In the 12-plus years CFI has worked on consumer protection, we’ve seen again and again the importance of sound regulation and market conduct. While it’s not the only tool in the consumer protection playbook, sound regulation is necessary because even when providers are well-intentioned, it’s extremely difficult for “responsible” players to take action in an unfavorable environment.

As readers of this blog know, working with regulators can be time and labor intensive, but when successful, the impact can be immense. This post focuses on <a href="https://centerforfinancialinclusion.org/the-smart-campaign-and-the-mastercard-foundation-team-up-to-tackle-the-next-wave-of-consumer-protection-challenges-in-financial-services/" target="_blank" rel="noopener noreferrer">CFI’s multi-year initiative</a> in several countries in the West Africa Economic and Monetary Union (WAEMU) – Benin, Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo – and draws lessons from our work in Benin, in particular, where CFI’s engagement was multi-faceted. In particular, we focus on the support provided to the national supervisory body of Benin, the <a href="https://www.anssfd.org/" target="_blank" rel="noopener noreferrer">Agence Nationale de Surveillance des Systèmes Financiers Décentralisés</a> (ANSSFD).
<h2>The Need to Strengthen Market Conduct Supervision: The Case of West Africa</h2>
WAEMU countries experience a relatively complex supervisory environment, with multiple entities sharing supervisory responsibilities. The microfinance sector is supervised by the Central Bank of the West African States (BCEAO), the Banking Commission of WAEMU (a specialized regional entity overseeing banking sector) at the regional level, and a specialized supervisory body under the ministry of finance in each WAEMU member country. The Banking Commission of WAEMU only oversees part of the microfinance sector (institutions whose total loans/deposits exceeds 2 billion CFA francs [about $3.3 million] for two consecutive years). Unlike the Banking Commission, specialized national supervisory bodies have the responsibility to supervise the whole microfinance sector in each country.

Supervision in the WAEMU region focuses on prudential regulation, ensuring the soundness and stability of the financial system. However, <a href="https://en.wikipedia.org/wiki/Prudential_regulation" target="_blank" rel="noopener noreferrer">prudential supervision</a> in itself is insufficient for detecting and addressing improper conduct of financial service providers vis-à-vis their clients. As such, market conduct supervision is an important complement to prudential regulation. Even globally, the interest for and proven practices around market conduct regulation and supervision are fairly recent, with the 2008 global financial crisis being a notable trigger. While there have been some recent efforts to incorporate aspects of market conduct supervision in the region – including the creation of local public ombudsman offices (the OQSF) in Senegal and Côte d’Ivoire and the verifications related to <a href="https://microdata.worldbank.org/index.php/catalog/2946/related-materials" target="_blank" rel="noopener noreferrer">disclosure practices and compliance with interest caps</a> – this type of supervision is relatively new to the WAEMU region.
<blockquote>Market conduct supervision is an important complement to prudential regulation.</blockquote>
Benin is no exception. The focus on prudential regulation opens the door for poor consumer protection practices and a weak culture of self-regulation among financial institutions, as evidenced by low levels of consumer protection diagnostics and implementation of codes of conduct. The context in Benin is further complicated by a high prevalence of non-regulated financial service providers (FSPs). A 2015 unpublished survey by the ANSSFD indicated that about two-thirds of microfinance institutions operating in Benin were not regulated and operating without a license. The situation is also exacerbated by <a href="https://data.worldbank.org/indicator/SE.ADT.LITR.ZS?locations=BJ" target="_blank" rel="noopener noreferrer">low literacy levels</a> in the country, putting microfinance customers at heightened risk for fraud and unfair practices by financial institutions.
<h2>CFI’s Approach Builds on Client Voices Research</h2>
CFI’s <a href="https://www.centerforfinancialinclusion.org/client-voices-benin-country-report" target="_blank" rel="noopener noreferrer">client voices research</a> in Benin indicated that about 17 percent of former microfinance clients surveyed were unable to withdraw part or all their savings. It also highlighted that late payers experienced a number of serious harms, such as shaming, confiscation of goods, requests for bribes, and involvement of police in debt collection as intimidation tactics. About one-third of respondents ignored how much they will pay in total for their loans and only 12 percent knew the interest rate. In addition, a vast majority of clients (86 percent) were not informed about where to complain.

Responding to these realities, the Smart Campaign, a consumer protection initiative housed at CFI, began a targeted approach in 2016 to build a more effective client protection ecosystem in five African markets. CFI engaged with ANSSFD, the supervisory body with the broadest mandate and most in need of resources. The two-year initiative in Benin was targeted at identifying and addressing gaps in market conduct supervision and mainstreaming market conduct supervision into Benin’s supervision system. The new interventions aimed at, among other things, supporting financial regulators to strengthen their frameworks and increase their capacity to conduct sound supervision.
<blockquote>The initiative in Benin was targeted at identifying and addressing gaps in market conduct supervision and mainstreaming it.</blockquote>
The campaign also engaged with regulators in Nigeria, Ghana, Uganda, Benin and Rwanda. Each of these countries presented unique contexts with different consumer protection priorities, leading to bespoke interventions, including mystery shopping in Nigeria, digitization of complaint handling systems in Ghana and Uganda, and support for developing consumer protection regulations for tier IV institutions in Uganda.
<h2>Ingredients for a Successful Intervention: Lessons Learned</h2>
Though it’s too early to see the full benefits of this support, we learned several lessons from the implementation process in Benin. Overall, the success of such support depends largely on the capacity to change the behavior of supervisors and increase their ownership of the tools and approaches developed during the course of the program. Below we outline several factors that can help positively influence the behavior change and ownership necessary for success.
<h3>Learning by Doing</h3>
CFI’s approach involved trainings and post-training technical assistance on market conduct supervision. It was designed such that inspectors led the development of tools that they could integrate into their existing work. With some support from CFI, the inspectors developed a series of inspection sheets addressing each of the <a href="https://centerforfinancialinclusion.org/about/what-we-do/consumer-protection/" target="_blank" rel="noopener noreferrer">Client Protection Principles</a> to be used during their on-site visits. By doing so, they incorporated the new inspection sheets into their existing practices, reducing the extent of change management needed.
<h3>Leadership Engagement</h3>
Buy-in and active participation by leadership is key to gaining traction for change. In 2019, following the training and technical assistance activities, the general manager of ANSSFD issued a memorandum to make the new consumer protection inspection sheets mandatory for all inspection missions. The issuance of the memorandum addressed both resistance to change (on the part of a minority of inspectors) and inconsistent use of tools within ANSSFD (tools were partly used or not used at all in some inspection missions prior to the memorandum). The commitment of the general manager was essential to ensuring widespread use of the new inspection sheets and improving oversight of consumer protection practices.
<h3>Change Takes Time</h3>
The timeline for regulator or supervisor engagements must allow for multiple iterations. CFI’s engagements have found that behavior change and adoption of new techniques generally require multiple cycles of “test, learn, adjust.” In Benin, it took two years to see some tangible results.
<h3>Select Budget-Appropriate Supervisory Tools</h3>
Changing supervisory practices is likely to have significant budget implications, including costs associated with technical assistance or the adoption of new supervision tools, such as <a href="https://www.cgap.org/research/publication/mystery-shopping-financial-services" target="_blank" rel="noopener noreferrer">mystery shopping</a> and other survey methods. Tools and approaches should be proportionate with what fits for the supervisor, both technically and financially. Technical assistance providers should offer all necessary information on the costs and benefits of tools and make sure that the beneficiary agency makes informed decisions about the tools they choose to retain. In Benin, we did not recommend doing additional surveys or tools. Rather, we agreed to have an inspector that solely focuses on consumer protection and market conduct during routine inspection missions.
<h3>Progress, but the Journey is Not Yet Complete</h3>
As of today, all microfinance inspectors in Benin have been trained on market conduct supervision and the supervision tools are included in the inspection package of ANSSFD. All recent inspection reports include a market conduct section focused on consumer protection. This is tremendous progress and a great step forward.
<blockquote>All recent inspection reports include a market conduct section focused on consumer protection.</blockquote>
The promising results observed in Benin can serve as a model for other countries in the WAEMU region. The shared regulation among the countries should make it possible to leverage the process and tools developed for Benin to replicate this success in other countries. CFI held a workshop in October 2019 to share ANSSFD’s experience with sister supervisory agencies from Niger, Côte d’Ivoire, Guinea-Bissau, Mali, and Togo, which are facing similar gaps in market conduct supervision. Encouraging and guiding supervisory agencies to adopt market conduct supervision and the Client Protection Principles into their practices (as further outlined in CFI’s <a href="https://centerforfinancialinclusion.org/handbook-on-consumer-protection-for-inclusive-finance/" target="_blank" rel="noopener noreferrer">Handbook on Consumer Protection for Inclusive Finance</a>) would contribute to creating market conditions that are fair, protection regimes that are enforceable, and better outcomes for vulnerable customers.

We’d like to thank the <a href="https://mastercardfdn.org/" target="_blank" rel="noopener noreferrer">Mastercard Foundation</a> for partnering with us on this journey.

Improving Consumer Protection Market Conduct: Lessons Learned in Benin

Benin

Sub-Saharan Africa

Côte d'Ivoire

Ghana

Nigeria

Rwanda

Senegal

Uganda

Reflecting on the Smart Campaign: Lessons Learned

Client Treatment

Consumer Protection

Complaint Resolution

Enabling Environment

Policy, Regulation and Government Initiatives

Blog Post

Around the developing world, the use of mobile technology for financial services is skyrocketting. In Africa, the value of mobile money transactions has grown over <a href="https://qz.com/africa/1721818/africa-mobile-money-industry-is-entering-its-next-stage-of-growth/" target="_blank" rel="noopener noreferrer">890 percent since 2011</a>. App-based lenders in Kenya, Uganda, and elsewhere claim to leverage more than 10,000 data points as part of their <a href="https://www.mitpressjournals.org/doi/abs/10.1162/inov_a_00240" target="_blank" rel="noopener noreferrer">underwriting processes</a>, (though consumers are largely <a href="https://digital.hbs.edu/platform-digit/submission/tala-using-machine-learning-to-provide-access-to-credit-for-the-worlds-unbanked/" target="_blank" rel="noopener noreferrer">unaware of what data is being collected</a> from them). In Myanmar, where 20 years ago SIM cards cost $5,000, today, more than 75 percent of the population own (mostly) smartphones, and mobile money provider <a href="https://www.wavemoney.com.mm/wp-content/uploads/htd_Wave-Money-cements-mobile-money-leadership-with-stellar-2019-results-_FINAL.pdf" target="_blank" rel="noopener noreferrer">WAVE Money</a> has reached more than <a href="https://medium.com/@geoffcharles/from-zero-to-40-million-the-rise-of-digital-payments-in-myanmar-2499b488f871" target="_blank" rel="noopener noreferrer">17 million unique users</a>.

Consumers have had to adjust rapidly. For many, their first experience with financial services asks them to contend with new digital interfaces, complex products, nefariously creative forms of fraud, and detailed regulations with rights and responsibilities they <a href="https://gdpr-info.eu/" target="_blank" rel="noopener noreferrer">may not understand</a>.

