Client Protection is Gaining Ground in Indian Microfinance

> Posted by Eric Zuehlke, Web and Communications Director, CFI

Client protection (and the Smart Campaign) had a big year in 2013 in India, with five Indian MFIs becoming client protection certified and the release of the Implementing Client Protection in Indian Microfinance report.

Following the Andhra Pradesh crisis in 2010, client protection became a priority in India across microfinance stakeholders including the Reserve Bank of India, industry associations such as MFIN, Sa-Dahn, and DFIs, and investors such as IFC, the World Bank, Oikocredit, and SIDBI. In 2011, the Smart Campaign began a two-year capacity-building program with support from Accion and the International Finance Corporation to move MFIs from endorsement of the Client Protection Principles to actually improving their practices.

Microfinance India Summit 2013

Left to right: Alexandra Rizzi (Smart Campaign), Girish Nair (IFC), Matthew Titus (Sa-Dhan), Alok Prasad (MFIN), Veena Mankar (Swadhaar), Victoria White (Accion), Hema Bansal (Smart Campaign), and Amit Gupta (Smart Campaign)

The results of this Accion-IFC-Smart Campaign project are presented in the Smart Campaign’s State of Practice Report Implementing Client Protection In Indian Microfinance, launched at the Microfinance India Summit 2013 in Delhi, India in December. By examining client protection through the lens of the seven Client Protection Principles, the report takes a comprehensive look at the status of client protection in India, including areas where progress has been made and areas that still need improvement.

Based on self-reported questionnaire results and 18 in-depth Smart Assessments, the report presents areas where there has been marked improvement in client protection practices in India, and a few areas that require additional attention. High scores were reported for the principles of Responsible Pricing, Ethical Staff Behavior, and Appropriate Collections Practices. This is in part due to MFIs incorporating Code of Conduct trainings and providing guidelines for staff behavior. Less progress has been made in Complaints Resolution.  Even when MFIs have a complaint policy, this is often not communicated to clients and many staff members aren’t trained on how to handle customer complaints. Privacy of client data remains an issue as well as most MFIs don’t recognize client data protection as a major issue and clients are not educated on how to keep their passbooks safe. The lack of external regulation on these issues magnifies this trend.

A major focus since the 2010 crisis has been avoiding over-indebtedness. According to the report, “Both RBI directives and the Smart Campaign emphasize evaluating borrowers’ repayment capacity and loan affordability. Out of the total MFIs assessed, around 70 percent of the institutions demonstrated adequate analysis of their clients’ capacity to repay.” Over the past two years, MFIs have started to provide a wider range of products and regulations mandate that institutions offer a variety of repayment options.

At the report launch, Alok Prasad of MFIN and Mathew Titus of Sa-Dahn highlighted the importance of the analysis as it not only enhances the sector’s understanding about client protection (especially in India’s post-crisis setting) but it also brings greater transparency and credibility to the microfinance sector.

While the Smart Campaign is a global effort, it has focused many activities within India – and this investment has started to pay off.  For instance in 2013, the first year of Client Protection Certification, five Indian microfinance institutions were certified – Cashpor, Grameen Koota, Ujivan, Equitas, and Swadhaar – which collectively serve a total of over 3.2 million clients.  At a certification launch event, Union Minister of Rural Development Minister Jairam Ramesh presented certificates to the five certified MFIs.

With such positive momentum building for the Client Protection Principles, the Smart Campaign is excited to continue its work and collaboration in India. To see local coverage of the Smart Campaign and client protection, click here.

Have you read?

Does Client Protection Matter to Microfinance Investors?

A Study of Client Protection Practices in Latin America and the Caribbean

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