<p>Hema managed Smart Campaign initiatives in eight countries, including India, Bangladesh, Myanmar, Philippines, Pakistan, Nepal and Laos. She was involved in exploring new business opportunities for the Smart Campaign supporting the implementation of the theory of change of the campaign. She was program manager for several projects at Smart Campaign including, IFC, World Bank, ADB and several other projects funded by networks in the world for improving consumer protection practices. Hema has a Ph.D under the Reserve Bank of Fellowship program along with several publications to her credit.</p>
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Former Senior Director, South and Southeast Asia, Smart Campaign

Loretta Michaels

Hema Bansal

Mayada El-Zoghbi

CFI conducted this work as part of our partnerships with the Mastercard Center for Inclusive
Growth and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH.

Institutional Partners

Report

This paper examines how COVID-era economic policy measures – specifically those addressing liquidity – are directly affecting low-income segments and the financial institutions that serve them. In particular, the paper reviews the liquidity needs of financial institutions serving low-income customers in light of COVID-19, provides examples of policy measures being taken around the world to address concerns over liquidity, and addresses how these measures are affecting the financial institutions that serve low-income customers in emerging markets, especially MFIs and other related non-bank financial institutions (NBFIs). This is the first in a series of policy papers on COVID-19 economic policy responses and their impact on low-income customers.

Preserving Liquidity: Policymaker Responses to COVID-19 and the Impact on Low-Income Customers

Is a recent study reflecting isolated incidences of mistreatment?  Or is collateralized debt seizures a troubling and growing trend? CFI provides context and insights into consumer protection and regulation in the country. 

Blog Post

In the past few months, questions have been raised about the quality of microfinance debt collection practices in Cambodia. A damning recent <a href="http://www.licadho-cambodia.org/reports.php?perm=228">report</a> by LICADHO, a Cambodian human rights organization, concluded that MFIs in Cambodia have relied on “inadequate government regulation and the widespread complicity of local authorities” to unethically and illegally force indebted Cambodian borrowers to sell their land titles in order to secure repayment. Borrowers, unaware that land seizures are illegal, are intimidated into doing so. Interviewees in the report also indicated other lender abuses, including child labor, debt-driven migration and food insecurity – all because they couldn’t pay loans on time. The report, which the Center for Financial Inclusion recommends reading, raises serious concerns about human rights and consumer protection.

CFI has been an advocate of consumer protection in Cambodia for <a href="https://www.cgap.org/blog/supporting-client-protection-cambodia">many years</a>, working with a variety of stakeholders in the country, including donors, financial service providers, clients and the government. We believe that using threats as a means to extract repayment is unacceptable, and the allegations from LICADHO should be taken seriously and further investigated. Responsible practices should be reinforced by providers as needed.
<blockquote>We believe that using threats as a means to extract repayment is unacceptable.</blockquote>
However, as the report itself and the Cambodia Microfinance Association (CMA) <a href="https://www.construction-property.com/lichado-report-selective-and-misleading-says-cma/">point out</a>, the results need contextualization. The sample size is very small – only 28 interviews were conducted in four provinces and Phnom Penh – and is not meant to be statistically representative of Cambodia or all MFI clients. All interviews were conducted in a very short timeframe: spring 2019. Are a small number of providers concerned, or is the report surfacing issues that indicate an existing (and possibly increasing) general crisis amongst MFI providers? While the issues raised in the report merit attention, even if they affect a proportionally small number of clients, it is important to understand the scope of the problem in order to determine how to adequately address it.

The <a href="http://smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Consumer Protection Principles</a> contain strict guidelines that deter providers from violating borrowers’ human rights. Consumer Protection Principle 5, which concerns the fair and respectful treatment of clients, strictly prohibits Smart-certified financial service providers from using abusive language, using physical force, limiting physical freedom, shouting at the client, entering the client’s home uninvited, publicly humiliating the client, violating the client’s right to privacy, mistreating a client based on any protected groups, using intimidation or threats, sexual or moral harassment. Guideline 5.3.3 explicitly states that “the provider staff may not force clients to sell their own collateral to pay off their debt.”