This is not just a developing-world issue, of course. Carnegie Mellon researchers found that it would take the average American more than 76 working days annually to <a href="https://techland.time.com/2012/03/06/youd-need-76-work-days-to-read-all-your-privacy-policies-each-year/" target="_blank" rel="noopener noreferrer">fully read the privacy policies</a> they encountered on the internet. Underserved customers also often do not have actual people to engage with on <a href="https://customersguide.cgap.org/sites/customersguide.cgap.org/files/resource/2018/07/CGAP-Voice-of-Customer-Toolkit.pdf" target="_blank" rel="noopener noreferrer">questions, complaints, or feedback</a>.

This context served as the backdrop for CFI, in partnership with the Mastercard Foundation, to build and test a toolbox of consumer engagement channels to surface challenges clients face as financial services go digital. From <a href="https://centerforfinancialinclusion.org/clients-deserve-to-know-using-radio-to-educate-and-empower-consumers-in-africa/" target="_blank" rel="noopener noreferrer">radio campaigns</a> and client surveys to digital recourse channels for regulators and industry associations, these projects provided a set of valuable lessons about the increasing complexity of the sector and steps we must take to protect the well-being of customers. As the Smart Campaign winds down, CFI is reflecting on these lessons to inform the next stage of our consumer protection agenda.
<h2>Tailor Your Tools to Clients, Then Tailor Them Again</h2>
When done well, digital interactions with customers – whether it be financial products or surveys or other forms of communication – can provide immense value to both customers and providers. We learned from clients about the critical importance of being customer-centric in the design of these interactions. Investing in design upfront leads to better outcomes for all stakeholders, but most importantly, it can protect customers from negative consequences.

In our <a href="https://centerforfinancialinclusion.org/client-voices-rwandans-speak-on-digital-financial-services/" target="_blank" rel="noopener noreferrer">client survey on mobile money in Rwanda</a>, while most people reported that mobile money interfaces are easy to use, they worry that it’s also easy to make a mistake. Sixty-nine percent of clients believed it was easy to make a mistake and 17 percent have made an error. One issue is language: clients may select the wrong default language to begin with (English instead of Kinyarwanda, in our research in Rwanda, for instance), or even after selecting Kinyarwanda find that the language switches unexpectedly. Fear of making a mistake might be a disincentive for some users to engage with digital products, or worse, actually making a mistake could result in loss of funds or instances of fraud.

CFI also worked with three FSPs and the <a href="https://cma-network.org/" target="_blank" rel="noopener noreferrer">Cambodia Microfinance Association</a> to design and implement a survey, using the interactive voice response (IVR) method, with the goal of hearing directly from clients about the FSPs’ client protection practices. From the outset, we knew that precision in the survey’s language would be integral for the project’s success. But even with this expectation, we were surprised by how much it took to get it right. As my colleagues <a href="https://centerforfinancialinclusion.org/amplifying-client-voices-using-interactive-voice-response-ivr-technology-insights-from-cambodia/" target="_blank" rel="noopener noreferrer">pointed out in a CFI blog post</a>, pre-launch testing showed that while the Khmer jargon used in the survey was well-understood among microfinance staff, clients would either ask for help or skip questions altogether. Moreover, my colleagues observed that intonation and speech tempo of the voice talent behind the IVR recording made a significant difference in respondents’ successful completion of the survey. Seemingly small details such as this can easily prevent a project from achieving the intended results, further emphasizing the importance of upfront product design and testing with clients (not just MFI staff) before roll out.

In our <a href="https://www.centerforfinancialinclusion.org/clients-deserve-to-know-using-radio-to-educate-and-empower-consumers-in-africa#ghana:-you-deserve-to-know-campaign" target="_blank" rel="noopener noreferrer">Ghanaian radio campaign</a>, we partnered with local designers to create posters and animated videos to promote the broadcasts. For example, for the themes of fraud and privacy, we had a cartoon in Twi, the language spoken by over 10 million Ghanaians, depicting what happens when a family is called by a scammer (the family figures it out before they lose any money, fortunately). Our approach initially was to create purely educational social media content to drive listenernship, but we found more success with an edutainment approach, with the lively cartoons amplified by paid advertisting on Twitter and Facebook. In this case, it was important for the team to quickly learn from consumers what resonated and lean into that approach rather than simply stick with the original plan.
<h2>Fraud’s Digital Inroads</h2>
Financial fraud is <a href="https://www.cbsnews.com/media/top-14-financial-frauds-of-all-time/" target="_blank" rel="noopener noreferrer">nothing new</a>, but there are characteristics unique to digital finance that give it renewed virulence. These include less face-to face interaction between consumers and providers, a larger burden on clients to conduct transactions independently, and a wider network of entry points for fraudsters to gain access to clients’ data and scale their schemes.

Indeed, fraud was top of mind among partners and consumers in all of the markets where we implemented projects. In Rwanda, 39 percent of the clients surveyed perceived mobile money fraud to be a big problem and 10 percent reported being defrauded themselves. These frauds resulted in real financial harm for individuals, and we were troubled by how few were able to report it to authorities. One victim reported that the perpetrator claimed to be part of the Girinka “One Cow Per Poor Family” program and even invoked the involvement of Jeannette Kagame, First Lady of Rwanda, to gain the client’s trust.

In Uganda we heard of schemes including PIN fraud and false text messages stating users won a competition and would need to send a fee to claim a prize. Through a mix of dramatic storytelling, local reporting, expert interviews and social media public service announcements (PSAs), our three radio campaigns tried to impart on listeners how to distinguish fraudulent institutions from real ones and how to recognize mobile money scams.

The pervasiveness of fraud (especially digital) highlights real gaps in client capability. Schemes show that clients need a greater understanding of privacy risks and continued awareness campaigns about how to protect themselves as fraudsters evolve their tactics. We also found the burden of reporting fraud needs to be reduced to meet the constraints of this lower-income segment since opportuntiy costs for this group are steep.
<blockquote>Leveraging technology for consumer protection has great potential to meet consumer protection challenges.</blockquote>
Leveraging technology for consumer protection has great potential to meet these challenges, with, for example, chatbot-powered complaints management system. In this <a href="https://www.r2accelerator.org/chatbot-prototype-1" target="_blank" rel="noopener noreferrer">use case</a>, which has already been tested in markets like the Philippines, all actors could benefit - from the central bank to financial service providers to the consumers. Access to new quantitative and qualitative information can enable regulators to better understand customer experiences and more easily detect fraud in the market. We are eager to identify, test, and document more use cases around the use of technology to improve market monitoring and consumer protection.
<h2>Empowerment Comes from Long-Term Client Engagement</h2>
While we are excited by what CFI accomplished with the radio campaigns, we know that the length of the interventions, which ranged from six to 13 weeks, were likely not enough to catalyze long-term behavior change. However, we designed the radio campaigns with partners whom we hoped could continue to distribute and air the episodes and media content. In both Uganda and Ghana, government entities expressed interest in continuing to run the content. In Benin, we used a decentralized approach of training 19 radio journalists on the key client protection market issues, then managed a competition to see who could create the best educational content. The journalist competition allowed us to multiply our outreach efforts in a cost-effective, sustainable way.

With the Client Voices research, we worked closely with the National Bank of Rwanda (BNR) research unit in the hopes of embedding data collection as a regular occurance and not a one off, which they are currently exploring, though at a smaller scale. In Cambodia, the objective for the IVR was to pilot an effective tool for MFIs and others to take the pulse of their clients on an ongoing basis. Over the course of the project, we recognized that providing such feedback can have significant (and in our case unanticipated) cost implications for low-income households. For this reason, we had to reexamine the programing of the platform so that clients would not incur any charges for airtime used when they called in to complete the survey.
<h2>Looking Ahead: CFI Strategy &amp; Impact</h2>
CFI’s experience with client engagement under the Smart Campaign yielded several valuable lessons. First, engaging clients in the design and testing of any digital tool is essential to ensuring that the product features and safeguards work for them. Client engagement also helps providers prioritize what’s most helpful and rout out anything harmful, ideally in the design stage before any harm actually occurs. Second, direct client feedback should not be considered a one-time occurance during product design. Ongoing engagement can provide valuable lessons and ensure that client needs are being met. Finally, digitization has introduced an era of rapid change, made only more extreme by the impacts of the COVID-19 pandemic. We must be poised to listen to clients, and quickly adapt as needed to fulfill our commitment to the <a href="https://centerforfinancialinclusion.org/about/what-we-do/consumer-protection/" target="_blank" rel="noopener noreferrer">Client Protection Principles</a>.
<blockquote>CFI is incorporating these lessons across our work as we seek to understand the impact of COVID-19 on low-income customers.</blockquote>
CFI is incorporating these lessons across our work as we seek to understand the impact of COVID-19 on low-income customers. For example, we launched a series of policy papers examining policy measures to mitigate the impact of COVID-19 and understanding their impact on low-income customers. We are also collecting data on the impact of COVID-19 on MSMEs to help inform providers, investors, and policymakers about the depth and breadth of the impact on low-income customers. As the world faces unprecented times in the wake of COVID-19, we will continue to listen to customers and adapt our work. The customer voice — and engaging them at every step — is crucial for advancing financial inclusion, perhaps now more than ever.

We’d like to thank the <a href="https://mastercardfdn.org/" target="_blank" rel="noopener noreferrer">Mastercard Foundation</a> for partnering with us on this journey.

