings are not surprising to those who study client protection and financial advice, and studies in markets such as the U.S. and India have found similar issues with sales staff. All of this raises a fairly important question of “Can we fix financial advice from frontline bank staff?” Or is the incentive to mis-sell too great and monitoring a sufficient number of individual sales practices too burdensome? This is a discussion I have had with regulators. How do you use policy to drive behavior change in a market? The short answer is that it’s not easy; the long answer is that behaviorally-informed policies, product regulation, and market monitoring tools can help.
But what about the committed leadership of organizations that have signed on to the Smart Campaign (which include providers we have visited during these mystery shopping exercises)? If mystery shopping shows that sales staff do not always keep the customer’s best interests in mind, can we fix this with provider or industry-level changes in sales practices or perhaps through sales staff training? I would like to take advantage of this forum to hear from providers who have implemented policies to fix sales staff misconduct so we can start to document good practices for monitoring sales staff behavior. To help kick things off, here are a few ideas from my side, based on our mystery shopping work:
> Posted by Center Staff
Good afternoon! Freshly published is this week’s Financial Inclusion 2020 News Feed, sharing the big news in banking the unbanked. Among its stories are a new partnership between MetLife Foundation and Opportunity International to expand financing and skills training in rural China, the launch of a World Food Programme initiative that integrates climate risk reduction with financial services, and the release of the first annual Consumer Banking PACE Index, which gauges bank performance to consumer expectations. Here are a few more details:
- MetLife Foundation and Opportunity International have embarked on a three-year partnership to support thousands of small businesses in rural China with financial services and business development training via banks, mobile vans, and rural service centers.
- The World Food Programme launched the R4 Rural Resilience Initiative, which helps smallholder famers in Zambia navigate environmental demands using index-based agricultural insurance, improved natural resource management, credit, savings, and productive safety nets.
- The new Consumer Banking PACE Index, drawing on input from over 9,000 consumers, examines bank performance in a handful of countries around the world to conclude that, among other findings, fair and transparent pricing falls below consumer expectations, and trust in banks remains an issue.
For more information on these and other stories, read the fifth issue of the FI2020 News Feed here, and make sure to subscribe to the weekly online magazine by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.
Have you come across a story or initiative you think we should cover? Email your ideas to us at .
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