But it’s not about just setting principles and hoping providers abide by them. The <a href="http://smartcampaign.org/certification">Smart Certification</a> process requires financial service providers to demonstrate their adherence to the Client Protection Principles and corresponding standards. It represents a rigorous analysis of an institution’s policies, systems and practices, carried out by licensed third-party organizations. Recognizing that organizations, regulations and product offerings evolve, our 115 certified-organizations worldwide are required to be recertified every four years, with a two-year check-in, and a required recertification if the organization goes through material change. Certification is a measure of whether an institution has adequate systems in place to prevent client harm, ensuring that harm isn’t occurring, and mitigate it if it is. The Cambodian microfinance sector, with support from CMA, has worked hard over the years to improve practices in order to meet the rigorous bar set by Smart Certification. Eight Cambodian institutions are currently Smart-certified: LOLC, Acleda Bank Plc, AMK, Hattha Kaksekar Ltd., Amret Microfinance, Sathapana Bank, VisionFund Cambodia, and Thaneakea Phum.

Through the assessment and certification process, widespread client abuses come to light and the institution is given recommendations on how to address them. On the other hand, one-off poor and abusive decisions on the part of selected individuals may not surface. This is why complementary research of alleged abuse, and the presence of well-functioning recourse mechanisms for clients are critical.
<h2>CFI's Role in Cambodian Consumer Protection</h2>
CFI started its engagement with the microfinance sector in Cambodia in 2012, a time when the Cambodian market, a victim of its own success, was growing at a pace seen by many as unsustainable: between 2004 and 2014 the growth in the average household loan size <a href="https://cma-network.org/files/OIDWORKSHOP/MIMOSA Circular Cambodia Jun 2016.pdf">outpaced growth</a> in average client income by a factor of four. CFI convened key funders of the main MFIs and encouraged them to embrace Smart certification as part of their screening and due diligence process to ensure that providers had adequate policies and practices in place to prevent over indebtedness and poor client treatment. In the years that followed, and with generous support from the Agence Francaise de Développement (AFD), CFI supported an ambitious consumer protection program aimed at developing the country’s credit bureau, strengthening the capacity of the Cambodia Microfinance Association (CMA) and improving practices of the main financial service providers (FSPs) to the poor in the country.

FSP practices drastically improved as part of this work. Collectively, the eight Smart Certified institutions in Cambodia serve 1.6 million clients. This is an incredible achievement for the sector, as these clients are served by institutions that have committed (and demonstrated) that they have put in place systems and processes to protect their rights and treatment. Preventing over indebtedness is complex, especially in the context of fast-growing markets and an environment where lenders are not always required to report to the credit bureau.
<blockquote>The eight Smart Certified institutions in Cambodia serve 1.6 million clients.</blockquote>
<h2>Lending Guidelines</h2>
As concerns of over indebtedness have continued to <a href="https://mimosaindex.org/inexorable-growth-in-cambodia-like-a-rolling-stone-2/">rise over the years</a>, concerned players decided to go a step further and understand better the underpinnings of growth in the Cambodian market, as well as ways to ensure a responsible growth. Since 2016, the <a href="https://cma-network.org/">CMA</a>, <a href="http://www.incofin.com">Incofin</a>, <a href="https://mimosaindex.org/">MIMOSA</a>, the Credit Bureau of Cambodia, the Smart Campaign at CFI, and several other stakeholders have been developing and refining the CMA Lending Guidelines. The <a href="https://www.microcapital.org/special-report-a-model-from-cambodia-for-preventing-overheating-not-just-multiple-lending-to-be-presented-at-european-microfinance-week-november-14-16-2018/">project</a> was funded by Incofin, <a href="https://www.proparco.fr/en">PROPARCO</a>, BIO, <a href="https://www.fmo.nl/">FMO</a> and <a href="https://www.ada-microfinance.org/en">ADA</a>.