&nbsp;

Making Digitization Work for Clients Starts With Client Engagement

Mastercard Foundation

Cambodia

East Asia and Pacific

Myanmar

Responsible Digital Finance

CFI has begun the new year with many developments and shifts in our agenda. We have been working hard behind the scenes to position our strategy where inclusive finance can have an important role on issues that are most pressing for the lives of the poor. As we have been undertaking this strategy refresh – looking both internally and externally to identify what is critical for the inclusive finance field – we have identified several important areas of focus. At this juncture, we would like to share how our thinking is evolving with regard to our role and future focus priorities.
<h2>First, we want to use this opportunity to relay our continued commitment to improved consumer protections for people at the base of the pyramid.</h2>
CFI has been supporting the Smart Campaign for more than 10 years. This initiative has had many achievements, most notably, its role in defining a set of standards, the Client Protection Principles, which guide how providers adapt their internal practices and how regulators should think about consumer protection regulation and the tools they use to monitor market conduct. We expect to continue to evolve CFI’s work on consumer protection by expanding our research and analysis of how the digital economy is presenting new risks for consumers. We also plan on expanding our work with regulators on both regulation and market conduct.
<blockquote>Consumer protection in the digital economy will be a focus area for CFI research and analysis.</blockquote>
We anticipate Smart Campaign’s role will be that of an industry initiative: it will continue to be supported by the many actors that are part of that community. CFI’s role in the Campaign will be discussed in an upcoming steering committee meeting and will align with CFI’s broader strategic shifts.
<h2>Second, we want to double-down on our advocacy role in protecting and empowering customers.</h2>
We believe there are few organizations in the inclusive finance field that truly prioritize the customer voice and perspectives. Our role is doing just that. Over the years we have used many tools to listen to customers and have used these listening exercises to inform our policy recommendations and our consumer protection standards, and we want to continue to do this. In 2019, we published the Client Voice Rwanda which used surveys and focus groups to better understand Rwandans experiences with mobile money, and our ongoing work in Cambodia is testing IVR technology as a means of collecting client feedback. And we have tested many ways to share information with customers to improve their ability to make informed decisions. In the past year, we ran consumer awareness campaigns in Ghana, Benin, and Uganda using different engagement techniques, such as social media videos, radio dramas and interviews, and journalist competitions, to inform consumers about their rights and responsibilities when accessing financial services.
<h2>Third, we want to elevate the work that will be most impactful on the poor: financial services that help the poor deal with and adapt to climate change, gender inequality, and data opportunities and risks.</h2>
This shift does not mean we stop working with providers or on important market infrastructure issues. It means that given resource limitations, each institution that is focusing on inclusive finance needs to ensure that its focus areas have a direct line of sight on how this work will lead to improved outcomes for the poor. For CFI, we have identified three key areas of focus that we will add to our agenda to help us have a more impactful influence toward improved customer outcomes. These areas are doing additional research on how financial services can both reduce risks and help customers adapt to the reality of climate change, doing additional research and experimentation on how to address the remaining policy and norms barriers that impede progress on women’s participation in the formal financial system, and better understanding the risks and opportunities that the new digital economy and the use of data pose for customers and identifying innovative solutions for managing those risks through regulation, data practices by providers, and industry wide solutions.
<h2>Finally, we want to refine our influence model to improve our impact.</h2>
As an independent global think tank housed at Accion, we know we must continue to partner to have leverage. We want to continue to build partnerships with like-minded organizations to test new ideas, conduct research, share and advocate. As in the past, we strongly believe that collaboration is the key to improving our impact, and we will continue to work together to scale our learnings.
<blockquote>I am excited to see the opportunities that lay ahead for CFI and inclusive finance.</blockquote>
After a few months on the job, I am excited to see the opportunities that lay ahead for CFI and for the inclusive finance field and hope that you will be a part of this journey.

New Decade, New Focus Areas: CFI's Role in an Evolving Space

Underserved Groups

Women

Benin’s Client Voice research includes the voices of over 1,500 current and former microfinance clients to understand the market’s consumer protection challenges. The Smart Campaign selected Benin as the African market for the Client Voices project for several reasons. First was the need for more demand-side research in Francophone West Africa, as relative to Anglophone East Africa. The Campaign also believed that the relevance of the Benin findings would likely extend beyond the country itself to the other seven members of the West African Economic and Monetary Union (WAEMU) given their operating under a common regulatory regime. Finally, Benin was selected because of the engagement of local stakeholders such as the Consortium Alafia – a 34-member local microfinance association.
<blockquote>Transparency, fair and respectful treatment of clients, and complaint resolutions mechanisms are the key consumer protection concerns for clients in Benin.</blockquote>
From May – October 2014, Bankable Frontier Associates (BFA) and its local research partner the Centre pour L’Environment et le Developpement en Afrique, Benin (CEDA Benin) carried out qualitative and quantitative research. The quantitative survey reached 1,733 Beninois (1,028 current MFI clients, 526 former clients, and 179 non-clients).

Key client protection risks emerged around the issues of transparency, fair treatment and complaint resolution mechanisms. Addressing these concerns requires a market-level approach that takes into consideration the unique role that regulators, the MFI industry, and clients themselves each must play. This page contains the results of the initial qualitative research, the follow-up quantitative survey and the final country report which weaves both pieces together. Finally the page has a link to the raw, anonymized data from the quantitative survey along with the survey instrument so that fellow researchers and client protection data wonks can play draw their own conclusions.

Client Voices: Benin Country Report

Bankable Frontier Associates

The Smart Campaign

Keeping Clients First

Financial Service Providers

Microfinance Institutions

Transparency

Report

Boubacar Diallo

Former Manager, Africa Region, Smart Campaign

Alexandra Rizzi

Malacci Ohrt

Alex Taylor

Mayada El-Zoghbi

Haset Solomon

Elisabeth Rhyne

Caitlin Sanford

Kettianne Cadet

Bangladesh

Togo

Pakistan

South Africa

Credit

Delivery Channels

Digital Credit

Digital Financial Services

Financial Capability

Fintechs

Fraud

Privacy

Product Pricing

Telcos

Agent Banking

Mobile Banking

Over-indebtedness

Smart Certification

Access Usage Gap

Challenges and Crises

Financial Inclusion Strategy

Risk Management

Though Nigeria’s government has set ambitious goals for financial inclusion, the majority of its people lack a formal bank account. Accion has worked in the country since 2007 to expand access to financial services.

<h1>Why Consumer Rights and Responsibilities?</h1>
The <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a> provide a common framework for financial service providers (FSPs), policymakers, and clients to better understand and discuss consumer protection issues. While much of the Center for Financial Inclusion’s (CFI) work with the financial inclusion industry has focused on providers and regulators, there is a third crucial constituency: clients.

Client awareness and capability is a critical component of effective financial consumer protection. Clients have the right to demand fair treatment and lodge complaints with government authorities, but these rights mean little if they don’t know what constitutes lawful treatment or how to access complaints channels. Similarly, clients play a role in protecting themselves by practicing behaviors to maintain their privacy and safety. While FSPs can institute protective processes and regulators can craft policy safeguards, improving client awareness of their rights and responsibilities helps consumers play their part to support a sustainable financial system.

This report provides lessons learned from initiatives in Ghana, Uganda, and Benin to raise consumer protection awareness among clients through multimedia campaigns, digital tools and other outreach strategies. It covers country-specific consumer protection issues and the individualized campaigns to address these issues. We also offer five key takeaways to help inform future client protection and empowerment awareness building activities.

Clients Deserve to Know: Using Radio to Educate and Empower Consumers in Africa

&gt; Posted by Alexandra Rizzi, Senior Director, the Smart Campaign

<img class="alignright wp-image-23923" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/08/kim-wilson.jpg?w=490" alt="" width="330" height="220" />The merits and pitfalls of mobile credit continue to be debated hotly in financial inclusion circles. Mobile products are making credit more accessible through branchless banking and alternative underwriting and business models. But experimenting with new ways of lending when your borrowers include those at the base of the pyramid brings steep risks and some models can be downright reckless. Which side of the fence are you on?

The Smart Campaign is seeking to assist the sector to develop a consensus about responsible online credit practice, and the good news is that these questions have recently become top-of-mind for a range of stakeholders. Quona’s Johan Bosini and Positive Planet’s Bezant Chongo gamely volunteered for an Oxford-style debate on whether mobile credit is good for its clients at the 4th Annual Mondato Summit in Johannesburg back in May.

The convenience and ease-of-access of mobile credit products are immensely beneficial to the unbanked, according to Bosini, speaking for the pro side. When juxtaposed to traditional lending products that take, for instance, <a href="https://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">in Benin</a>, an average of almost 5 weeks to access (involving multiple trips), mobile credit seems supersonic, he emphasized. Using alternative data and analytics, mobile credit unlocks access for individuals without credit history. The reality for the poor, as elucidated by the Financial Diaries and other <a href="https://www.fsdafrica.org/credit-on-the-cusp/">research</a>, is that incomes fluctuate widely. Now with mobile credit, a person in a pinch can help smooth the inevitable bumps in income with a few clicks on the phone.

But maybe speed is not such a good idea, argued Bezant, taking the anti position. Roadside signs remind us that “speed kills.” While convenience is important, such quick and easy access to credit could lead to overindebtedness. And defaults, even for small loans, can have outsized consequences. <a href="https://cfi-blog.org/2016/09/22/digital-credit-in-africa-are-nano-loans-safe-for-consumers/">In Kenya</a>, for example, hundreds of thousands of customers were blacklisted through the country’s credit reference bureaus for outstanding mobile loans of less than Sh200 (approximately $2). Concerns remain, including the difficulty of conducting an assessment of a potential borrowers’ capacity to repay using alternative data, the challenge of effectively conveying terms and conditions over a mobile interface, and worries about <a href="https://cfi-blog.org/2017/05/01/how-secure-is-data-used-in-digital-credit/">whether clients’ data is secure</a> and whether clients understand how it’s being used.

As with many debates, in this case both sides are right. The challenge is ensure that mobile credit can bring its great benefits while maintaining adequate protections – in other words, for mobile credit providers to be able to act responsibly within a secure ecosystem. Forging the appropriate path forward will require a wide range of input, not just from those who stand to profit from providing mobile credit or from those who might see business model innovation as a regulatory fire to put out. And we are witnessing such input in this space, from fintech <a href="https://cfi-blog.org/2016/10/25/building-trust-and-growing-digital-financial-services-a-look-at-jumo/">providers themselves</a>, to researchers (see <a href="http://www.digitalcreditobservatory.org/">here</a>, <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/cfi-fellows-program">here</a> and <a href="https://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=1&amp;cad=rja&amp;uact=8&amp;ved=0ahUKEwij-Zbk3rjVAhXE7SYKHTVDBTUQFggoMAA&amp;url=http%3A%2F%2Fwww.cgap.org%2Fabout%2Fpeople%2Frafe-mazer&amp;usg=AFQjCNE9TC1A8x0ODAGZ8Ya3idTSBiYoXg">here</a>), <a href="http://www.itu.int/en/ITU-T/focusgroups/dfs/Pages/default.aspx">regulators</a> and <a href="https://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=2&amp;cad=rja&amp;uact=8&amp;ved=0ahUKEwjIzKjp3rjVAhXEeCYKHXNYAGAQFggrMAE&amp;url=https%3A%2F%2Fwww.fmo.nl%2Fevents-detail%2Fda74d321-8072-4225-863b-1e45cb1d3b89%2Ffintech-for-inclusion-forum-and-global-summit-21-23-june&amp;usg=AFQjCNGhQ0d2nBUKY-gTJPbGsHD5HuWFiw">investors</a>. That kind of momentum creates an environment for consensus-building on responsible (and irresponsible) practices.  And at the Smart Campaign, that is music to our ears!

If we think back to the early days of the Smart Campaign and the microfinance industry, there was a considerable amount of consensus-building needed around consumer harms and mitigating practices before the Client Protection Standards were finalized. We hosted many debates ourselves. What, exactly, was an effective grievance redressal mechanism (beyond a complaints box)? What elements were appropriate in a privacy policy? How do you measure responsible pricing for microcredit? Through these debates, by individuals and organizations with the good will and commitment to advancing the microfinance industry, we ultimately arrived at a point of clear, definable <a href="http://smartcampaign.org/storage/documents/Standards_2.0_English_Final.pdf">standards</a>.

Thus it’s with a sense of déjà vu that we dive into the conversations and debates on mobile credit. The Campaign intends to support and contribute research, create public goods like tools and briefs, and facilitate a community of practice for providers. Rather than a yay or nay for mobile credit, our motto is “Work in Progress.” We hope you’ll join us!

