How Client Protection Certification and Ratings Work Together

> Posted by the Smart Campaign

The Smart Campaign recently launched the Client Protection Certification Program (CP2). In designing the certification program the Campaign worked with many stakeholders in microfinance, and especially with the four specialized microfinance rating agencies, M-CRIL, Planet Rating, MicroFinanza Rating, and MicroRate. These four have been licensed by the Smart Campaign as certifiers and are now welcoming calls from organizations that wish to become certified.

We urge organizations that are scheduling ratings in 2013 – and that have strong client protection practices – to consider requesting a client protection certification at the same time as a rating. Here’s why:

  • Assurance about client protection standards. Client protection certification treats client protection in more depth than ratings and measures practices against specific, industry-wide standards. The certification provides greater assurance that client protection practices meet these standards.
  • Use of certification as a public mark of achievement. Client protection certification carries a message about an issue of public concern that can be shared with a broad array of stakeholders, including investors, the media, and even clients. It can be used to convey a simple and powerful message.
  • Costs less and is less disruptive. Client protection certification was designed to work in tandem with ratings. When a client protection certification visit is combined with a rating visit it adds a relatively small amount to the cost of the rating, a cost that is much less than a standalone certification. And because only one on-site visit is needed, combining ratings and certification is less burdensome for the organization.
  • Upgrading practices. The process of preparing for and passing certification assists organizations to upgrade their client protection practices.

Over the past few years the rating agencies have offered two main products – a financial rating and a social rating.  In 2012 they developed and introduced a streamlined Microfinance Institutional Rating (MIR) that combines some elements of each. Client protection certification can be combined with any of these products.

A common question from practitioners interested in client protection has been, “Why go for certification when I’ve already planned to have a rating?” Social ratings and the MIR cover client protection, but largely from a risk perspective – i.e. whether client protection practices pose a risk for the institution and its investors. The Smart Campaign’s certification program goes one important step farther. It provides a separate, specific reading on the quality of client protection practices. It examines client protection from the perspective of clients, addressing the question, “Does this institution do what it should to ensure that clients receive fair treatment?”

Ratings are an important part of the architecture of the microfinance industry, as they play a key role in signaling which institutions are worthy of investment. We believe that the extra step of client protection certification will be an important addition to the structure of the industry. They will provide much-needed assurance that the institutions providing microfinance services give clients the transparent, prudent, and respectful treatment they deserve. We look forward to the day when hundreds of MFIs (or more) have passed client protection certification and can give their stakeholders this assurance.

Why not start today? Contact the Smart Campaign or one of the four rating agencies to begin.

Have you read?

Can Self-Regulation Protect Microfinance Clients

Client Protection and Microfinance: Crossing a Threshold

Rating Agencies Spot a Few Poor Practices