How MFIs are doing on Client Protection – First Reports from the MIX

> Posted by Cara Forster
How do MFIs implement client protection principles?  Until now, we have only been able to guess at the answer to this important question.  But thanks to the MIX, we now have some preliminary data, giving us a first glimpse of what is going on inside MFIs. 
The MIX is testing its Social Performance reporting framework, a self-reporting survey covering various social performance issues. Question 8 of the survey focuses on client protection, and is based upon the Six Principles of Client Protection of The Smart Campaign.  The MIX has received responses from over 200 MFIs so far, but has only processed and posted publically the results from the first 53 MFIs.  The information in this post is based on an analysis of these first 53 institutions, which represent 29 countries and about 10 million total borrowers. 
1. Nearly all of the surveyed MFIs have multiple strategies for avoiding client over-indebtedness.

  • 91 percent of MFIs evaluate repayment capacity and 85 percent have explicit written guidance on borrower debt thresholds.  A majority (57 percent) obtain information on existing client debt levels.
  • Almost 40 percent of the MFIs reported on the percentage of their borrowers who also borrow from other financial institutions. Among the countries with a high incidence of multiple borrowing were Morocco, Peru, Bolivia and the Philippines.  Moderate multiple borrowing was reported in Kosovo, Bosnia, Mexico, Paraguay, and Jordan.

 2. Regarding transparency, all MFIs reporting give their clients a chance to ask questions and get information before they sign a contract.

  • 94 percent say that they provide contracts with plain language and disclosure of terms and conditions.  However, only two thirds of these MFIs disclose penalty and pre-payment fees before contract signing.
  • Three fourths of the MFIs provide their clients with receipts for each transaction and clear account statements on a regular basis.

Overall, the results suggest that MFIs have developed a variety of ways to ensure that they protect their clients, but consistent standards and best practices need to be developed and promoted more widely.  The results also point to the need to sharpen the reporting framework questions. As the Beyond Codes portion of The Smart Campaign progresses, it will keep working towards clearer means of measuring client protection performance.
For more preliminary results, please click here.