Image credit: FSD Kenya

Have you read?

<a href="https://cfi-blog.org/2017/02/07/modelo-peru-whats-next-for-the-groundbreaking-mobile-money-platform/">Modelo Peru: What’s Next for the Groundbreaking Mobile Money Platform?</a>

<a href="https://cfi-blog.org/2017/03/01/mobile-money-in-myanmar-going-directly-from-cash-to-digital/">Mobile Money in Myanmar: Going Directly from Cash to Digital</a>

<a href="https://cfi-blog.org/2017/02/27/kopo-kopo-building-on-the-rails-of-mobile-money-in-kenya/">Kopo Kopo: Building on the Rails of Mobile Money in Kenya</a>

Can We Move from Debate to Consensus on Responsible Mobile Credit?

&gt; Posted by the Smart Campaign

The Center for Financial Inclusion at Accion announced today a $4.4 million, three-year partnership with The MasterCard Foundation to tackle the challenges facing consumer finance in an increasingly digital world. As a reader of this blog, you’re almost certainly familiar with the work of the Smart Campaign. The Smart Campaign is a global campaign committed to embedding <a href="http://smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">client protection practices</a> into the institutional culture and operations of the financial inclusion sector. Since 2009, we’ve worked globally to create an environment in which financial services are delivered safely and responsibly to low-income clients. The partnership marks a shift in strategy for the Smart Campaign, as well as a deepening of its footprint in Sub-Saharan Africa.

To date, the Smart Campaign’s flagship certification program has certified over <a href="http://smartcampaign.org/certification">68 financial institutions</a>, serving 35 million clients worldwide. Recent certifications include Opportunity International Colombia, ENLACE in El Salvador, and BRAC Bangladesh, part of the world’s largest anti-poverty organization.

Under the partnership, the Smart Certification program will continue. But with support from The MasterCard Foundation, the Smart Campaign will increase its focus on convening a broader range of players in the financial services field—including regulators, industry associations and financial technology firms—to take on client protection issues emerging from new technologies, to elevate the voice of the clients they serve and to effect change at the national level.

“It’s important to certify the practices of individual financial institutions, but we will not create wholesale, sustainable change until we galvanize the support of all the partners involved in serving low-income people, including regulators and new, technology-based service providers. We must also make a concerted effort to champion the client’s perspective,” said Isabelle Barrès, Director of the Smart Campaign.

In much of Sub-Saharan Africa, client protection is urgently needed and sorely lacking. Predatory providers, abusive practices, weak regulations and inappropriate products can create lasting and sometimes devastating harm. For example, our <a href="https://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">Client Voices research in Benin</a> found that 13 percent of all the Beninois clients consulted for the project reported experiencing a client protection problem. Among the 16 percent of clients who reported ever having been late with a repayment, nearly one in three experienced problematic treatment.

While the Smart Campaign will continue to be a global effort, this partnership will focus work in five Sub-Saharan African countries: Benin, Ghana, Nigeria, Rwanda and Uganda. “With more than 45 million people in these five countries using financial services – often for the first time – the imperative to fully and sustainably protect clients is clear. With generous support from The MasterCard Foundation, the Smart Campaign can help ensure more people are offered high quality financial services,” said Isabelle Barrès.

At the same time, digital financial services are sweeping the continent, raising brand new client protection issues. Here on the blog we recently <a href="https://cfi-blog.org/2016/09/22/digital-credit-in-africa-are-nano-loans-safe-for-consumers/">spotlighted</a> the increasing prevalence of digital credit on the continent, namely nano loans, and outlined the related client protection concerns of “pushy” sales and marketing, the growing pains of early-stage algorithms, and the potential for discrimination in big data.

The Smart Campaign’s work aligns directly with The MasterCard Foundation’s focus on responsible, client-centric financial services. In fact this isn’t the first time The MasterCard Foundation and the Smart Campaign have partnered in support of advancing client care in financial services. “Our approach is to build and leverage partnerships across the financial inclusion sector to ensure clients’ needs are met responsibly,” said Ann Miles, Director of Financial Inclusion and Youth Livelihoods at the Foundation. “The Smart Campaign’s ability to reach out directly to clients to build awareness of their rights and understand their feedback is at the very heart of this partnership. The Smart Campaign will carry out activities designed to raise clients’ voices and inform them about their rights and responsibilities as consumers.”

For more about The MasterCard Foundation, <a href="http://www.mastercardfdn.org/">click here</a>. And for more about the Smart Campaign, <a href="http://www.smartcampaign.org/">click here</a>.

Image credit: Accion

Editor's Note: Formerly, we erroneously referred to Opportunity International Cambodia, instead of Opportunity International Colombia. Opportunity International does not operate in Cambodia. 

Have you read?

<a href="https://cfi-blog.org/2016/10/25/building-trust-and-growing-digital-financial-services-a-look-at-jumo/">Building Trust and Growing Digital Financial Services: A Look at JUMO</a>

<a href="https://cfi-blog.org/2016/10/07/financial-inclusion-of-refugees-al-majmoua-in-lebanon/">Financial Inclusion of Refugees: Al Majmoua in Lebanon</a>

<a href="https://cfi-blog.org/2016/10/06/changes-afoot-for-ugandas-tier-iv-financial-institutions/">Changes Afoot for Uganda's Tier IV Financial Institutions</a>

The Smart Campaign and The MasterCard Foundation Team-Up to Tackle the Next Wave of Consumer Protection Challenges in Financial Services

&gt; Posted by Haset Solomon, Communications and Operations Associate, the Smart Campaign

<a href="https://www.flickr.com/photos/worldbank/14144220893/in/album-72157626083471432/"><img class="alignright wp-image-21702" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/08/14144220893_893ef4b548_z.jpg" width="331" height="220" /></a>La Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO), the common central bank of eight West African countries (Benin, Burkina Faso, Cote d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo) <a href="https://www.cgap.org/blog/20-years-financial-inclusion-progress-waemu-more-come">has prioritized</a> financial inclusion in the region. A recently announced financial inclusion strategy led by BCEAO in partnership with the several national Ministries of Finance aims to include 70 percent of the adult population by the year 2020. Financial access rates range from 7 to 34 percent across the region, according to the Global Findex.

BCEAO is expanding its financial inclusion efforts, including in <a href="https://www.cgap.org/blog/20-years-financial-inclusion-progress-waemu-more-come">mobile and e-money</a>, and financial inclusion is slowly <a href="https://www.cgap.org/blog/20-years-financial-inclusion-progress-waemu-more-come">progressing</a> in the region, but the opportunities and challenges of the member countries vary significantly, and serious client protection issues remain, particularly among unregulated institutions and in countries with weak national supervision and enforcement. A recent <a href="https://www.imf.org/external/pubs/ft/scr/2016/cr16148.pdf">IMF spotlight</a> on Senegal calls for steps to strengthen the sector’s governance through technical assistance to improve supervisory capacities and training to improve reporting standards and practices.

Weak supervision can lead to problems like those the Smart Campaign uncovered during its <a href="http://smartcampaign.org/tools-a-resources/1076">Client Voice</a> research in Benin, where illegal microfinance institutions collected and disappeared with clients’ savings.

To support a healthy consumer protection ecosystem throughout the region, both top-down supervision and bottom-up efforts are critical. As an example of the latter, the Smart Campaign often supports upgrade projects that offer tailored technical and financial support to financial institutions, and recently, with funding from MasterCard Foundation, two institutions in BCEAO member countries were awarded upgrade projects, COMUBA in Togo and Assilassimé Solidarité in Benin.

Although the Smart Campaign has developed numerous tools and resources (available on <a href="http://smartcampaign.org/tools-a-resources">our website</a>) for institutions to improve their client protection practices, upgrade projects tackle specific challenges as identified in collaboration with the institutions themselves.

To be eligible for an upgrade project, institutions first undergo a <a href="http://smartcampaign.org/certification/2-assess">Smart Assessment</a>, a comprehensive strengths and gaps analysis of the MFI’s consumer protection practices. Following the assessment, they outline the institution’s desired objectives and plan for moving forward.

<a href="http://www.comubasfd.com/">La Coopérative Des Membres Unis Bethel Actions</a> (COMUBA) is a Beninois microfinance institution formed in 2000 that almost exclusively serves women. Through the upgrade project, COMUBA adapted several Smart Campaign tools for its own use, including those on: <a href="http://smartcampaign.org/tools-a-resources/976-mechanisms-for-complaints-resolution">Mechanisms from Complaints Resolution</a>; <a href="http://smartcampaign.org/tools-a-resources/1023-training-tool-data-privacy">Data Privacy</a>; and <a href="http://smartcampaign.org/tools-a-resources/544-codes-of-conduct-and-the-role-of-microfinance-associations-in-client-protection">Codes of Conduct and the Role of Microfinance Associations in Client Protection</a>. COMUBA was seeking to address three core challenges: loan management, internal audit, and human capital concerns. The new tools include a manual on savings and lending procedures (for example, it outlines improved collateral management procedures), and a new system for client complaint resolution. With the completion of the project, COMUBA is working to integrate the tools throughout the institution.

<a href="http://www.entrepreneursdumonde.org/nos-actions/nos-partenaires-locaux/assilassime/">Assilassimé Solidarité</a> is a microfinance institution in Togo formed in 2012 that aims to reach vulnerable Togolese in the peri-urban area of Lome, particularly focusing on unbanked individuals, persons with disabilities, and single mothers. Assilassimé applied for an upgrade support to ensure and strengthen the fair and equal treatment of its clients. Accordingly, its approach included not only new policies and procedures but also staff training on those procedures capped by training for clients and assessments of client well-being. One outcome of the project was the computerization and streamlining of Assilassimé’s assessment of clients’ levels of poverty. Interviews conducted with group loan clients a few weeks after trainings indicated that they had increased knowledge of their client rights, and strengthened understanding of the institution’s client complaints system. Assilassimé continues to improve its processes and procedures to achieve international best practices, with the goal of Smart Campaign <a href="http://smartcampaign.org/certification/all-about-certification">Certification</a> in mind.

To learn more about upgrade projects, and all the ways the Smart Campaign works with institutions to improve their practices, visit <a href="http://smartcampaign.org/">the Smart Campaign website</a>.

Image credit: <a href="https://www.flickr.com/photos/worldbank/14144220893/in/album-72157626083471432/">World Bank</a>

Have you read?

<a href="https://cfi-blog.org/2016/01/27/the-impact-investing-landscape-in-west-africa/">The Impact Investing Landscape in West Africa</a>

<a href="https://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">What Do Clients Care About? Results from Benin</a>

<a href="https://cfi-blog.org/2016/05/23/why-not-africa/">Why Not Africa?</a>

Strengthening Consumer Protection in West African Microfinance

&gt; Posted by Elisabeth Rhyne, Managing Director, CFI

 <img class="alignright wp-image-20920" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/03/thumb_1ad39ca9bc7e44c4a28241b598e34908.jpg" alt="thumb_1AD39CA9BC7E44C4A28241B598E34908" width="350" height="233" />The following post was <a href="http://www.theguardian.com/global-development/2016/mar/17/microfinance-loans-do-lenders-make-clear-risks">originally published</a> on The Guardian.