The Lending Guidelines, published in 2016 (overview <a href="http://www.e-mfp.eu/sites/default/files/resources/2018/11/Preventing overindebtedness in Cambodia_all speakers.pdf">here</a>), were developed because the industry in 2015 was growing at an average of 25 percent per year, even as the number of loans remained unchanged at 2.3 million. This meant that the same clients were taking more debt when their loans were renewed, even though their economic activities did not justify it. The average loan size had almost doubled, growing from close to $1,700 to a little over $3,000 with loan maturity of four to five years (the GDP per capita in 2017 stood at around $1,400). The Lending Guidelines have identified excessive and reckless refinancing as a key concern area for the lending sector, and recommend maximum thresholds for refinancing, above which lenders are bound to more scrutiny. They include a mix of indicators highly correlated to over indebtedness, such as multiple borrowing, loan to income ratio, and refinancing rates.
<blockquote>The Lending Guidelines have identified excessive and reckless refinancing as a key concern area for the lending sector.</blockquote>
The FSPs that have endorsed the lending guidelines have adapted their credit their underwriting policies and enhancing their risk management practices. The National Bank of Cambodia (NBC) has been supportive of the Lending Guidelines and has made public statements on calling FSPs to adopt them. The Central Bank of Cambodia issues a monthly dashboard that shows the FSPs level of compliance with the Lending Guidelines. The Lending Guidelines have been fully integrated into the Smart Certification process and not abiding to the Lending Guidelines can be one of the causes for not having a Certification renewal. The Lending Guidelines are reviewed to ensure that they are meaningful in curbing the risk of over-indebtedness. The Lending Guidelines are an example of a market defining precise recommendations to address a specific issue occurring in a market (here, excessive refinancing). As other issues surface and are demonstrated (i.e., intimidation and illegal land seizure), additional monitoring and mitigation strategies can be put in place at the market level to address systemic issues and complement the individual work of responsible providers.
<h2>Next Steps: Improving Regulation and Learning From Clients</h2>
I recently traveled to Phnom Penh to attend a closed meeting of regulators, hosted by the NBC and supported by Asian Development Bank, to discuss how authorities can improve oversight. There were a few key takeaways from this. Even though the NBC is actively working on draft consumer protection regulation, current financial consumer protection regulations are weak. The National Bank of Cambodia is dependent on the CMA to mitigate the risks that are looming over the sector. There is, however, an initiative in an initial phase to create a registry of collaterals, assets, and fixed values. Overall, it’s encouraging to see that there’s consensus on the necessity for more sensitization of regulators on consumer protection, as the national financial inclusion strategy is more heavily focused on credit report sharing. The CFI is excited to work with the NBC, drawing from the <a href="https://www.smartcampaign.org/tools-a-resources/1210-handbook-on-consumer-protection-for-financial-inclusion">Handbook on Consumer Protection for Financial Inclusion</a> (recently updated to reflect the risks to consumers in a digital financial world) to improve the Cambodian regulatory framework.
<blockquote>It’s encouraging to see that there’s consensus on the necessity for more sensitization of regulators on consumer protection.</blockquote>
In addition to improving the regulatory framework, we must have better and more frequent ways to hear from clients directly.

With this in mind, we ask: is collateralized debt seizures a troubling and growing trend, or was the LICADHO study reflecting isolated incidences of mistreatment? We hope that a new study initiated by CFI will help shed light on the issue. The study, known as Client Voice, uses an interactive voice response (IVR) approach. Three Smart Certified FSPs – AMK, Maxima and HKL – will participate, and 500 to 1,000 clients from each institution will be surveyed. Institutions that are at the stage of transforming to digital product offerings – such as AMK – are looking to adopt new and better ways to gather ongoing feedback from clients to improve their product design and delivery and are keen to test the IVR system to that effect. The study will be completed by December 2019, and the results will be published by January 2020.

Land Seizures and Reported Abuses in Cambodia: CFI Responds

The Smart Campaign will present the new BCFI Code of Conduct and lead a roundtable about consumer protection in the digital  age at this year's summit.

Event

The <a href="https://www.inclusivefinanceindia.org/">Inclusive Finance India Summit 2018</a> strives to bring together all stakeholders in the financial inclusion value chain and to help create an ecosystem where all efforts collaborate and contribute to a large aggregate outcome. <a href="http://about/what-we-do/the-smart-campaign/">The Smart Campaign</a>’s <a href="/bio/hema-bansal">Hema Bansal</a> will moderate an invitation-only, roundtable session on Tuesday, December 11th entitled “The Future of Consumer in the Digital Age of Financial Inclusion."

She will also present briefly on Smart’s role in developing the Business Correspondents Federation of India (BCFI) Code of Conduct on December 12th at 1:15pm at the Hotel Ashok, at the beginning of a panel entitled “Structural Reforms, Innovation with Customer Service Focus. How best are they compatible for Business Correspondents Sector?".

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Inclusive Finance India Summit 2018

Catch Hema Bansal, Senior Director, The Smart Campaign, on day two of this event presenting on consumer protection and empowerment topics.

Hema Bansal, Senior Director, The Smart Campaign, is presenting on responsible pricing, complaint resolution, privacy and Smart Certification through a client-first and consumer empowerment lens.

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Asia Pacific Microfinance Forum

Tanwi Kumari

The Smart Campaign will unveil a new client protection tool developed in partnership with the Sa-Dhan association of community development financial institutions.