With <a class="u-underline" href="http://www.worldbank.org/en/programs/globalfindex">700m new accounts opened</a> between 2011 and 2014, more people than ever have a bank or mobile money account. But many of the new consumers are in poor countries, and people with low incomes are often more vulnerable to abuses when they borrow, save or send money.

<a class="u-underline" href="http://www.smartcampaign.org/">The Smart Campaign</a>, a consumer movement, surveyed 4,000 microcredit borrowers in four countries. Their responses were documented in a report, <a class="u-underline" href="http://www.smartcampaign.org/tools-a-resources/1089">It’s My Turn to Speak</a>.

The study looked at Peru and Georgia, where there is relatively good protection for consumers, and Pakistan and Benin, where protection is less robust.

Some good news emerged: most people are satisfied. Borrowers rated their microlenders as good as, and sometimes better than, schools, hospitals, and governments. Grievous abuses were few – about 3 percent of those surveyed.

But there were cautionary tales. Too many borrowers don’t understand what they are getting into. “I borrowed blind,” one Peruvian woman was quoted as saying in the survey.

In Benin, Pakistan and Peru, only about half the respondents said they fully understood the terms and conditions of their loans. In all four countries, only a quarter knew the interest rate of their latest loan. This can lead to nasty surprises.

In Georgia, many customers took out loans in US dollars – in some cases without understanding that the loans were dollar-based. When the Georgian currency <a class="u-underline" href="http://www.reuters.com/video/2016/02/10/georgia-struggles-with-tumbling-lari?videoId=367358178">dramatically depreciated</a>, these customers found higher loan repayments eating up their grocery budget.

Understanding of insurance was particularly spotty. A woman in Peru bought theft insurance at a street kiosk only to find, after a robbery, that she did not know and could not find out how to claim against the policy. In Benin, customers lost their savings when they could not distinguish between legitimate microfinance organisations and fly-by-night scammers.

And even in Peru, where the markets are more sophisticated, few customers understood how they were affected by their credit rating. Not many customers knew how to lodge a complaint or believed complaining would do any good. Only a third of clients said their lenders told them how to file a complaint.

“If you go to complain to the office, or elsewhere, you won’t get another loan,” said a man from Benin.

The report shows there is an urgent need to rethink transparency and customer communications. Beyond requiring lenders to disclose all the terms, regulators should ensure that the borrower understands them. Microfinance clients may need simple language that highlights essential information. Responsible lenders and regulators should verify that clients understand key facts before signing off loans.

People who use microfinance value respectful treatment highly, be it from teachers, police or financial institutions, because they so seldom get it. But harsh treatment is more likely when borrowers fall behind on their repayments.

In Benin and Pakistan, where regulations on microfinance are either non-existent or poorly enforced, clients spoke of providers holding customers hostage at the office, placing a defaulter in a wheelbarrow and trundling her through town, and broadcasting defaulters’ names on the radio. Borrowers who are part of groups, as were nearly all the respondents in Pakistan, said groups often apply intense social pressure. The humiliation can be devastating.

In their responses, customers wanted flexibility and humane treatment, advocating measures like grace periods or leniency for long-time customers facing emergencies. Fortunately, in Peru and Georgia, extreme abuses have largely disappeared, thanks to strong market conduct laws and enforcement. And perhaps equally important, well-functioning credit bureaus in these countries give lenders an alternative way to motivate clients to repay, without resorting to social shaming.

If regulators listen to people who use microfinance, they will hear that regulation, genuine transparency and humane treatment are prerequisites to successful financial inclusion for people on low incomes.

If lenders listen, they will realise that protecting consumers makes business sense. We found that even a few examples of abuse did disproportionate damage to the reputation not only of the abusive provider but of the whole sector.

But customers who understood their services tended to rate them highly. Clients are so hungry for respectful and dignified treatment that they will become loyal customers, and even brand ambassadors, for lenders that explain things clearly and treat them with respect.

Have you read?

<a href="http://cfi-blog.org/2016/02/18/my-turn-to-speak-voices-of-microfinance-clients-in-benin-pakistan-peru-and-georgia/">My Turn to Speak: Voices of Microfinance Clients in Benin, Pakistan, Peru, and Georgia</a>

<a href="http://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">What Do Clients Care About? Results from Benin</a>

<a href="http://cfi-blog.org/2015/11/09/what-do-clients-care-about-results-from-research-in-pakistan/">What Do Clients Care About? Results from Research in Pakistan</a>

Do Lenders Make Clear the Risks of Microfinance Loans?

&gt; Posted by Caitlin Sanford, Bankable Frontier Associates, and Alexandra Rizzi, the Smart Campaign

<a href="http://smartcampaign.org/tools-a-resources/1075"><img class="alignright wp-image-20644" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/cv-cover.png" alt="" width="300" height="389" /></a>“Sandra” from Lima described her experience talking to a loan officer:

“You don’t understand anything [the microfinance staff members] says, because of how fast he talks.  It is almost as if his tongue is twisted. You end up not understanding in the end. [He says] ‘But ma’am I’ve explained it to you, why can’t you understand? I’ve been very clear.’” 

New <a href="http://smartcampaign.org/tools-a-resources/1075">Client Voices</a> research from the Smart Campaign and Bankable Frontier Associates (BFA) finds that although microfinance providers may be complying with disclosure regulations, clients are not adequately absorbing information about their financial products.  A regulatory compliance-based approach to consumer protection in which providers focus on meeting minimum disclosure requirements risks losing sight of the main objective of transparency— that clients understand what they are signing up for. With clients inadequately informed about many aspects of microfinance, even in countries with strong transparency regulations like Peru and Georgia, the Client Voices findings demand a radical rethinking of transparency.  Namely, emphasis should widen from what information is provided to how much clients understand.

In the Client Voices project we solicited input from clients about what they consider good and bad treatment in their interactions with microfinance service providers, and assessed the prevalence of consumer protection problems in Benin, Pakistan, Peru, and Georgia.  We found that clients in all four countries have an inadequate understanding of the basic attributes of their microfinance products.  Although most clients do receive some information about their loan products, overall they report low levels of understanding of their loan terms and conditions, regardless of education level.  In Benin, Pakistan, and Peru, 50 percent, 49 percent, and 43 percent of respondents respectively report that they understood loan terms only somewhat or not at all at the time of taking out the loan. Self-reported understanding of loan terms and conditions is highest in Georgia, where 79 percent reported understanding the terms and conditions.

[caption id="attachment_20901" align="alignright" width="330"]<img class="wp-image-20901" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/03/photo-1.jpg" alt="" width="330" height="246" /> Photograph taken by client in Benin[/caption]

The lack of understanding is more alarming with respect to insurance that is often bundled with microfinance loans: 24 percent of clients in Peru did not know whether or not they had insurance with their loan. Among clients who had insurance accompanying a microfinance loan in Pakistan, only 13 percent reported that they knew how insurance works.

“But the problem with these [microfinance providers] is that there are some false charges called “insurance” in addition. Finally the amount to borrow becomes insignificant after such costs are deducted.”

-Female, Cotonou, Benin

In Georgia, many MFIs issue loans in U.S. dollars rather than Georgian lari to protect themselves against devaluation. As a result of exchange rate fluctuations in the past year, the monthly repayment of a client who took a dollar-denominated loan in January 2015 would be more than 25 percent larger by October of that same year.  Our research found that 13 percent of respondents with dollar-denominated loans claimed they were not aware of this risk when they took out the loan, and 52 percent felt the information provided on exchange rates was somewhat to not clear at all.

[caption id="attachment_20902" align="alignright" width="330"]<img class="wp-image-20902" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/03/photo-2.png" alt="" width="330" height="253" /> Photo taken by client in Georgia[/caption]

“[I took the picture of the] empty wallet to signify monthly expenditures, the increase of dollar rate…”

-Male, Kutasi, Georgia

Whether it is currency fluctuations in Georgia or an unknown fee in Peru, clients are often surprised during transactions with MFIs. Regardless of whether these surprises are due to client misunderstanding or staff malfeasance, they damage client trust. We believe that disclosure practices must widen to encompass both what information is shared with the client as well as ways to check client understanding.

Here is some food for thought on ways to rethink transparency and disclosure:
<ul>
	<li>Prior to disbursement, providers could ask clients to describe their understanding of their product, with staff correcting any misunderstandings. Institutions could even apply a short and easy quiz after presenting information to verify that clients have understood key details, such as the term, how often payments should be made, late penalties, the currency of the loan, etc.</li>
	<li>Providers could present information in innovative ways. For example, Georgian clients report that they really like the short videos that Georgian microfinance providers show. Other ideas include calendars for literate populations, songs, and simple infographics. We call for rigorous research to test which types of disclosure mechanisms actually work.</li>
	<li>Client protection standards could define best practices in transparency as not just disclosure but checks (and even monitoring) of client understanding of terms and conditions. SMS and <a href="https://en.wikipedia.org/wiki/Interactive_voice_response">interactive voice response technology</a> could be low-cost methods for implementation.</li>
	<li>Regulators may wish to build verification of client understanding into supervision. This could involve surprise mystery shopping visits to institutions, or questioning clients about high-stakes information. Regulators may consider issuing fines to microfinance institutions if a certain percentage of clients do not know critical information.</li>
	<li>Insurance bundled with loans may deserve more attention from regulators, as client understanding of insurance—even whether they have a policy or not— is especially low.</li>
</ul>
Because transparency efforts have focused on complying with disclosure requirements rather than making sure users understand their rights and responsibilities, information that microfinance institutions provide tends to be copious, technical, and complicated.  Current disclosure methods are not resulting in sufficient client understanding.  We look forward to hearing from the industry on how to shift away from “tongue twisted speeches” used to explain financial products.

For more, check out the <a href="http://smartcampaign.org/tools-a-resources/1075">Client Voices project</a>.

Have you read?

<a href="http://cfi-blog.org/2016/02/18/my-turn-to-speak-voices-of-microfinance-clients-in-benin-pakistan-peru-and-georgia/">My Turn to Speak: Voices of Microfinance Clients in Benin, Pakistan, Peru, and Georgia</a>

<a href="http://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">What Do Clients Care About? Results from Benin</a>

<a href="http://cfi-blog.org/2016/02/22/borrowing-blind-in-peru-findings-from-the-client-voices-project/">Borrowing Blind in Peru: Findings from the Client Voices Project</a>

Towards Authentic Transparency: A Radical Rethinking of Disclosure in Financial Inclusion

&gt; Posted by the Smart Campaign

<a href="http://smartcampaign.org/storage/documents/Voices_from_Peru.pdf"><img class="alignright wp-image-20804" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/03/peru-cover.png?w=490" alt="" width="270" height="353" /></a>What do microfinance clients in Peru think about their experiences with financial services? A few weeks ago the Smart Campaign released its <a href="http://smartcampaign.org/tools-a-resources/1089">Client Voices</a> 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, <a href="http://smartcampaign.org/tools-a-resources/1087">Peru</a>.

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.

Heavy debt burdens were found to be a cause for concern. The average household dedicates 26 percent of monthly income to debt payments. In rural areas, this figure rises to 35 percent. Thirty-four percent of clients have made at least one late payment, and 9 percent have defaulted or failed to pay a loan at least once. Despite existing debt, clients report receiving many offers for new credit products, with 10 percent reporting feeling pressured to take out a loan. Aggressive sales tactics contribute to the perception that providers are in some cases trying to take advantage of clients. Clients also have loans from a number of different sources, both informal and formal.

“[The woman from the bank] kept following me everywhere. I was working, and she kept coming to my house offering me a credit card that I didn’t want. She kept asking for my number for activating the credit card. At the end, I was very tempted because my daughter was turning 15, and I wanted to [throw a party].” - Female, Peri-Urban Lima

Some clients view credit lines as a benefit to be shared. A combined 18 percent of clients have either taken out a loan for someone else or used a loan that was in another person’s name. Having a loan in another person’s name is associated with increased late payments, suggesting this behavior is risky for clients and institutions alike. Providers cannot control what clients do with the money they borrow, but it is important that financial institutions and regulators are aware of this behavior, as it may have implications for the credit reporting system. This concerning trend was also prevalent in <a href="http://cfi-blog.org/2016/02/29/client-protection-in-georgia-a-responsible-market-with-opportunities-for-improvement/">Georgia</a>.

“My sister-in-law needed money. I borrowed it for her, but I did not enjoy that money…I gave all the money to my sister-in-law thinking that she would pay back, but she didn’t. One day I went to the bank, and my brother told me that I was bad on their system.” - Female, Urban Juliaca

Centralized credit reporting to credit bureaus creates a strong incentive for repayment, and clients reported only minimal client protection problems in collections. In contrast, client mistreatment during collections is a big issue in <a href="http://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">Benin</a> and <a href="http://cfi-blog.org/2015/11/09/what-do-clients-care-about-results-from-research-in-pakistan/">Pakistan</a>. Before the installation of the credit bureaus in Peru, intimidating collection practices were common, but today they have all but disappeared, thanks partly to reliance on credit reporting, which ensures that clients will repay if they possibly can, in order to avoid a black mark against them with all lenders. However, clients still do not have a good understanding of how the credit bureau works. They don’t seem aware that credit bureaus keep positive information in addition to negative, nor do they seem to understand fully the consequences of having a negative record, or the path to rehabilitation.

Researcher: “For how long [does one’s negative record stay in the credit registries]?

Respondent: “Five years, I think… 10 years… For life… Once you have paid, you must wait a lot of time to be trustworthy again.” - Male, Urban Cajamarca

As we found in all of the studied countries, transparency in Peru could be improved. Although 65 percent of current clients reported that they understood their loan terms well, they also report low levels of understanding in the case of bundled products, especially those that include insurance. And 23 percent of current clients reported that providers did not explain the terms and conditions of the loan before signing. As in the other Client Voices countries, only 25 percent of clients knew the interest rate on their current loans.

“Often you go to them [the staff] and don’t understand anything they say, because of how fast they talk. It is almost as if they have their tongues twisted. You end up not understanding in the end. [Then they say] ‘But ma’am I’ve explained it to you, how come you don’t understand? I’ve been very clear.’” - Female, Peri-Urban Lima

Microfinance clients in Peru have many options for recourse, but, like the clients in other countries in the Client Voices project, the majority don’t know about these channels. Seventy-one percent report that their providers did not inform them where to complain. Among those who wanted to complain, many did not do so, either because they did not know how, or because they thought the response would be slow.

“To whom are you going to complain? There is a book for complaints. You fill yours along with your [national ID card] you sign, but they never call you. They make that book vanish!” - Female, Lima Peri-Urban

For more details and additional findings, read the <a href="http://smartcampaign.org/storage/documents/Voices_from_Peru.pdf">Peru report</a> from the Client Voices project.

Have you read?

<a href="http://cfi-blog.org/2016/02/29/client-protection-in-georgia-a-responsible-market-with-opportunities-for-improvement/">Client Protection in Georgia: A Responsible Market with Opportunities for Improvement</a>

<a href="http://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">What Do Clients Care About? Results from Benin</a>

<a href="http://cfi-blog.org/2015/11/09/what-do-clients-care-about-results-from-research-in-pakistan/">What Do Clients Care About? Results from Research in Pakistan</a>

Progress and Evolving Risks in Peru’s Advanced Consumer Protection Environment

[caption id="attachment_20716" align="alignright" width="275"]<img class="wp-image-20716" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/cs-cv.jpg" alt="Caitlin Sanford presenting at the Client Voices launch event last week." width="275" height="315" /> Caitlin Sanford presenting at the Client Voices launch event last week[/caption]

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.

Mariana’s story highlights three central themes discussed in the report, “My Turn to Speak”, and the four accompanying country-specific reports from Benin, Georgia, Pakistan and Peru. These reports summarize research under the <a href="http://www.smartcampaign.org/client-voice">Client Voices</a> project, which was carried out by Bankable Frontier Associates on behalf of the Smart Campaign. The project began with qualitative work to hear directly from clients about the kinds of problems they experience when using microfinance services. It followed with quantitative work to provide information about the frequency of the kinds of problems clients reported.
<blockquote>“I was blind... I took out the loans blind.” – “Mariana”, microfinance client in Peru</blockquote>
Mariana’s story shows first that even when MFPs are complying with disclosure requirements, clients often do not understand key features of their products, such as late penalties. The Client Voices research found that clients have an inadequate understanding of the basic attributes of their microfinance products, even though they receive some information about their loan products from MFPs. Overall clients report low levels of understanding of their loan terms and conditions, regardless of education level. In Benin, Pakistan, and Peru, 50 percent, 49 percent, and 43 percent of respondents respectively report that they understood loan terms only somewhat or not at all at the time of taking out the loan. Self-reported understanding of loan terms and conditions is highest in Georgia, where 79 percent reported understanding the terms and conditions. Providers should care that clients do not understand their products, because such misunderstandings lead clients to feel cheated and lose trust.

Second, like other respondents in Benin, Pakistan, Peru, and Georgia, Mariana wanted her microfinance bank to treat her with empathy and offer flexibility following a family emergency. A few months before we met her, Mariana’s daughter Yessica received a call from a fraudster saying they had kidnapped her mother. The fake kidnapper knew personal information about Mariana, and since she could not reach her mother, Yessica deposited nearly all of the family’s savings, including the money designated for microfinance repayment, in the scammer’s account. This misfortune set the family back financially and led Mariana to miss two loan payments and incur fees. Mariana expected her lender to be more understanding of her plight. Across all four Client Voices countries clients are demanding more flexible products and requesting compassion in the face of the emergencies and crises that punctuate life at the bottom of the pyramid.

A basic demand from clients is for respectful and humane treatment. In Pakistan and Benin clients complain that MFP staff lack human decency in dealing with clients who have problems paying their loans. In these countries, clients view the public shaming that is used to force repayment extremely unfavorably.

Finally, Mariana struggles to say no to special offers on credit products. In Peru and Georgia, the Client Voices research detected possible aggressive selling practices. In Peru, about half of clients complained about regularly receiving calls and visits from MFPs offering credit, with 10 percent reporting that they have felt pressured by MFPs to take out a loan. Having the ability to identify the “good” clients through the credit reporting system may contribute to aggressive sales tactics. In Georgia, clients report receiving prepaid cards that they can use to activate a new loan. Similarly, in Peru clients spoke about receiving checks in the mail with an automatic approval for a new loan that they could cash at any bank branch, increasing the temptation to take out a loan, despite not needing one at that moment.

Implications 

A few ideas for financial service providers resulting from the Client Voices research include:
<ul>
 	<li>Simple, elegant products that can be described in one or two sentences may more effectively grasp clients’ attention.</li>
 	<li>Providers should present information in innovative ways, as Georgian microfinance banks have tried to do with videos. Other ideas include calendars for literate populations, songs, and simple infographics.</li>
 	<li>Providers should ask clients to describe their understanding of their product, with staff correcting any misunderstandings. Institutions could even apply a short quiz after presenting information to verify that clients have understood key details, such as the term, how often payments should be made, late penalties, or the currency of the loan, with the goal of ensuring understanding.</li>
 	<li>Respectful treatment and empathy are important to clients. Products that build in grace periods for a small number of repayments would satisfy clients’ demand for more flexibility and understanding of emergencies that inevitably come up. Variable repayment amounts could also be helpful for clients with irregular income sources.</li>
</ul>
The Client Voices findings compile hundreds of stories like Mariana's through qualitative and quantitative research. You can learn more about the findings, read the reports, and explore the data from the Client Voices research <a href="http://www.smartcampaign.org/client-voice">here</a>.

Have you read?

<a href="http://cfi-blog.org/2016/02/18/my-turn-to-speak-voices-of-microfinance-clients-in-benin-pakistan-peru-and-georgia/">My Turn to Speak: Voices of Microfinance Clients in Benin, Pakistan, Peru, and Georgia</a>

<a href="http://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">What Do Clients Care About? Results from Benin</a>

<a href="http://cfi-blog.org/2015/11/09/what-do-clients-care-about-results-from-research-in-pakistan/">What Do Clients Care About? Results from Research in Pakistan</a>

Borrowing Blind in Peru: Findings from the Client Voices Project

&gt; Posted by the Smart Campaign

<img class="alignright wp-image-20644" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/cv-cover.png" alt="" width="275" height="356" />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 <a href="http://smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a>) 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.

The research in all four countries found that clients are generally satisfied with their financial institutions. Many respondents described the important and beneficial role microfinance plays in their lives. However, some troubling themes arose that damage client trust, such as inadequate explanations of loan terms, lack of redress mechanisms and opportunities, and disrespectful treatment.

Transparency. As you might have read in our <a href="http://cfi-blog.org/2016/02/12/the-client-voices-project-launches-next-week/">post</a> last week, clients in all four countries have an inadequate understanding of the basic attributes of their microfinance products. In Benin, Pakistan, and Peru, for example, 50 percent, 49 percent, and 43 percent of respondents reported that they understood loan terms only somewhat or not at all at the time of taking the loan. This lack of understanding exists even when institutions follow mandated disclosure rules. Because transparency efforts have focused on complying with disclosure requirements, rather than making sure users understand, information provided tends to be copious, technical, and complicated.

“[Microfinance providers] don´t inform you, they should give you complete information [about the loan charges]… There is an easier way: we should be able to understand, to see what our options are and what is best for us, to find the [product] that suits us best.” -Woman, Juliaca, Peru

Low levels of client understanding of compulsory savings in Benin and loans issued in U.S. dollars in Georgia reveal the high stakes of a failure to communicate basic information to clients. In Benin, 9 percent of current clients and 17 percent of former borrowers reported being unable to withdraw all of their savings. In Georgia, 13 percent of clients were surprised to learn that they had borrowed in U.S. dollars instead of Georgian Lari, a misunderstanding with considerable financial repercussions following a major devaluation.