This conference provides a unique platform for dialogue, deliberation, information sharing and forging partnerships. It aims to provide stakeholders with a platform to deliberate on specific sectoral concerns and challenges in the implementation of India’s Financial Inclusion program. The theme of this year's National Conference is "Propelling the Growth of the Informal Sector Through Microfinance."

The Smart Campaign is attending the Sa-Dhan Annual Conference in New Delhi, India to unveil a new client protection tool developed in partnership with the Sa-Dhan association of community development financial institutions. This new tool will allow the association to monitor its members to ensure compliance with its Code of Conduct, as well as collect information about over-indebtedness risks for clients at member institutions. Tanwi Kumari and Hema Bansal of The Smart Campaign will be speaking at the event.

Sa-Dhan National Conference

<em>&gt; Posted by Hema Bansal, India Director, the Smart Campaign</em>

<a href="http://www.flickr.com/photos/14406301@N08/8588157743/"><img class="aligncenter wp-image-14999" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/05/8588157743_b466487693_z.jpg" alt="" width="530" height="416" /></a>As a child growing up in India, I was always intrigued by stories from Myanmar, but disturbed by conflicts that it had witnessed. Not knowing much about the country, as an adult I still had an innate desire to visit. On May 7th and 8th, I attended the Responsible Finance Seminar, organized by Entrepreneurs du Monde (EDM), held in Myanmar’s city of Yangon. I was completely awed by the mystical peace of the city, I was also impressed by the demonstrations of support at the seminar for instilling client protection in Myanmar’s microfinance industry. It’s a great opportunity for a young market to secure responsible practices from its outset.

Myanmar, the second-largest country in Southeast Asia, remains one of its poorest. Decades of isolation have severely affected its development. In terms of financial inclusion, a large proportion of the population in Myanmar relies on informal lenders. The formal sector only serves about 20 percent of the population, largely because of the existing financial institutions’ limited capability.

In May 2011, President Thein Sein publicly recognized microfinance as a means of development by enabling local and foreign investors to establish fully privately-owned MFIs. Since the rationalization of licensing in Myanmar, around 110 MFIs have been registered. Deposit-taking institutions have been allowed to set-up shop rather easily due to low minimum capital requirements and the absence of separate prudential regulations from non-deposit-taking institutions, such as rules pertaining to reporting standards and portfolio quality management.

While it is encouraging to see MFIs mushrooming in Myanmar, licenses provided without much scrutiny and without sufficient industry regulations or self-regulation are challenges for the development of a responsible microfinance industry. Given this concern, the Responsible Finance Seminar was focused on bringing all industry stakeholders - including microfinance institutions - together to enhance the sector’s understanding of the principles of client protection and social performance management, and to kick start the process of engagement and deliberation for helping the microfinance industry in Myanmar adopt basic principles of responsible finance.

The seminar had about a hundred participants and included representatives of microfinance institutions (ACLEDA, BRAC, LOMC, BDA, CARD, and Dawn, to name a few), funders (including ADB, IFC, and LIFT), technical assistance providers (such as MicroSave and EDA), a regulator from Bangko Sentral ng Pilipinas, and representatives from CGAP, the Smart Campaign, SPTF,  UNCDF, and UNDP.

The seminar, bringing together this range of stakeholders spanning many markets, provided an opportunity to learn from the mistakes in markets like India where the microfinance crisis was partially triggered by unprecedented growth rates and the lack of safeguards in the industry. Frances Sinha, CEO of EDA India, introduced the <a href="http://cfi-blog.org/2012/09/17/banana-skins-2012-improving-mfi-governance/" target="_blank" rel="noopener">Banana Skins report series</a> on industry risk, outlining how important it is to identify potential risks in the sector on a continual basis. There needs to be strong prudential regulations established that reflect the respective risks of deposit and non-deposit-taking institutions, presenters at the seminar contended. New regulation can also address the client protection areas of transparency, fair treatment, and complaints resolution processes, noted CGAP's Eric Duflos, who is co-author of the IFC/CGAP joint report <em><a href="http://www.cgap.org/publications/microfinance-myanmar-sector-assessment" target="_blank" rel="noopener">Microfinance in Myanmar: Sector Assessment</a>.</em> In markets like India, clear guidelines on transparency have made microfinance institutions effective in communicating loan pricing and terms to clients.