Respectful treatment. A basic demand from clients is for respectful and humane treatment. Clients view the public shaming that is used in Benin and Pakistan extremely unfavorably. It causes long-lasting social stress for the clients who experience it, and damages the reputation of financial service providers. Poor treatment is most often experienced when consumers are late with loan payments. In Pakistan and Benin for instance, clients told us of the social and psychological pain they suffered from being publicly shamed for late payments. While extreme incidents were rare, the rigidity in loan collections can create a problematic and stressful cycle for clients, even those who pay on time.

“My son was suffering from cancer. He died. They did not leave. They said they just want their money. They insulted me so much. They did not even understand that one brother of five sisters had died — everyone depended on him! They had no sympathies. Then what’s the use of this bank? They take money from us and on the top of that they insult us so badly.” -Male, Karachi, Pakistan

The reports offer broad-reaching recommendations for improving client protection in the areas of transparency and respectful treatment. These range from a radical reframing of transparency and disclosure requirements and practices, to the abolishment of practices that could incentivize collections agents to shame clients. The reports also counsel that financial products should build in grace periods for a small number of repayments, which would satisfy clients’ demand for more flexibility and understanding in the event of emergencies.

Credit bureaus play an increasing and valuable role in protecting clients, helping to leverage their desires for continued access to credit to induce repayment. Credit reporting can reduce the need to rely on social shaming to force clients to repay, which clients find objectionable in Benin and Pakistan. Indeed, problems of shaming clients in collections that we found in Benin and Pakistan are almost entirely absent in Peru and Georgia, countries with strong credit bureaus and regulation.

However, clients lack information about how credit bureaus work, and seem unaware that they can build a positive as well as negative credit history. In Peru and Georgia, for example, clients report confusion about the consequences of having a negative record in the credit bureau, and how to clear one’s name.

Researcher: “What happens if you miss a payment?

Respondent: “They notify you at home. They write in the walls ‘delinquent,’ the bank tells you that you should pay. They put you in INFOCORP. And that is it, you don´t get out of there! Sometimes I would like to know how much time does it takes for you to get out of there, and nobody tells you anything.” -Woman, Urban Juliaca, Peru

Complaints. Most clients don’t know how and where to complain, and given the poor quality of recourse they experience with all kinds of formal institutions (schools, clinics, etc.), they do not think their complaints will be resolved by financial service providers. Across all countries, less than one-fourth of those who reported having a reason to complain actually filed a complaint. The ‘complaints book’ in Peru is one example of a complaints mechanism that clients view as largely symbolic and ineffective.

Where recourse channels exist, clients are not sufficiently informed about them. In Benin, only 14 percent of respondents recall being told by financial institutions who to consult in case a problem arose. Even in Peru and Georgia, with strong microfinance and consumer protection regulatory environments, only 25 percent and 38 percent of clients recall being told where or how to address concerns.

“If you go to complain to [the financial institution] office, or elsewhere, you won’t get another loan.” -Male Respondent, Parakou, Benin

The reports suggest a broad array of actions that actors in the financial inclusion sector should take to address these challenges. Stay tuned in the coming weeks for more posts on the project, including deep-dives into the results from specific countries.

For the report, My Turn to Speak: Voices of Microfinance Clients in Benin, Pakistan, Peru and Georgia, <a href="http://www.smartcampaign.org/my-turn-to-speak">click here</a>, and for the four individual country reports, available in English and in their national language, head to the Client Voices page on the Smart Campaign website: <a href="http://www.smartcampaign.org/client-voice">www.smartcampaign.org/client-voice</a>.

Have you read?

<a href="http://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">What Do Clients Care About? Results from Benin</a>

<a href="http://cfi-blog.org/2015/11/09/what-do-clients-care-about-results-from-research-in-pakistan/">What Do Clients Care About? Results from Research in Pakistan</a>

<a href="http://cfi-blog.org/2016/02/12/the-client-voices-project-launches-next-week/">The Client Voices Project Launches Next Week</a>

My Turn to Speak: Voices of Microfinance Clients in Benin, Pakistan, Peru, and Georgia

<img class="alignright wp-image-20644" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/02/cv-cover.png" alt="" width="275" height="356" />&gt; 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 <a href="http://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">Benin</a> and <a href="http://cfi-blog.org/2015/11/09/what-do-clients-care-about-results-from-research-in-pakistan/">Pakistan</a> 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.

Here are a few soundbites of what clients shared during one-on-one interviews with researchers:
“A ciegas lo hacía… Hacía mis préstamos a ciegas.”
(“I was blind… I took out the loans blind.”)
--Mariana, Lima, Peru
“Quite honestly, I can’t tell you if [my loan] rate is 4 percent or 5 percent. Honestly, I can’t tell you… I can calculate the difference to be able to say that if I borrowed 400,000 CFA (US$827), [I pay] 435,000 CFA ($899) or 425,000 CFA ($878), but I don’t calculate the percentage.”
--Male with a Master’s in law, Cotonou, Benin
Researcher: “So did the MFP explain the interest rate to you?”
Respondent: “They explain, but when they see you are illiterate, they get you to sign papers which mean that you’ll repay more than you should.”
--Male, Parakou, Benin
“They provide different explanations in the beginning, but none of the creditors investigate the depth, because the interest rate is never what they tell you in the beginning. It is always more in the end… some is commissions, some life insurance, etc.”
--Male, Rural Telavi, Georgia
What to do about this? You’ll just have to wait until the release of the reports next week, which include broad-reaching recommendations across stakeholder groups for improving client protection.

As for the launch events, at the World Bank offices in Washington, D.C. on Thursday the Smart Campaign and Bankable Frontier Associates (BFA), which served as research partner on the project, will present key findings and discuss their implications for the industry. BFA will present the research results, with the Smart Campaign to follow with a response and sharing of key takeaways, and afterwards inclusion leaders and representatives from the study’s country markets will discuss how the project should impact industry efforts going forward.

Event speakers will include Caitlin Sanford, Director at BFA, Kim Wilson, Lecturer at the Fletcher School, Elisabeth Rhyne, Managing Director of the Center for Financial Inclusion, Xavier Gine, Lead Economist in the Development Research Group at the World Bank, Isabelle Barrès, Director of the Smart Campaign, and other financial inclusion leaders. For more details and to RSVP, <a href="http://whoozin.com/6JJ-MJA-R6GY">click here</a>.

And if you can’t make the D.C. event, at a later date we’ll host a webcast to discuss the project. Stay tuned for forthcoming details.

Have you read?

<a href="http://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">What Do Clients Care About? Results from Benin</a>

<a href="http://cfi-blog.org/2015/11/09/what-do-clients-care-about-results-from-research-in-pakistan/">What Do Clients Care About? Results from Research in Pakistan</a>

<a href="http://cfi-blog.org/2013/06/14/a-call-for-client-voice-in-the-boardroom/">A Call for Client Voice in the Boardroom</a>

The Client Voices Project Launches Next Week

Sub-Saharan African countries may be leading the world in mobile money and growth in access to accounts, but the state of financial consumer protection in Africa is in urgent need of attention.

In the <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/534-global-microscope">EIU Global Microscope’s</a> 2014 overall rating of the policy environment for financial inclusion, African countries scored very close to the global average (44 SSA vs. 46 Global out of a possible 100). However, these countries were substantially below the average on consumer protection indicators – market conduct (27 SSA vs. 43 Global) and grievance redress (35 SSA vs. 45 Global).

These numbers have human consequences. The Smart Campaign commissioned research in two African countries – Benin and Uganda – which revealed the frequently harsh environment in which microfinance is conducted. In Uganda, <a href="http://smartcampaign.org/tools-a-resources/1030">research on what happens to clients who default</a> showed that, lacking regulatory oversight and the calming influence of credit reference bureaus, lenders in Uganda feel compelled to resort to practices such as rapid confiscation of a borrower’s assets. They are afraid that if they do not act quickly, the borrower may flee. In the <a href="http://cfi-blog.org/2015/10/22/what-do-clients-care-about-results-from-benin/">research on client experiences from Benin</a>, clients reported major gaps in trust and transparency. For example, many reported being surprised by fees that were not explained or expected, having no place to turn when problems arose, or being publicly shamed for late payments.

The research pointed to very low trust on both sides between providers and customers. In fact, in Smart Campaign conversations with African microfinance institutions about consumer protection, one of the most frequently asked questions is, “Who will protect us (the lenders) from them (the borrowers)?”

Perhaps this problematic environment partly explains why of the 43 institutions certified for good client protection practices by the Smart Campaign, only one, <a href="http://smartcampaign.org/certification/certified-organizations#Bayport">Bayport Botswana</a>, is in Africa. Quite a number of African MFIs have expressed interest in Smart Certification, and several have gone through certification missions. However, most scored relatively poorly, with a daunting list of items to be upgraded in order to pass.

In analyzing the experience of certification among African financial institutions, several observations stand out.

Onsite certifiers often find significant gaps between adopted policies and their field implementation. Procedures, staff training and internal controls – the internal elements that move policies into action – are often lacking, reflecting the overall institutional weaknesses of small financial institutions in the region. In many cases, complaints and grievance redress processes are either missing or dormant. These are correctable issues, but they take work. Certified institutions tell the Smart Campaign that one of the benefits from undergoing the certification process is that the certification analysis provides a detailed diagnostic of gaps in their internal processes and the impetus to close them.

More challenging are the difficult issues that may bite into the business models of the MFIs. These cannot be so easily resolved. Among them are issues connected with preventing over-indebtedness and promoting transparency:
<ul>
 	<li>Business models that approve risky loans, such as automatic renewals, top-ups or step increases without repayment capacity review.</li>
 	<li>Staff incentives that do not weight portfolio quality, leading to aggressive sales and risky loans.</li>
 	<li>Non-transparent prices through practices such as bundling of credit life insurance or compulsory savings requirements.</li>
</ul>
In dialogue with the Smart Campaign, institutions assert that they cannot change such practices without losing customers or reducing revenue. This may or may not be true, but it’s hard to blame organizations for reluctance to try out changes that they fear risk significant hits to the business model.

One bright spot is the interest among regulators to improve the consumer protection environment. At the recent Alliance for Financial Inclusion (AFI) meeting in Mozambique, the Consumer Empowerment and Market Conduct Working Group was very active, with strong representation from eastern and southern Africa. However, given the pace of legal and regulatory change, jurisdictional gaps, and deficits in supervisory capacity throughout the region, it will be some time before effective consumer protection regulation is in place. Meanwhile, as credit and other services are added to expanding mobile money rails, new consumer risks are emerging, and African regulators will have even more on their plates.

As a movement grounded in the industry, the Smart Campaign will continue to work with African financial institutions, associations and regulators to highlight the urgency of the need and to strengthen practices.

Have you read?

<a href="http://cfi-blog.org/2015/06/16/top-six-reasons-providers-dont-invest-in-client-protection/">Top Six Reasons Providers Don't Invest in Client Protection</a>

<a href="http://cfi-blog.org/2015/04/02/smart-campaign-announces-enhancements-to-client-protection-certification-program/">Smart Certification Announces Enhancements to Client Protection Certification Program</a>

<a href="http://cfi-blog.org/2015/08/06/three-cheers-for-the-smart-campaigns-certification-summit/">Three Cheers for the Smart Campaign’s Certification Summit</a>

Why Does Consumer Protection Lag in Africa?

&gt; Posted by the Smart Campaign

<a href="http://smartcampaign.org/storage/documents/Client_Voices_Benin_Eng_FINAL.pdf"><img class="alignright wp-image-19767" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/10/benin-cover.png" alt="" width="275" height="355" /></a>What are microfinance clients’ thoughts on fair treatment from financial services providers? The Smart Campaign’s Client Voices project went to the source and asked clients what they think. Clients were consulted on what they believe constitutes good and bad treatment and their experiences with microfinance providers.

The Client Voices project, a qualitative and quantitative investigation, covers four country markets: Benin, Pakistan, Georgia, and Peru. Today we are releasing the results from Benin and Pakistan, and this post focuses on the results from Benin. Stay tuned for another post on Pakistan soon.

Over the past six years, the Smart Campaign has worked extensively with financial institutions, regulators, networks, rating agencies, and other financial inclusion industry actors to strengthen client protection policies and practices. But until now, we had not heard directly from clients. To embed the process in the local scene and ensure it would be actionable, in each country, the Campaign convened a group of researchers and market leaders to provide local insight and guide the research. In March 2014, the Campaign and its research partner <a href="http://bankablefrontier.com/">Bankable Frontier Associates (BFA)</a> began investigative efforts, which included focus groups, in-depth interviews, photo association exercises, and surveys.

So, what did we find in Benin?

Here are a few of the high-level takeaways:
<ul>
	<li>Clients lack basic information about the terms and conditions of their financial products. In Benin, 67 percent of borrowers report that they know how much they will pay in total (principal plus interest), but 33 percent of clients could only report their monthly repayment value. Only 12 percent of clients know their percentage interest rate. And there is much confusion about other terms and conditions, such as the treatment of forced savings (see next point).</li>
	<li>The most common consumer protection problem among MFI clients in Benin involves loss of loan-related savings deposits. As in many markets where clients have limited collateral to guarantee loans, MFIs in Benin commonly require clients to save in advance of borrowing to demonstrate repayment capacity before an initial loan is issued. These compulsory savings are often held as a guarantee in case of default. Our research found that clients in Benin are confused about how much of their savings they can withdraw and when. What’s more, in our quantitative survey, 9 percent of all clients reported that they were unable to withdraw their savings.</li>
	<li>Problematic treatment is concentrated around late repayments. Across all the Beninois clients consulted for the Client Voices project, 13 percent reported experiencing a consumer protection problem. However, the incidence of problems is much higher among clients who report having paid late at least once. Among the 16 percent of clients who have ever been late with a repayment, nearly one in three experienced problematic treatment. It is well known that MFIs resort to negative treatment during collection of past due payments, and this research reveals that negative treatment creates lasting harm for the clients who experience it.</li>
	<li>Clients do not have faith in complaints processes. MFIs in Benin could improve by putting complaints processes in place and informing clients about recourse options. Eighty-six percent of clients report that they were not told where they could complain if they had a problem, and 61 percent report that they did not complain because they are not informed about where they could. Other clients did not complain because they believed it would be ineffective.</li>
	<li>Clients report that engaging with MFIs is bureaucratic and slow, involving what clients call “tracasseries” or bureaucratic red tape. Clients reported that engaging with MFIs in Benin, especially when applying for a loan, involves many trips and dealing with slow bureaucracy. Tracasseries is the word that came up most often during the qualitative research. These hassles are the main reason it is difficult to obtain a loan from an MFI, our quantitative research found. However, it’s important to note that clients reported similar service problems in their dealings with other institutions, like hospitals, schools, and municipal offices.</li>
	<li>Fake MFIs undermine confidence in the sector. A number of clients described being taken in by organizations that pretended to be MFIs, took in compulsory savings, and then disappeared. Below is a photo of an institution by one of the clients who was asked to illustrate client protection problems. Although this photo purports to illustrate the fake MFI phenomenon, it may well be a legitimate institution, which demonstrates the damage to the sector as a whole that occurs when scams and frauds are present.</li>
</ul>
<img class="alignleft wp-image-19780" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/10/fake-mfi.png" alt="" width="325" height="204" />
<blockquote>“With the hope of being able to get a loan, several people saved their money and then one day, we learned that it had just disappeared.The risks are on our side as well as with the MFIs. We run the risk of seeing our money disappear, while the MFIs risk the non-payment of their loans. There are risks because most of us are illiterate and we don’t know who tells the truth.”           --Woman, current client, Benin </blockquote>
It’s our hope that the Client Voices project will not only shine light on microfinance clients’ experiences, concerns, and worries, but also serve as a catalyst for industry actors to improve their client protection ecosystems.

For more details and findings from the Benin research, <a href="http://smartcampaign.org/storage/documents/Client_Voices_Benin_Eng_FINAL.pdf">click here</a>. And for the Client Voices Pakistan report, <a href="http://smartcampaign.org/storage/documents/Client_Voices_Pakistan_FINAL.pdf">click here</a>.

Have you read?

<a href="http://cfi-blog.org/2015/09/30/chime-in-the-smart-campaign-needs-your-views-on-the-new-standards-for-certification-2-0/">Chime in! The Smart Campaign Needs Your Views on the New Standards for Certification 2.0</a>

<a href="http://cfi-blog.org/2015/08/11/isabelle-barres-on-the-challenges-of-promoting-client-protection-the-thorny-issues-of-profits-and-pricing-and-the-smart-campaigns-next-steps/">Isabelle Barres On the Challenges of Promoting Client Protection, the Thorny Issues of  Profits and Pricing, and the Smart Campaign’s Next Steps</a>

<a href="http://cfi-blog.org/2015/08/06/three-cheers-for-the-smart-campaigns-certification-summit/">Three Cheers for the Smart Campaign’s Certification Summit</a>

What Do Clients Care About? Results from Benin

South Africa is a global hub for fintech innovation. Accion supports and advises South African innovators using technology to help entrepreneurs expand their businesses and families protect their homes around the world.

&gt; Posted by Kettianne Cadet, Program Coordinator, CFI

<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2015/07/dscf3959.jpg"><img class="aligncenter wp-image-18781" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/07/dscf3959.jpg" alt="" width="591" height="443" /></a>It’s been a few weeks now since our return from Cape Town and the kick-off seminar of the inaugural <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/abf/">Africa Board Fellowship</a>, a six-month program launched this year to foster peer-to-peer learning and exchange on governance practices among board members and CEOs at financial institutions serving low-income clients in sub-Saharan Africa. The fellowship begins and ends with multi-day in-person seminars and between seminars fellows are connected through a virtual collaboration space that includes discussion forums and dialogues.

In early June, CFI's Investing in Inclusive Finance (<a href="http://www.centerforfinancialinclusion.org/programs-a-projects/investing-in-inclusive-finance">IIF</a>) team and the fellowship’s seasoned faculty, advisors, subject experts, and <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/abf/what-is-abf/2015-fellows">inaugural class</a> of fellows all came together in South Africa for the in-person kick-off seminar. This first seminar was very well received by both fellows and staff and here are some of the reasons I believe it went well.

Participant Diversity: The first cohort of fellows connects 30 board members and CEOs from 13 institutions throughout 11 countries, all with diverse backgrounds and experience. Each participating institution is required to send their CEO along with one or two board members. Having this mix of participants throughout the seminar led to numerous engaged, candid, and rich discussions about roles, board dynamics, and responsibilities. Had we only brought together one fellow from each institution, these conversations would have been far more one dimensional.

Structured Accountability: Having both CEOs and board members present supports accountability within each institution – to participate in each session and to take action afterwards. If only one member from each institution attended, would they be able to transfer their takeaways to their organization or actually implement any of the lessons learned? Additionally, given that the fellows either came from a different geographical location, offered differing products, or perhaps targeted a different niche market, it seemed that everyone got enormous value from their exchanges with one another.

<img class="alignright wp-image-18784" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/07/small-group-discussions.png?w=490" alt="" width="330" height="248" />Participant Shaped Agenda: Before designing the ABF program, we conducted an assessment and collected responses regarding the governance and risk challenges of MFIs in Africa. Out of this research, it was identified that there was a lack of opportunities for exchange between board members outside of their own institution. A program convening board members and CEOs across institutions and regions didn’t exist in Africa. Based on the results from the demand assessment, this seminar was shaped in order to focus on board dynamics, managing sustainable growth, technology trends, and risk management. The ABF program encourages the fellows to teach and advise each other on these topics based on their own experiences. In this regard, the program agenda is very participant-led.

Small-Group Centered Sessions: The seminar included a variety of session types and locations to keep everyone interested and engaged. While there were some plenary forums and a couple of panels, the seminar mostly consisted of small group discussions, case studies, and role plays to work through challenges while replicating actual board situations, stories, and dynamics.

Real-Life Stories: One of the case studies, focused on PADME in Benin, provoked a great deal of conversation and debate on how boards and executives can manage executive growth. During a subsequent panel discussion on the subject, the former PADME Managing Director Rene Azokli opened up to the group to share honest and personal stories and lessons he learned. He warned that “Having a ‘Yes-Yes-Yes board’ will eventually lead you to a ‘Yes-Yes-Yes crisis.’” While this quote spurred many laughs among the fellows, his insights resonated and illustrated a board member’s role and responsibility to avoid nepotism and groupthink.

Though each ABF fellowship is only six months long, it is our hope that the connections forged among fellows create a durable network of leaders throughout sub-Saharan Africa in the financial inclusion sector. It struck me as odd that very few of the fellows knew each other prior to this kick-off seminar. Understandably, the region is vast but a financial inclusion space where few CEOs and board members know each other across countries seems like a big missed opportunity. Introducing and creating a platform to connect fellows from across regions - so now they can turn to one another for support or advice - is a big victory since many of the fellows are clearly struggling with the same challenges and have a lot to share with each other. Working groups are of course nothing new, but, with the ABF program as evidence, there’s a need across industries for more opportunities for stakeholders to forge relationships and learn from one another.

With each day the microfinance markets in sub-Saharan Africa, hosting a collective 6.6 million clients, grow increasingly diverse and competitive. It’s our hope that over the coming months the ABF’s collaborative learning opportunities will strengthen the fellows’ capacities to successfully navigate these markets, leading to good governance practices and bolstering the sustainability of the financial inclusion sector.

Image credits: CFI

Have you read?

<a href="http://cfi-blog.org/2015/05/19/kicking-off-the-africa-board-fellowship-program/">Kicking off the Africa Board Fellowship Program</a>

<a href="http://cfi-blog.org/2015/06/02/waiting-for-the-revolution/">Waiting for the Revolution</a>

<a href="http://cfi-blog.org/2015/05/21/pursuing-better-microfinance-governance-in-south-sudan/">Pursuing Better Microfinance Governance in South Sudan</a>

Lessons Learned from ABF’s Convening of Microfinance Leaders in Cape Town