Other concerns for Myanmar’s industry that were raised included high price caps and its lack of credit bureaus. In Myanmar there is currently a $500 loan cap, which, considering that 70 percent of the people in the country depend on agriculture for their livelihoods, does not serve much purpose. For example, it misses the spirit of the Smart Campaign’s <a href="http://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles" target="_blank" rel="noopener">Appropriate Product Design and Delivery</a> principle, which emphasizes keeping clients’ needs in mind and creating value for clients.

The role of global initiations pertaining to responsible finance was also highlighted, with presentations and interactive sessions on the Smart Campaign’s <a href="http://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles" target="_blank" rel="noopener">Client Protection Principles</a> and SPTF's <a href="http://sptf.info/spstandards1" target="_blank" rel="noopener">Universal Standards of Social Performance</a>.

For the Smart Campaign, Myanmar is a unique market because unlike other countries with mature microfinance industries where we have worked, Myanmar presents a virtually new market wherein the Campaign will have the opportunity to influence changes in client protection practices from the beginning. In the short term, the Campaign envisions engagement with the industry stakeholders, transferring its knowledge and resources through <a href="http://www.smartcampaign.org/certification/assessments" target="_blank" rel="noopener">Smart Assessor Training</a>, and training for institutions on the client protection principles and on the use of Smart Campaign <a href="http://www.smartcampaign.org/tools-a-resources" target="_blank" rel="noopener">tools and resources</a>. In the longer term, the Campaign will strive to help institutions achieve <a href="http://www.smartcampaign.org/certification" target="_blank" rel="noopener">Client Protection Certification</a>, thereby creating flagship institutions to guide the sector towards the responsible treatment of its clients.

<em>Image credit: <a href="http://www.flickr.com/photos/14406301@N08/8588157743/" target="_blank" rel="noopener">rustyproof</a></em>
<p style="color: #5e514d"><span style="font-weight: bold">Have you read?</span></p>
<p style="color: #5e514d"><a href="http://cfi-blog.org/2013/06/10/inclusive-activity-in-myanmar/" target="_blank" rel="noopener">Inclusive Activity in Myanmar</a></p>
<p style="color: #5e514d"><a href="http://cfi-blog.org/2014/01/06/client-protection-is-gaining-ground-in-indian-microfinance/" target="_blank" rel="noopener">Client Protection is Gaining Ground in Indian Microfinance</a></p>
<p style="color: #5e514d"><a href="http://cfi-blog.org/2014/01/21/the-suitability-approach-to-client-protection-comments-on-the-mor-committee-report/" target="_blank" rel="noopener">The Sustainability Approach to Client Protection: Comments on the Mor Committee Report</a></p>
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Fostering Responsible Finance in Myanmar’s Infant Industry

This State of Practice Report represents an important step in understanding the state of client protection practices today in India, three years after the Andhra Pradesh crisis and two years after the Smart Campaign began its deep engagement with the sector

This State of Practice Report represents an important step in understanding the state of client protection practices today in India, three years after the Andhra Pradesh crisis and two years after the Smart Campaign began its deep engagement with the sector. Results in this report are drawn from the activities conducted under the project that was implemented from June 2011 to November 2013.

The report aspires to deepen the public’s understanding of how microfinance institutions can put the client protection principles into practice in India and where the industry is in terms of strengths and weaknesses. Simultaneously, the report provides an overview of the level of effort made by MFIs to improve practices through participation in training and subsequent self-assessments. The report also showcases some of the extraordinary efforts and commitments made by microfinance institutions to improve their practices through upgrading projects.

The project work streams represent the natural progression of institutional improvement from endorsement, to building understanding of client protection issues, to assessing and improving performance to externally validating performance.
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Implementing Client Protection in Indian Microfinance

The Smart Campaign works globally to create an environment in which financial services are delivered safely and responsibly to low-income clients.

Consumers are being charged sky-high interest rates on easy credit, leading to desperation—or worse—according to the piece. 

News

Bansal, the <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/the-smart-campaign">Smart Campaign</a>'s Senior Director in South and Southeast Asia, notes that the problem over-indebtedness is more severe in the island country than elsewhere.

She also points out that the government's decision to write off business loans of up to 100,000 rupees falls short.

"One-off measures will not do, says Ms Bansal: Sri Lanka needs properly enforced rules that prevent over-indebtedness and ensure fair treatment of borrowers."

<strong>Read the <a href="https://www.economist.com/finance-and-economics/2019/08/15/microfinance-is-driving-many-sri-lankan-borrowers-to-despair">full article</a> (soft paywall).</strong>

Hema Bansal

Geography

Geography

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